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Star-Ledger Staff
The state's 2-year-old corporate tax overhaul should be changed to fully restore tax breaks from past losses, and dozens of other provisions should be tweaked in the name of tax fairness, a panel said.
But the Corporation Business Tax Study Commission this week stopped short of calling for repeal of the Alternative Minimum Assessment, a section of the 2002 tax law that requires firms to pay state corporate taxes even if they lost money.
The commission considered recommending repeal of the assessment provision, but "that would have created a $100 million hole in this year's state budget," said David Shipley, a member of the commission and an attorney with the Philadelphia office of the Newark law firm McCarter & English. The commission was appointed by Gov. James E. McGreevey and the state Legislature to assess the impact of the tax law and recommend changes.
When the Business Tax Reform Act was signed into law by McGreevey in July 2002, it provided for the assessment provision to end July 1, 2006; the commission recommended sticking with that timetable.
McGreevey pushed through the tax changes to cure what he called an alarming, long-term slide in business tax collection. The tax changes targeted multistate businesses that use loopholes to avoid state taxes, and also went after nonresident partners of New Jersey firms. Business taxes rose to $2.6 billion for fiscal 2003, compared with a $1.8 billion projection.
The tax bill suspended for two years the use of net operating losses to offset taxes on future profits. The loss provisions were to be fully restored in the 2005 budget, but instead are being restored by 50 percent in the budget fiscal year that starts today.
The commission advocates rolling back the loss provisions and restoring it this year, a change that would require legislation.
Commission Chairman James Evans, an attorney with Kulzer & DiPadova in Haddonfield, said the loss-provision suspension hurt firms that sold assets and were denied the tax benefits of prior years' losses.
"We recommend some type of relief for those businesses in particular, to allow them to reach back and get the benefits of the (loss provisions) that would otherwise be lost permanently," Evans said.
E. Martin Davidoff, an accountant who testified before the commission, said one of his clients sold an unprofitable business in 2002, and had to pay $30,000 in state taxes because he was unable to use his $300,000 in past operating losses to offset the gain on the sale.
Art Maurice of the New Jersey Business and Industry Association said, "I was very pleasantly surprised" by the commission's report. "They found that many provisions could be changed without reducing revenues below the state's goals. And we have argued continuously that the (tax law) was a cash cow that went way beyond what businesses expected and what the Legislature thought they were doing. I just hope the governor and the Legislature will act on these recommendations."
Beth Fitzgerald can be reached at (973) 392-4111 or efitzgerald@starled ger.com.