Are there threatening clouds in front of the sunset of the Corporation Business Tax surcharge?
While Gov. Phil Murphy has been strongly supportive of allowing the temporary 2.5% CBT surcharge to expire as scheduled at the end of this year, Democratic legislative leaders seemed lukewarm to the idea when asked about it at the New Jersey State Chamber business summit this week.
NJBIA Chief Government Affairs Officer Christopher Emigholz said that while the sunset of the CBT surcharge was not a given, he was still optimistic that it would make it to the final budget.
“There’s understandably a reluctance among leadership to speak directly to parts of the budget prior to budget committee meetings,” Emigholz said. “There is also opposition to the sunset from progressive groups, as misplaced as that might be.
“But as we have said, and as the governor has said, it is the right thing to do. And you can make a strong case that the CBT rate should go down even more over time given what is happening in other states. So, I’m hopeful the sunset will be there in the final FY24 budget.”
When asked if they supported the scheduled sunsetting of the additional 2.5% tax at the State Chamber event, Senate President Nick Scutari and Assembly Speaker Craig Coughlin did not provide a definitive response.
“We’re going to look at [it] and work through the budget process like every other application,” Scutari said. “Certainly, there’s an appetite for tax-cutting and things of that nature. So, I certainly believe it’s got more than a fair chance of remaining in its exact language. But there are certainly things we can nip around the edges.”
“It’s premature to talk about any specific element of the budget,” Coughlin added. “Let’s give the budget committee the respect and the time that they deserve before we commit to any final decision.”
Part of the conversation likely to be had regarding the CBT surcharge sunset is how much revenues will be reduced without it. In the governor’s budget-in-brief, the administration forecasts a revenue reduction of about $322.5 million for FY24, but $1 billion in FY25.
Emigholz said the $1 billion in lost revenue predicted through FY25 may be exaggerated.
“It is hard to see how a half-year reduction of the corporate tax rate to a full-year reduction would more than triple the revenue impact,” Emigholz said.
“The focus should be on the FY24 impact of the surtax sunset, and it is hard to think that a $300 million loss in corporate tax revenues is not affordable amidst a $10 billion surplus and the stimulative impacts on other state revenues that will come from it.”
“We’re going to go through the budget process, listen to the proposals of the pluses and minuses, run the numbers to see exactly how much of a hole is going to be blown into next year’s budget,” Scutari said.
“Because make no mistake — there will be a hole of revenue next year, where it could be spent on other important programs. So, it’s a balancing approach.”
HOPE FOR UI RELIEF?
Despite the CBT curiosity, both Coughlin and Scutari did say that it was worth discussing having small businesses getting some relief for the $1 billion unemployment insurance tax hit they are paying to replenish the state’s UI fund.
The Murphy administration has avoided using federal COVID relief dollars, as most states have already done to help their UI funds, to offset any part of that $1 billion increase in New Jersey. New Jersey businesses are scheduled to be hit with another $300 million-plus tax increase on July 1 if no relief is given, while the budget maintains a $10 billion surplus.
“I think it’s certainly worthy of consideration,” Coughlin said. “This is one of the decisions we’ll have to make as we go through the budget process.”
“I think it’s certainly a place where (UI relief) can be much more targeted to small businesses,” Scutari added. “I think we’ll see some traction on that.”