To: Members of the Mercer Regional Chamber of Commerce

From: Robert D. Prunetti, President & CEO

Date: January 31, 2011
Re: Legislative Updates



We and other Chambers strongly endorse two tax policy initiatives that will help both our large multistate and our smaller member companies:

• 
  Enact a single sales factor allocation formula for New Jersey businesses. New Jersey currently determines the portion of a company’s income that is subject to New Jersey tax based on the company’s property, payroll and sales in New Jersey. The presence of property and payroll in the allocation factor creates a disincentive for capital investment and job creation in New Jersey.
  
  
  In order to encourage businesses to increase their in state capital and job creation, there is a developing trend among the states to eliminate property and payroll from the allocation factor and to assign a 100 percent weighting to the sales factor. More than half of the states have either adopted single sales factor or are phasing it in, including New York, Pennsylvania, Connecticut, Massachusetts and Maryland. Enacting a single sales factor formula will significantly improve our corporate business tax and enhance our state’s competitiveness. There is currently legislation on the Governor’s desk to provide for a single sales factor formula. This legislation includes a three year phase in period in order to minimize the impact on the state budget.

• 
  Enact policies that provide small businesses whose business owners’ pay their taxes through the personal income tax return with the same benefits as taxpayers who pay the Corporate Business Tax (CBT). There is pending legislation that provides for the consolidation of certain business-related categories of income defined under the New Jersey gross income tax. This consolidation allows taxpayers who generate income from different types of businesses to offset gains from one type of business with losses from another. This legislation also provides for the carryforward of net losses for up to twenty years under the New Jersey gross income tax.                                                 
  Unlike the federal government and the majority of states, New Jersey imposes tax on
  “gross income” with sixteen separately defined categories of income. Under the pending legislation, four of these sixteen categories are consolidated into a single category of business-related income. Since the adoption of the gross income tax in 1976 there have been many new forms of structuring business entities, and more taxpayers have invested in several diverse types of entities. Creating a consolidated category of business-related income modernizes New Jersey’s income tax and provides increased flexibility to small businesses whose business owners’ pay their taxes through the personal income tax return (S-Corps, LLC’s, LLP’s, sole proprietorships or partnerships).
  
  
  The carryforward provision would provide this same category of small businesses whose owners’ pay through the personal income tax with the same benefits as larger businesses who pay the Corporate Business Tax (CBT). This provision will help small businesses to weather economic downturns by allowing more time for revenues to catch up with initial investment and expenses.
  
  These bills may not be signed into law by Governor Christie in their current form. We
  support the concepts of these bills- tax relief and reform for both businesses that pay the CBT and those businesses whose owners pay through their personal income tax return.
  
  We are collaborating with other Chambers to endorse these concepts as priority initiatives, representatives of the group will provide the Governor’s office with our recommended priorities and will advocate for these initiatives.
  
  
  
  
  Contribution by Michael Egenton, Senior Vice President and Mary Ellen Peppard, Manager Government Relations, New Jersey Chamber of Commerce