NJ Chamber's State Budget Report
Thursday, 24 February 2011
STATE BUDGET REPORT
February 24, 2011
Chamber Applauds Gov. Christie's Proposed Budget
Gov. Chris Christie's proposed $29.4 billion state budget for fiscal year 2012 that starts July 1 calls for spending 2.6 percent less than the previous year and reduces reliance on non-recurring revenue to 2 percent, from 6 percent. These are steps the New Jersey Chamber of Commerce applauds.
Further, the proposed budget allocates $200 million in pro-growth tax reforms, many of which have long been championed by the New Jersey Chamber of Commerce and the Chamber Tax Council. They include instituting a single sales factor formula for determining Corporate Business Tax liability; providing a net operating loss carryforward for small businesses; reducing the minimum tax on S-corporations; and exempting from sales tax the installation and support of electronically delivered software for business use.
These reforms will enhance New Jersey's business tax climate and make this state more competitive. Overall, the spending plan continues the governor's agenda of restoring fiscal stability, and proposes significant reforms to the state's tax, education, and public pension and benefits systems.
Below are details of the proposed budget:
- A single sales factor allocation formula for New Jersey businesses would be phased in over three years. New Jersey currently determines the portion of a company's income that is subject to state Corporate Business Tax by considering the company's property, payroll and sales in New Jersey. The presence of property and payroll as factors discourages capital investment and job creation in New Jersey. This proposal would eliminate property and payroll as factors and base the Corporate Business Tax solely on sales.
- Small businesses whose business owners pay their taxes through the personal income tax (S-Corps, LLC's, LLP's, sole proprietorships or partnerships) are provided the same benefits as taxpayers who pay the Corporate Business Tax. The proposed budget allows these businesses to carryforward net operating losses for 20 years. This carryforward provision is phased in over a five year period. The plan also phases in a change which allows businesses to offset losses from one category of income to another.
- The minimum tax to be paid by S-corporations is reduced by 25 percent. This change will provide relief because these businesses pay both the minimum tax and the income tax.
- The cost of installation and support of electronically delivered business software would be exempted from sales tax. Current law already exempts from sales tax the purchase of electronically delivered software for business use.
- The estate tax exemption is increased from $675,000 to $1 million. This change will increase retention and attraction of small and family owned businesses.
- Funding for the Technology Business Tax Certificate Transfer Program is increased from $30 million to $60 million. This program enables unprofitable technology and biotechnology companies to sell their unused net operating losses and research and development credits.
- The Research and Development credit to offset corporate tax liability is increased from 50 percent to 100 percent.
- The Transitional Energy Facility Assessment (TEFA) is phased out over three years beginning in 2012. This "temporary" assessment was scheduled to end in 2002 but had been extended every year.
- The Business Employment Incentive Program (BEIP), which provides grants for new job creation, is funded at last year's level of $175 million.
- The plan includes $10 million for the Brownfield Site Reimbursement Fund, which reimburses developers for redeveloping abandoned properties.
- Businesses in Urban Enterprise Zones will continue to receive the benefit of collecting only half the state sales tax - 3.5 percent - from customers, but the towns with UEZs will have to return the funds they collect to the state instead of keeping the money for use within their zones.
- The Homestead Benefit credit (formerly homestead rebate) is doubled. Senior and disabled homeowners with income up to $150,000 will receive benefits averaging $540, and non-senior homeowners with income up to $75,000 will receive benefits averaging $404.
- Public employees will pay 30 percent of their health benefits costs by 2014.
- A $500 million payment to the pension fund will be made if the Legislature passes comprehensive pension and benefits reform.
- Municipal aid is funded at last year's level of $1.4 billion. Transitional aid to localities is reduced by 6 percent.
- School aid is increased by $250 million. Funding for higher education is preserved at last year's level and funding for student financial aid is increased by $20 million.
- Funding for hospitals is increased from $907 million to $927 million.
- The proposal includes funding for the Transportation Capital Plan, which provides $1.6 billion per year for capital projects, including $200 million per year for local projects.
The Legislature must pass and the governor must sign a budget bill by July 1. The members of the Legislature and the governor will spend the coming months crafting a final budget bill.
Chamber staff will continue to monitor the budget process and advocate for a budget that will support New Jersey's employers and strengthen the business climate.
The New Jersey Chamber of Commerce is a business advocacy organization that represents its members on a wide range of business and education issues. Based in Trenton, the organization also links the state's local and regional chambers on issues of importance through its grassroots legislative network. For more information, visit www.njchamber.com.