TRENTON – The Senate Budget and Appropriations Committee today approved a bill sponsored by Senate President Richard J. Codey (D-Essex) that would serve as an economic engine by creating a more business-friendly environment in New Jersey and spurring job growth. Senate Bill S3 is one of 11 bills that are part of the Governor’s economic stimulus plan aimed at responding to the current state and national economic crisis.
The first component of the bill would eliminate the so-called sales “throw out rule” provision, which is part of the formula used to calculate the corporation business tax. The second component of the bill would eliminate the “regular place of business” requirement used to allocate less than 100% of income to New Jersey. Together, these components would create a more competitive environment for New Jersey to attract and retain businesses.
“This bill is greatly needed to substantially ease the tax burden on businesses during a time of national recession and economic uncertainty,” said Sen. Codey. “The elimination of the ‘throw out’ rule will help struggling companies during this crisis and create a more business-friendly environment for New Jersey to compete with the majority of other states.”
In 2002, under the CBT reform law, New Jersey changed the way it calculates taxable corporate income. The new law authorized the state to begin counting income earned in other states that is not subject to taxation in those states. The shorthand term for this method is called the “throw out rule,” or as it’s known in other states as the “throwback rule.” Presently, more than half of U.S. states do not impose some sort of rule that allows the recapture of income earned by corporations in states where no income tax is imposed.
Additionally, under current law, a New Jersey business must have a “regular place of business” in another state to take advantage of the state business tax apportionment formula and apportion less than 100% of its income to New Jersey. A “regular place of business” is a bona fide office, maintained by the taxpayer with at least one employee of the taxpayer. This bill would eliminate the requirement that a regular place of business in another state be maintained in order to reduce apportionment of New Jersey income. As a result, it would allow all taxpayers to use the apportionment formula in the same manner.
“Unfortunately for us, New Jersey has consistently ranked near the bottom in business tax climate surveys. This bill is a critical part of our overall efforts to revitalize our state’s economy,” added Sen. Codey.
The bill now heads to the full Senate for a vote. The proposed tax changes would not occur until July 1, 2010.
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