In testimony before the Assembly Budget Committee on Wednesday, NJBIA commended Gov. Mikie Sherrill’s effort to curb spending in the FY27 state budget and put New Jersey on stronger fiscal footing but expressed concern about how some proposed tax policy changes would impact businesses.
NJBIA Chief Government Affairs Officer Christopher Emigholz told lawmakers NJBIA strongly supported the governor’s emphasis on regulatory reforms, government efficiency, and pro-business investments in her $60.7 billion spending plan for the fiscal year that begins July 1. The business community also appreciates her stated commitment to stop last-minute spending items from being added to the budget by legislators, as typically happens every year, he said.
“We need to take a hard look at the add-ons we make to the budget, and we need to take a hard look at the programs we already have – and Governor Sherrill has started us in that direction,” Emigholz told the committee. Responsible budgeting now should enable New Jersey to meet its statutory obligation to sunset the corporate transit fee (CTF) – which gave New Jersey the nation’s highest corporate business tax (11.5%) – in two years on schedule.
However, Emigholz said NJBIA was also concerned with three of the administration’s proposed revenue raisers for FY27 that will hurt the business community, and he expressed NJBIA’s willingness to work on solutions that could mitigate the impact on New Jersey’s job creators.
ABC Deduction for Pass-through Taxpayers
The proposed elimination of alternative business calculation – commonly known as the ABC deduction – for pass-thru businesses with gross income of $1 million or more is disappointing, Emigholz said. The ABC deduction was part of bipartisan tax reforms enacted 15 years ago to provide equity and parity for pass-through businesses taxpayers (who pay taxes through the owner’s personal income tax return) and corporate business taxpayers.
“A gas station might have a couple employees. They're hitting gross income of a million dollars in a hurry,” Emigholz told the committee. Instead of eliminating the threshold completely for small businesses grossing over $1 million, he urged lawmakers to raise that threshold so that more small businesses would still be able to claim the ABC deduction.
“A threshold of GROSS income over $1 million is just not focused on small businesses but tiny businesses,” Emigholz wrote in his prepared testimony.
Temporary NOL Cap for Corporate Taxpayers
The governor’s FY27 budget plan also proposes a temporary $1 million cap on all net operating loss (NOL) deductions under the corporation business tax from tax year 2026 through tax year 2028, which would increase state revenues by $485 million.
“NOL policies encourage investments in the state, yet a pullback of this policy, even temporarily, shows corporate America that New Jersey is not a safe and predictable business environment,” Emigholz said. NOL is a “tried and true tax policy” that allows businesses to plan for the longer term because they may lose money in their early years before earning money.
Emigholz said that if the Legislature agrees to the administration’s plan to cap the NOL deduction at $1 million for three years, lawmakers should also extend the 20-year carry forward under the NOL law by three years to preserve as much tax planning ability as possible.
“That would ensure that this is just a deferment of future tax savings to which the job creator is entitled,” Emigholz wrote.
Medicaid Tax
Emigholz also took issue with the plan to levy “assessments” on employers whose workers rely on government-funded health benefits either because they are part-time or decline employer-provided insurance because they prefer not to pay the premiums and co-pays. He said the proposal to levy a per employee assessment for all private employers with 50 or more employees on NJ FamilyCare the most “anti-business” proposal in the proposed budget.
“There are many employers that fall into this category, both public and private, that provide excellent health benefits but still have part-time and/or seasonal employees who are ineligible for health benefits or employees who decline health benefits,” Emigholz said. “How can an employer reasonably be penalized for not providing health benefits to an employee that only works a few hours per week or just a few weeks per year?”
If implemented, the policy runs the risk of unintentionally disincentivizing the hiring of low-income or part-time workers because of the threat of a state assessment if the worker opts to use a government-funded health care program, he said.
Pro-business Incentives
Emigholz commended the proposed budget’s numerous pro-business investments, including funding to achieve regulatory reforms that will save businesses time and money. Future spending should be focused on three areas essential for economic growth: workforce development, innovation, and infrastructure, he said.
“Manufacturing investment is critical,” Emigholz said. “While not advocating for new line items, NJBIA requests budget language or a new law to facilitate off-budget spending on the vital NJMEP program that was cut last year yet has a significant return on investment.
“It is also important to restore NJEDA’s wildly successful Manufacturing Voucher Program (MVP) that was also cut last year, and tax incentives to support this program might be appropriate if a line-item is no longer possible.”
To read Emigholz's more detailed written testimony that was submitted to the commitee, go here.
