New Tax Adds to NJ’s Anti-Business Reputation

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By Michele N. Siekerka, NJBIA President and CEO On Jul 29, 2024

Gov. Phil Murphy last month signed a $1 billion corporate tax increase as part of the FY25 budget, and as bad as that is, it could have been worse.

Originally, the governor proposed a permanent 2.5 percentage point increase added to the 9% tax rate on net corporate income over $10 million. NJBIA managed to secure a provision that sunsets this surcharge in five years.

However, given the state’s recent history of delaying the scheduled expiration of corporate tax surcharges, the business community has a right to be wary. (The old 2.5% surcharge that sunset Dec. 31, 2023, was originally scheduled by law to expire in 2021).

The new surcharge, euphemistically called a Corporate Transit Fee, is ostensibly for NJ TRANSIT, but has not been constitutionally dedicated for that purpose. This means once the tax revenue goes into the state’s general fund, there is no guarantee it will be used for mass transit.

Some legislative leaders have even said the quiet part aloud, floating the idea that the $1 billion in tax revenue generated by the surcharge can be skimmed to fund other programs like STAY NJ that is supposed to launch in 2025. Subterfuge seems even more likely when you consider NJ TRANSIT will not face a budget shortfall until July 1, 2025, and the governor and Legislature insisted on making the surcharge retroactive to Jan. 1, 2024. 

A retroactive tax increase is unfair to companies that now must restate their financials for the first two quarters of 2024 to reconcile this new liability. Wall Street does not look favorably on companies that must revise previously issued financial statements, and the downstream impacts affect anyone with a 401(k) or pension invested in these companies.

A 9% corporate business tax, combined with the new 2.5% corporate transit fee, levies an 11.5% tax on net corporate income – the nation’s highest by far. It makes New Jersey uncompetitive, especially when our neighbor, Pennsylvania, is gradually lowering its tax to 4.99%. Economic growth will be stymied here as more large companies turn to other states to make investments in facilities, innovation, and new jobs.

New Jersey’s new corporate tax surcharge, even with a five-year sunset, puts an unfortunate exclamation point on our state’s “unfriendly” business reputation. There were 22 Fortune 500 companies in New Jersey in 2018 before these tax surcharges began. Today, there are 14. How many companies will be left here when the latest corporate surcharge expires in 2029?

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