In a recent op-ed in NJ Spotlight News, former state Treasurer Andrew Sidamon-Eristoff warned that the governor’s proposed $60.7 billion state budget signals a retreat from the business tax reforms of 2011 that were intended to make New Jersey more competitive with other states.
One of those 2011 business reforms was the enactment of an “alternative business calculation” – an adjustment that allows taxpayers who generate income from different business entities to offset a portion of gains from one type of business with the losses from another.
In her fiscal 27 state budget, Gov. Mikie Sherrill has proposed major changes to the alternative business calculation, which she described as “closing corporate tax loopholes.” However, Sidamon-Eristoff, who was state treasurer under the Christie administration when the reforms were enacted 15 years ago, took issue with that characterization.
“The alternative deduction is not a corporate tax loophole,” he wrote. “Aside from the obvious fact that the intent of the proposed change is to raise more revenue — estimated at $120 million for the fiscal year that starts July 1 — the governor’s characterization of the deduction’s original purpose is not quite true.”
The goal of the 2011 business tax reforms, which were enacted by a Republican governor and Democrat-controlled Legislature, was to make New Jersey more competitive by bringing its tax policy into closer alignment with other states in the region, he said.
Prior to the 2011 reforms, New Jersey’s gross income tax prevented business owners who generate income from different types of business entities or activities from offsetting gains with the losses from their other business entities. This was a significant departure from the federal income tax and the tax policies of other states.
“Business interests had long cited this restriction as both highly unusual and a significant disincentive to creating and growing new businesses in New Jersey,” Sidamon-Eristoff said.
The 2011 law addressed this by permitting taxpayers to carry forward business-related losses for up to 20 taxable years. It caps the maximum savings at 50% of whatever the savings would be from unlimited netting between net categories and the net loss carryforward.
The governor's budget seeks to reduce the savings cap from 50% to 25% for businesses with gross income between $500,000 and $1 million and eliminate the deduction entirely for businesses with gross income over $1 million.
“In the real world, businesses with $500,000 or even $1 million in gross revenue are hardly large businesses,” Sidamon-Eristoff said. “By the administration’s numbers, the proposed change would cost approximately 10,000 New Jersey taxpayers an average of $12,000.”
To read the entire op-ed in NJ Spotlight News, go here.
