Lawmakers on July 8 enacted a $30.8 billion State budget and a one percentage point increase in the State sales tax rate, with half of the increase set aside for property tax relief, to end a week-long budget crisis that had shuttered most State government services. The sales tax will also be extended to several previously untaxed items, including security services, health clubs, landscaping, parking, self-storage and limousine services. The sales tax increase will take effect on July 15, while the sales tax extensions will take effect on October 1.

Through the efforts of NJBIA, businesses will see several favorable tax changes that will lower their cost of doing business and make New Jersey's business climate more competitive in the coming year. The budget agreement:

• allows businesses to continue to deduct all net operating losses (a tax savings of $300 million);
• eliminates the alternative minimum assessment (AMA) portion of the Corporation Business Tax (CBT) (a tax savings of $250 million);
• lowers the tax burden on S corporations (a tax savings of $20 million);
• does not divert employer payroll taxes paid to the Unemployment Insurance (UI) Trust Fund for the first time in 13 years (a potential $300 to $400 million tax savings, as payroll taxes would likely rise to cover any diversions); and
• omits the proposed hospital bed tax and water tax increase.

These items were all top NJBIA priorities when the budget process began in March. To ensure they became accomplishments, NJBIA staff worked through the Fourth of July weekend and through the night of July 7 as legislators prepared the final budget document. We monitored negotiations and lobbied against new business taxes as legislators scrambled to find new revenue sources to fund the increased spending. As a result, NJBIA was able to stop several antibusiness tax proposals before they ever made it to committee, including:

• a proposed expansion of the sales tax to professional services such as legal, accounting, computer services and temporary employment services;
• a proposed gross receipts tax on all employers (not just corporations);
• a proposed income tax hike on taxpayers earning between $200,000 and $500,000 that would have hit partnerships, LLCs and other small business entities particularly hard; and
• a proposed increase in employee Temporary Disability Insurance (TDI) payroll taxes that would keep the rate at 0.5 percent but increase the maximum tax base from $26,000 to $94,000 (and likely would have been extended to employers).

To make up the difference, legislators enacted, increased or extended several narrowly defined taxes that will impact business. They imposed a new tax surcharge equal to 4 percent of a company's total CBT tax liability, after tax credits. The surcharge will be temporary, expiring after three years. The budget also increases the minimum CBT tax payment from $500 to $1,000. Legislators doubled the tax on HMO premiums to 2 percent, increasing the cost of providing health insurance to employees. Finally, the budget extends for two years the transitional energy facilities assessment (TEFA) that will cost all consumers an extra $45 million a year on their energy bills. For more information, contact Art Maurice at ext. 247.

Contractor Tax Collection Bill Gets Final Approval—The Legislature on July 7 gave final legislative approval to a bill that would require businesses to withhold payroll taxes for the unregistered construction contractors they hire. The bill, S-468 (Sweeney)/A-1910 (Burzichelli, Voss), now goes to Governor Jon Corzine to be signed into law. Under the bill, any employer who hires a contractor that is not incorporated in the State would have to collect a tax of 7 percent of the total amount paid and forward it to the NJ Department of Treasury on a monthly basis. Businesses would be responsible for verifying a construction contractor's incorporation and provide a written annual statement to each contractor detailing the total payments made on their behalf. Businesses that fail to withhold the taxes would be subject to the same penalties they would receive if they failed to pay payroll taxes for their own employees.

NJBIA opposes this legislation. The business of collecting these taxes belongs to the NJ Division of Taxation, not the hardworking employers of New Jersey. This bill would impose an inefficient and costly mandate on New Jersey businesses and would unfairly shift the burden of tax compliance onto them. Employers would need to establish costly monitoring and tracking systems to comply, and they would face unfair penalties. For more information, contact Art Maurice at ext. 247.

Register by contacting Stacy Wichner at 609-393-7707, ext. 213, or you can go online to download the fax-back event registration form. To become an event sponsor and gain great exposure to business leaders for your company, contact Sherry Esteves at ext. 219.