NJBIA Chief Government Affairs Officer Christopher Emigholz weighed in on state budget issues during Eversheds Sutherland law firm’s latest SALT Shaker Podcast, including the scheduled sunset of the temporary 2.5% Corporation Business Tax surcharge to bring New Jersey’s CBT rate back down to 9%.
“It’s a temporary surtax that is going to go away if the Legislature does nothing,” Emigholz told podcast host Jeremy Gove, an associate at Eversheds Sutherland. “Don’t get me wrong. We’re not going to become a Tax Shangri-La after this happens, but 9% is better than 11.5%.”
New Jersey’s total CBT is currently 11.5% – the highest rate in the nation. Allowing the temporary 2.5% CBT surcharge to expire on Dec. 31 would be “a downpayment on competitiveness,” Emigholz said.
Although the surcharge was extended once before when the pandemic hit, there appears to be little appetite for another extension this time, with Gov. Phil Murphy and some legislators stating that intend to keep the promise to the business community and allow the surtax to sunset as scheduled.
“We need to make sure sure all legislators know it’s the right thing to do,” Emigholz said.
In a wide-ranging discussion on fiscal issues, Emigholz also spoke about the business community’s concerns about the rapid growth of the state budget; the impact of losing an estimated $1 billion in tax revenue each year because thousands of residents working remotely from their New Jersey homes pay income taxes to New York where their employers are located; and the upcoming New Jersey unemployment insurance payroll tax increase that takes effect on July 1.
“The unemployment tax is a sneak tax – it’s the biggest tax that the Legislature is not voting on,” Emigholz said. “It’s just automatically triggered up and down depending on the health of the UI Fund.”
Emigholz said many states used discretionary federal COVID relief funds to shore up their depleted unemployment insurance funds, which took a huge hit when millions of people lost their jobs during the early months of the pandemic.
“The majority of states in the nation took that money from the feds and they replenished their UI fund. New Jersey chose not to,” Emigholz said. The governor and Legislature did work together to “soften the blow” by spreading a $1 billion UI tax increase out over three years, and the third of those three increases goes into effect on July 1.
“This third one, if you look at the tables that calculate how much you pay into the UI Fund, is the most onerous,” Emigholz said. “If you’re an employer with a good experience rating, that never lays anyone off historically, you’re actually going to see your UI taxes double with that third rate increase.”
Although the governor has been resistant to using the federal aid to replenish the UI fund, some action must be taken to help the small New Jersey businesses who cannot afford another steep UI tax hike, Emigholz said.
“We’re hearing from the Legislature that they’re interested in doing something as part of the budget process this spring, to take another swing at the third increase coming up in July, to try to help small businesses,” Emigholz said. “So, we’re hopeful that something happens. This is a tax increase that is only happening because of the pandemic and New Jersey did have some of the most severe restrictions on businesses operating and opening than almost any state in the nation.”
Go here to listen to the entire April 6 podcast.