A coalition is urging New Jersey lawmakers to embrace tax reforms, including a switch from the Joyce allocation method for combined reporting to the Finnigan approach to help stabilize the state budget.
In a May 12 letter, the For the Many coalition said strengthening the “state’s combined reporting law by using a more effective approach to taxing multistate corporations and closing tax avoidance loopholes used by multinational businesses” is one way the state can address budget gaps resulting from the COVID-19 pandemic.
The coalition, which is advocating for progressive changes in the state budget, urged legislators to include “new, sustainable sources of revenue to ensure a balanced response to the economic fallout from COVID-19.”
“This would protect against deep cuts to critical public programs and services that families rely on, especially now in the midst of a recession,” the letter said. “New Jersey cannot afford to make the same mistakes that were made in the wake of the Great Recession. We know now that deep cuts to public services worsened the economy’s fall, further fueled deep inequities for millions of New Jerseyans, and ultimately slowed the state’s recovery.”
New Jersey enacted legislation in 2018 (A. 4202 and A. 4495) that requires mandatory unitary combined reporting for privilege periods ending on or after July 31, 2019.
Under guidance issued last year by the Division of Taxation, members of combined groups that make a worldwide or water’s-edge election are required to use the Joyce allocation method on combined returns, and those taking the affiliated group election are required to follow the Finnigan approach.
The coalition said that "the overall revenue impact of Joyce vs. Finnigan could be mitigated by simply enacting a 'throwback rule' to recoup taxable income."
The coalition made other recommendations for raising revenue to avert budget cuts.
It proposed creating new income tax brackets at $250,000, $750,000, $1 million, and $2.5 million, and “very slightly increasing the tax rate at the existing $500,000 and $5 million brackets.”
“Doing so would raise income taxes on just the top 6 percent of the state’s households and would help ensure that the wealthiest New Jerseyans are paying their fair share on a yearly basis,” the letter said.
The coalition said lawmakers should exempt up to $1 million for the inheritance tax, which would “exempt middle-class families and help guard against the deepening trend of concentrated wealth in fewer and fewer hands.”
It also called for restoring the estate tax with a higher threshold. Doing so “would help New Jersey regain the lion’s share of revenue it previously collected while ensuring that the wealthiest heirs pay their fair share at the state level,” the coalition said.
The group also called for restoring the sales tax to 7 percent and expanding it to more services, especially high-end services like chartered flights, interior decorating, and limousine services. The state's current sales tax rate is 6.625 percent.
The letter is signed by 19 groups, including the Anti-Poverty Network of New Jersey, International Federation of Professional and Technical Engineers Local 194, Latino Action Network, League of Women Voters of New Jersey, New Jersey Citizen Action, New Jersey Policy Perspective, and New Jersey Working Families Alliance.