Leveling the Playing Field: Why New Jersey Needs a Simplified and Fair Corporate Business Tax System

As someone deeply invested in New Jersey's future, especially in healthcare, creating employment, and state policy, I believe in our shared vision for a fair and thriving community. New Jersey's Corporation Business Tax (CBT) system has undergone numerous revisions over the years, with the most recent changes enacted through Assembly Bill 5323 on July 3, 2023. Despite these changes, there is a growing call for a more simplified and equitable tax system that eliminates loopholes and credits, creating a fair playing field for all businesses.

Current State of New Jersey's Corporation Business Tax

Recent Reforms

The latest reforms under Assembly Bill 5323 introduced several significant changes to the CBT laws:

Economic Nexus Standard: A corporation is deemed to have substantial nexus with New Jersey if it derives receipts exceeding $100,000 from in-state sources or has 200 or more separate transactions delivered to New Jersey customers during the taxable year.

Combined Reporting: The bill further refines the state's combined reporting provisions, including changes to the composition of the unitary group and the treatment of net deferred tax liabilities.

Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII): The legislation alters the tax treatment of GILTI and FDII, decoupling from certain federal treatments and allowing for immediate expensing of research and experimental expenditures under IRC Section 174.Bright-Line Economic Nexus: This standard clarifies which entities are subject to CBT, potentially increasing the number of entities liable for tax.

Complexity and Loopholes

Despite these changes, the CBT system remains complex. The numerous amendments and technical corrections over the years have created a labyrinth of regulations that can be difficult for businesses to navigate. For instance, the treatment of net operating losses (NOLs), the inclusion of combined group members, and the various deductions and exclusions create opportunities for tax planning that can lead to inequities.

The Case for a Simpler, Fairer System

Elimination of Loopholes and Credits

A simplified tax system would involve the elimination of loopholes and credits that currently allow some businesses to reduce their tax liabilities significantly. These provisions often benefit larger corporations with the resources to exploit them, putting smaller businesses at a disadvantage. By removing these loopholes, New Jersey could ensure a more level playing field for all businesses, regardless of size.

Uniform Tax Rates

Implementing a uniform tax rate for all businesses could further simplify the system. Currently, New Jersey's CBT rates vary based on the level of entire net income, with different rates for different income brackets.
A single tax rate would eliminate the need for complex calculations and reduce administrative burdens for both businesses and the state.

Transparency and Predictability

A simpler tax system would also enhance transparency and predictability. Businesses would be better able to forecast their tax liabilities, aiding in financial planning and investment decisions. This predictability could make New Jersey a more attractive location for businesses, potentially boosting economic growth.

Revenue Neutrality

While simplifying the tax system, it is crucial to ensure that the changes are revenue-neutral. The goal should be to maintain the state's revenue levels while distributing the tax burden more equitably. This balance can be achieved by broadening the tax base and ensuring that all businesses contribute their fair share.

Conclusion

Reforming New Jersey's Corporation Business Tax to create a simpler, loophole-free system would benefit the business community and the state. By eliminating credits and loopholes, implementing uniform tax rates, and enhancing transparency, New Jersey can create a fairer tax environment that promotes economic growth and equity. The recent changes under Assembly Bill 5323 are a step in the right direction, but further reforms are needed to achieve a truly simplified and fair tax system.

In my next article and over the coming months, I am excited to engage with business leaders and policymakers who have successfully navigated and simplified corporate tax systems across the United States. Their documented successes serve as a testament to the viability of a fair and transparent tax structure. By gathering ideas and learning from their experiences, I will draft a comprehensive plan to reform New Jersey’s Corporation Business Tax system, making it simpler and more equitable for all businesses.

I invite you to follow our journey and stay informed about our progress. Please register for our newsletter to receive updates and insights as we work together to make New Jersey a leader in creating a fair and thriving business environment.