News Release: June 19, 2002Governor James E. McGreevey's business tax hike will hit many small companies with a huge tax increase during a weak economy when they are most vulnerable, the New Jersey Business & Industry Association said today.
In the month of May, New Jersey companies lost 5,800 jobs, the NJ Department of Labor announced this week, extending an employment decline that has seen more than 36,000 private-sector jobs disappear since June of last year.
"We have yet to see clear evidence that we are free of this recession, yet small businesses that are struggling to meet their payrolls, pay their health benefits and maintain positive cash flow would be hit with huge tax increases under the Governor's plan," said NJBIA Executive Vice President Philip Kirschner.
Under the Governor's tax plan, C corporations would be asked to calculate their tax using a new Alternative Minimum Tax (AMT)-a 0.3 percent tax on gross receipts or a 0.6 percent tax on gross profits-and compare it to their latest tax bill under the current system, which taxes net income. Employers would then have to pay either the new AMT or the current tax on net income, whichever is higher.
NJBIA member companies have reported that they would pay an average tax increase of about $50,000 under the new tax. Companies reporting this tax increase had anywhere between 10 and 100 employees. Of NJBIA's 18,000 member companies, 90 percent are small companies with 1-49 employees.
"The Governor's tax plan would impose a large tax increase on small companies that don't use loopholes. Even companies that are losing money would have to pay the new tax," Kirschner said. "The alternative minimum tax will deeply hurt small companies and their employees."
Following are four examples of small New Jersey companies that would be hit with a large tax increase under the Governor's proposal.
Woodruff Energy
Bridgeton, Cumberland County
Size of Company: 60 employees
Bob Woodruff is president of Woodruff Energy in Bridgeton, a family-owned business that has been around for 133 years. According to Woodruff, McGreevey's tax increase would result in a $24,000 tax bill during a year in which his family fuel oil business lost money because of the warm weather.
"For our company to pay $24,000 at the (current) 9 percent rate (on net profits), we would have to make $275,000 in net income-something we have never done," Woodruff told legislators in recent testimony. "We (small businesses) are the backbone of the economy in New Jersey. Don't break our backs with this proposal."
Triangle Blueprint Co.
Lawrence, Mercer County
Size of Company: 119 employees
Joe Teti is owner of Triangle Blueprint Co. based in Lawrence, which provides arts supply and graphic arts services at 16 locations in New Jersey. According to Teti, Triangle's corporate tax would increase by more than $20,000 under the McGreevey tax plan.
"If these new taxes are added and we can't get customers to pay for them, the revenue will come at the expense of a reduced work force," Teti told the committee. "We just do not have these pots of money lying around."
Commander Imaging Products Inc.
Paterson, Passaic County
Size of Company: 43 employees
James M. Mitchell is executive vice president of Commander Imaging Products, which and makes printing ribbons, ink rolls and other printing products. Commander would see its taxes go up by more than 500 percent under the gross receipts plan and more than 100 percent under the gross profits tax. The tax increase would mean eliminating jobs, canceling the annual bonus package or eliminating the company's health insurance plan, Mitchell told legislators.
"Passing this tax would have a far reaching effect and truly hurt the state's economic condition," Mitchell said. "Some companies thinking about moving to New Jersey would reconsider and companies like ours may consider moving out of New Jersey."
Occupational Therapy Consultants Inc.
Somerset, Somerset County
Size of Company: 9 employees
Alan Epstein, whose wife owns Occupational Therapy Consultants Inc., said the company would have paid more than $14,000 in taxes in its most recent tax year under Governor's tax plan, even though the company lost money that year. Because Occupational Therapy Consultants is a service company, with essentially no cost of goods, it would pay a similar tax increase under the gross receipts or gross profits AMT.
"It's one thing to borrow money from the bank for business expenses, but it's another to borrow money to pay taxes when you've lost money," Epstein said.
