General Assembly Passes Legislation to Improve State’s Corporate Tax Climate; Help Keep Business in New Jersey, 10/27/2008

Bill that would allow companies to carry net-operating losses forward for twenty years headed to Governor’s desk; Elimination of “throw-out” rule goes to the Senate

Paramus, New Jersey – The Commerce and Industry Association of New Jersey (CIANJ) today applauded the General Assembly for unanimously passing two bills that improve New Jersey’s corporate tax climate. One would allow companies to carry their net-operating losses forward for twenty years, while the other would eliminate the so-called “throw-out” rule that unfairly taxes NJ companies for certain out-of-state sales.

Often, start-up companies operate at a loss in their first few years. The federal government and majority of states allow companies to count those losses against future earnings for twenty tax years. New Jersey caps the carry-forward period at seven years. This puts NJ companies at a disadvantage, damages the state’s business-friendly appearance and has helped contribute to a Tax Foundation finding that the state’s tax code is the worst in the nation. A-3124/S-2130 would bring New Jersey to a national standard, and will now move to the Governor’s desk.

“This bill offers the State the opportunity to show it is willing to fight to keep business here during tough economic times,” said CIANJ President John Galandak. “It won’t result in any lost tax revenue for ten years, but can help encourage entrepreneurs to start companies and start employing more New Jerseyans. The legislature should be commended for recognizing this in such a strong bi-partisan way.”

The Assembly also passed A-2722, which would rid the State of the “throw-out” rule. Like most states, NJ determines its tax portion of a multi-state company’s profits by a matrix that includes calculating what percentage of the firm’s sales took place in New Jersey. However, some states either do not tax corporate income or do not tax specific business activities. These are referred to as “nowhere sales”. New Jersey currently takes these nowhere sales and partially applies its tax to them in a way that is more punishing than the overwhelming majority of states. Eliminating the rule would help keep New Jersey companies competitive.

“New Jersey’s tax structure has hamstrung the state’s ability to attract more companies and grow its job base. In 2007, our private-sector job growth was 41st in the country, and it is undeniable that the near-stagnant growth is partially related to the state’s punishing corporate tax policy. The Assembly’s action today is admirable and we are hopeful it will be repeated by the Senate and the Governor.” Galandak concluded.

Note: to watch the video of CIANJ making the case for corporate tax reform, click here. or watch the video below