The greatest danger from the governor’s proposal to raise corporate taxes to the highest in the nation is not necessarily that major legacy companies in New Jersey will leave – though some might. Rather, the bigger threat is that the slow drip of companies already making workforce, research and facility investments in other states will turn into a torrent.
That was the message that a group of New Jersey business leaders delivered at a news conference at NJBIA headquarters in Trenton on Tuesday, which also included regional chambers of commerce that have experienced firsthand the ripple effect on municipal budgets and local economies when a major corporation in their community leaves.
“We certainly do not want to see any company leave,” said NJBIA President & CEO Michele Siekerka. “But I think the bigger threat is the lack of future reinvestment here.”
Companies that have been headquartered in New Jersey a long time are not likely to close their doors immediately, but when that company has its next opportunity to create 100 or 1,000 jobs, or build a new facility, they will look to do it in a more tax-friendly, affordable state, Siekerka said.
“When we have financial institutions here in New Jersey that choose to place 1,000 jobs in Delaware versus New Jersey we should be conscious of that,” Siekerka said.
Gov. Phil Murphy has proposed raising New Jersey’s CBT rate from 9% to 11.5% by imposing a permanent 2.5% surtax on the state’s 600 largest companies retroactive to Jan. 1, 2024.
The new corporate transit fee would be used to help fund NJ TRANSIT, which has already raised fares 15% and will also gain revenue from the recent increase in the gasoline tax – a portion of which is dedicated to funding mass transit.
Lori Roth, co-managing partner of the Prager Metis accounting firm and the vice-chair of NJBIA’s Board of Trustees, noted the retroactivity of the tax increase is extremely problematic for these large companies. The governor had repeatedly promised them the old temporary 2.5% CBT surcharge would be repealed on Jan. 1, 2024, and now is calling for it to be replaced with a permanent retroactive 2.5% surtax of another name.
“These businesses were told time and time again that as of Jan. 1, 2024, the 2.5% surcharge was going away,” Roth said. “Now, should this proposal go through, that tax is back and that is something unplanned and unbudgeted for,” she said.
The impact goes beyond the 600 or so major corporations affected by the tax, Roth pointed out. Shareholders are affected, as well as the retirement plans that smaller businesses have which include investments in these major New Jersey companies.
Siekerka, Roth, and Christina Renna, president & CEO of the Chamber of Commerce of Southern New Jersey, said these large publicly traded companies have asked NJBIA and the New Jersey Business Coalition to make sure the Legislature understands the impact this tax will have on their workforces, and the ability to make future investments in New Jersey.
Roth said large corporations are reluctant to speak directly to the press about these realities because they “don’t want to scare their workforces” and, as publicly traded companies, are bound by Securities and Exchange Commission (SEC) rules about making forward-looking statements.
Therefore, these corporate leaders are relying on NJBIA to persuade the Legislature to reject the governor’s plan to raise the CBT rate to 11.5% because of the impact it will have on their workforces and their ability to make investments in new facilities and innovation.
Renna said the proposed tax was an especially “bitter pillow to swallow” for South Jersey companies.
“These larger businesses are being asked to pay a 2.5% fee on top of the 9% corporate business tax they’re already paying, to pay for a public service that they do not use, and that their employees do not use,” Renna said.
Albert LiCata, the president of Bernards Township Regional Chamber of Commerce, discussed the local impact on municipalities when a major corporation leaves.
Twenty years ago, when he was the mayor of a municipality in Somerset County, a company relocated and left its 1-million-square-foot corporate campus vacant and a huge hole in the municipal budget from the loss of property tax revenue.
“The vacuum that created … 30% to 40% of the hotel, hospitality and restaurant industry bottomed out and some even closed their doors because they couldn’t handle the loss of revenues,” LiCata said. “Transportation businesses, business support, retail all went down 40% to 50% almost immediately with the loss of those great-paying jobs.”
The local real estate market also took a major hit, as thousands of former employees tried to sell their homes, creating high inventory that depressed home prices, he said.
“We saw problems with our residential units being sold, values were going down and people’s nest eggs were being affected,” LiCata said. “If this happens again on a grand scale in New Jersey, and people start to move, then mayors, governing bodies and chambers of commerce better get ready to deal with these things because they are a reality.”
