GREENWALD, MILAM & SPENCER CORPORATE TAX REFORM ADVANCED BY ASSEMBLY COMMITTEE

(TRENTON) – Corporate tax reform legislation sponsored by Assembly Budget Chairman Louis D. Greenwald, Assemblyman Matthew W. Milam and Assemblywoman L. Grace Spencer to create jobs and economic growth was released Tuesday by an Assembly panel.
The bill (A-1676) modifies the business tax formula used to determine the corporate income subject to tax by the state from a three-factor formula to a single sales factor formula.
It was released unanimously by the Assembly Budget Committee chaired by Greenwald as part of the Legislature’s “Back to Work NJ’ job creation and economic development initiative.
“This change will, quite simply, give New Jersey businesses significant tax relief as they continue to work through the recession,” said Greenwald (D-Camden). “Ensuring our businesses have the flexibility they need to create and retain jobs and reinvigorate our economy is a priority. This will make help make that goal a reality.”
“Anything we can to give businesses the ability to hire, expand and invest in New Jersey is a smart approach,” said Milam (D-Atlantic/Cape May/Cumberland). “We need to make certain New Jersey businesses have the confidence needed to spark economic development. This change will help provide that confidence at a time when businesses need it most.”
“Businesses need to know that operating in New Jersey will give them the competitive edge they need to grow and prosper,” said Spencer (D-Essex). “New Jersey’s workers also need that confidence. With this bill, we will be giving the businesses that employ hard-working New Jerseyans a greater chance to succeed.”
Each state that imposes a corporate income tax determines the portion of the total income of a corporation subject to the tax by using formulas that measure specific activities of the corporation assigned to that state.
The portion of the corporate income subject to tax by a state is determined by the proportion of activity in the state to the total activity of the corporation.
The New Jersey corporation business tax employs a three-fraction formula that apportions a share of a corporation’s income to this state based on a weighted average of the following fractions a corporation’s property in this state over the corporation’s total property, a corporation’s sales in this state over the corporation’s total sales and the corporation’s payroll in this state over the corporation’s total payroll.
Currently, the sales fraction accounts for 50 percent of the apportionment and the property and payroll fractions each account for 25 percent of the apportionment.
This bill replaces the three-factor formula with a single sales factor formula.
The change is phased-in over three years, beginning after July 1, 2010.
For that year, the sales fraction will account for 70 percent of the apportionment and the property and payroll fractions each will account for 15 percent of the apportionment.
After July 1, 2011, the sales fraction will increase to 90 percent and the weights of property and payroll will each account for 5 percent of the apportionment.
After July 1, 2012, the sales fraction will account for 100 percent of the apportionment.
Also, certain industries have specialized formulas adopted by regulation which more appropriately measure taxpayers’ relative activity in New Jersey than the standard formula. Currently, the sales fraction for airlines is determined based on the ratio of departures from New Jersey to total departures, weighted as to cost and value of aircraft by type where weighting would give a fairer, more reasonable business allocation factor.
This bill codifies a modified sales fraction formula for airlines. Under its provisions, the current sales fraction based on the ratio of departures is replaced by a sales fraction determined as the ratio of an airline’s revenue miles in this state divided by an airline’s total revenue miles.