New Jersey’s Tax System A National Perspective Joseph Henchman Vice President, State Projects Tax Foundation

2 States Michigan New York

Tax Foundation Ranks New Jersey State Business Tax Climate Index – 49 th (1 st is best, 50 th is worst) – Second worst property tax, third worst income tax State-Local Tax Burdens – 2 nd (1 st is highest, 50 th is lowest) – Residents paid percent in state &local taxes as a percentage of income in Dropped , then rose Location Matters: Corporate Tax Costs – Mature Firms: 41 st lowest costs – New Firms: 27 th lowest costs

Location Matters Business TypeNew TETRMature TETR Manufacturing (Capital-Intensive)5.9% (8th)10.6% (19th) Manufacturing (Labor-Intensive)11.8% (28th)13.7% (38th) Call Center33.5% (38th)33.1% (50th) Distribution Center56.9% (47th)46.5% (47th) Corporate Headquarters16.4% (27th)17.6% (41st) R&D Facility14.2% (19th)14.9% (37th) Retail29.9% (17th)18.6% (36th) OVERALL Average27th41st

Comments High corporate tax rate (9.0 percent) High income tax (5 th highest top rate) High property taxes on land and buildings High wage limit for unemployment taxes Does not apply sales or property tax to equipment – one of few states to do so Generous manufacturing incentives covering for broken tax system

Possible Major Changes Repeated income tax-for-property tax swaps have failed; left NJ with some of the highest income AND property taxes High tax burden makes tax cuts difficult without spending cuts Local government reform re property tax Sales tax broadening as pay-for Corporate tax & inheritance tax