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New Jersey: Potential “Millionaire” Tax and Moratorium on Corporate Tax Incentives Proposed


June 2015

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Synopsis

On May 7, 2015, New Jersey senators proposed a moratorium on future corporate tax incentives until an assessment of the program’s current effectiveness is completed. In addition, legislation imposing a “millionaire” tax to help alleviate the state’s public pension obligation was introduced.

Issue

Corporate Tax Subsidy Moratorium – Senator Raymond Lesniak (D) proposed a bill that would reform the state’s business tax incentive programs. These programs have provided $5.2 billion in tax breaks since 2010. However, there is concern that the amount of tax dollars invested in the programs is significantly exceeding returns on the state’s investment in the form of attracting and retaining businesses, job growth, and ultimately tax revenue.

On May 5, New Jersey Policy Perspective issued a report analyzing the current state tax subsidy protocols and determined that the state is at risk for losing millions of dollars in the investments. Under the current regime, the report stated that companies are required to remain in New Jersey for a minimum of 15 years although the benefits of issuing tax subsidies benefits are currently measured to last over a 35 year period. The report found that, if companies remained in the state for the 15 contractually-mandated years instead of 35 years, the economic benefits received by the state could be millions less than those received as a subsidy by businesses. It should be noted that on May 11, 2015, New Jersey Governor Chris Christie (R) vetoed a separate bill (A 939) that would have required more oversight of these types of incentives including whether tax incentives have reached their goals.

Millionaire Tax – Senate President Stephen Sweeney (D) introduced legislation that would raise taxes on the state’s wealthiest taxpayers. Under this new proposal, the tax rate on income over $1 million would increase from 8.97 percent to 10.75 percent over four years. The millionaire tax would impact 17,000 New Jersey residents, and is expected to raise $675 million in revenue in fiscal 2016. The revenue raised would be used to pay the state’s unfunded public pension obligation that in 2014 was estimated to be $83 billion. In 2010, 2011, 2012 and 2014, Governor Christie vetoed previous attempts to impose a millionaire tax. He has vowed to reject this latest effort.

Contact

Andrew Ebneter, a CohnReznick director, at andrew.ebneter@cohnreznick.com or 862-245-5028.

To learn more about CohnReznick’s State and Local Tax Practice, please visit our webpage.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
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