Former State Treasurer and tax expert Andrew Sidamon-Eristoff recently penned an op-ed for NJ Spotlight News that shows exactly why the governor’s proposed $1 billion-plus “corporate transit fee” tax on corporations will drive away large companies considering locating in New Jersey.
Written in the form of a memo to a fictional company – described as a subsidiary of a diversified multinational conglomerate considering moving its headquarters to New Jersey – Sidamon-Eristoff role-plays as a consultant tasked with evaluating the tax implications of the move. Other locations that “Investco” is mulling are in North Carolina, Viriginia and New York.
The memo points out a 2.5% Corporate Transit Fee on top of New Jersey’s existing 9% Corporation Business Tax would make the Garden’s State’s corporate tax rate 11.5% – by far the highest in the nation.
“Setting aside non-tax business considerations, we cannot recommend that Investco place its North American headquarters in New Jersey,” the memo states.
The memo further explains:
“Other states offer comparable logistical, geographic, workforce talent and other advantages at considerably lower corporate tax cost. For example, North Carolina imposes a 2.5% flat tax, Virginia’s top rate is 6%, and New York state’s top rate is 7.25%. The surcharge would accentuate an already significant tax differential between New Jersey and its competitors.”
The memo notes New Jersey uses single-factor sales apportionment, meaning that if “Investco” had $56.1 million in income apportioned to New Jersey it would owe $5 million in corporate taxes at the current 9% CBT rate. If the 2.5% corporate transit fee is enacted on top of the 9% tax, the tax bill would rise another $1.4 million.
The consultant also notes that New Jersey has a “poor history of following through on its policy commitments to its corporate taxpayer community, which as you appreciate places a high value on stability and certainty especially when making long-term investment.”
The memo says New Jersey is about to extend a temporary 2.5% surcharge on the business community for the second time and make the 11.5% top rate permanent. By comparison Virginia’s 6% statewide corporate tax has been stable for a half century.
The consultant concludes:
“Tax incentives for development and job creation/retention might impact the analysis at the margin, but New Jersey’s primary incentives are temporary, limited in scope and subject to significant conditions. In any event, we can reasonably anticipate that rival states will take pains to remain competitive with New Jersey on incentives.”
To read the entire op-ed, go to NJ Spotlight’s website here.
