Will NJ Businesses Get New Tax Cuts?

Two bills are currently going through the NJ State Senate that could halt the increase in the unemployment tax (UI) and reduce property taxes for businesses. S733 would combat the UI increase, and S330 would provide businesses some relief that homeowners recently received.

As we discussed in a post this past December, New Jersey increased the business UI tax rates to replenish the depleted unemployment trust fund. More accurately, the normal funding mechanisms for the fund went into effect during a period when businesses were still struggling to deal with the financial impact of COVID.

To his credit, Governor Murphy has signed a bill to spread this increase out over several years, but the increased cost to businesses is still concerning to the business community. It should be a concern to the state Department of the Treasury too, as 53% of CPAs surveyed admitted advising business owners to leave the Garden State, which could substantially reduce the revenue coming into the state.

If you’re unfamiliar with increased business UI taxes, check out our article from December, as it lays out all the information you’ll need to understand what changes are being proposed.

With all that in mind, let’s look at the two bills that will be up for a vote and could potentially bring some tax relief to NJ businesses.

What is New Jersey Senate Bill S733?

Bill S733 would limit the UI tax increase on NJ business owners in 2024. Business contributions would be based on column D of the contribution table instead of column E as planned. The resulting revenue shortfall would be paid from federal assistance given to the state.

In layman’s terms, the rate that businesses owners were likely to be taxed in 2024 will now be slightly less. If you want to check out the specifics, they’re all available for your curiosity right here, compliments of the State of New Jersey.

The federal government has traditionally covered the unemployment trust fund shortfalls, and the state then owes the feds. Under this bill, the state will pay a portion of that debt by using money that the federal government itself provided. Forget borrowing from Peter to pay Paul, Peter has given the state money and is willing to take that same money back as payment for other debts. Sometimes our system of government is a bit of a head-scratcher, but this moment seems like an opportunity where state businesses, the state, and the feds can all win.

Beyond the proposal itself, this bill has bipartisan support, something noteworthy. Four Democrats, three Republicans, and an endorsement from the State Senate Labor Committee give this legislation life. It appears this bill has a good chance to pass and would be a difficult veto for Gov. Murphy to return to the Senate.

This may not seem like a tremendous boon to business owners that need tax relief now, but it’s better than nothing. The amount of money drained from the state’s unemployment fund was massive, sudden, and inarguably needs to be replenished. The chart below allows you to visualize how rapid and intense this economic anomaly was.

What is New Jersey Senate Bill S330?

Bill S330 isn’t a radical new proposal but simply a long-overdue correction of redirected funds. Money that the state collected under the Energy Tax Receipts Property Tax Relief Act was intended to be distributed in part to local municipalities to offset their property tax costs.

Yet, in 2008, when the great recession hit, Trenton diverted the money from local municipalities to itself and has since failed to return the normal flow of funds as they were intended to be distributed in the original 1997 law.

This bill was specifically noted and supported by AARP in its 2022 New Jersey advocacy priorities.

Essentially, the state wrote a law in 1997 that established a fund financed by energy and utility taxes. The money would be distributed to local governments to be used for property tax relief for businesses and individuals in their communities. When the state ran into financial trouble in ‘08, they “borrowed” the revenue stream for a little bit and simply forgot to give it back! This bill would correct that, with full corrections being completed over five years.

The Takeaway

New Jersey Business Magazine has come out in support of both plans. The publication stated that if there’s ever been a time that businesses need tax relief, it’s at a moment when the state is relying on business owners to maintain and create jobs as the relief grants, packages, and programs fade into recent memory. Being a realist for a moment, I’d argue that neither of these bills will radically change the fortunes of business owners; those experiencing challenges are not suddenly going to see the skies part and nothing but sunny days ahead. That being said, both bills are a step towards correcting fiscal issues in our state. Should that keep up, bill after bill, season after season, New Jersey might just become a place that attracts business instead of scaring it away.