New study compares bottom line tax bill for 7 model firms in the Garden State

Washington, DC (Aug 26, 2015)—Businesses in New Jersey face different effective tax rates depending on their industry and how long they have been located in the state, according to a new report from the nonpartisan Tax Foundation in collaboration with KPMG, LLC.

Location Matters: The State Tax Costs of Doing Business is the leading, apples-to-apples comparison of actual state tax burdens faced by real-world businesses in different industries, and it highlights how tax codes treat new and previously established firms differently within each state. Tax Foundation economists created seven model firms in different industries, and KPMG tax specialists calculated the tax bill for those firms in each state, both as new facilities and as mature firms (ones that are at least 10 years old).

New Jersey Business Tax Costs
Ranking New Jersey On Business Tax Costs

So, how does New Jersey compare to the rest of the country? Here are the state’s effective tax rates and rankings on each of the seven mature model firms:

  • 45th lowest rate on a corporate headquarters at 19.3%
  • 45th lowest rate on a research and development (R&D) facility at 15.4%
  • 40th lowest rate on an independent retail store at 19.7%
  • 7th lowest rate on a capital-intensive manufacturer at 5.0%
  • 23rd lowest rate on a labor-intensive manufacturer at 8.5%
  • 50th lowest rate on a call center at 35.4%
  • 50th lowest rate on a distribution center at 48.2%
  • Comparisons of these rates to rates on newly established firms are available here.

“Discussions of business taxes sometimes focus on topline rates while ignoring how unequally those taxes may fall on different kinds of businesses,” said Tax Foundation Policy Analyst Jared Walczak. “Tax reform discussions often focus on lowering the tax burden on business in general. However, it’s also crucial to address the tax code’s unequal treatment of new and mature businesses in different industries.”

Ranking New Jersey on business tax costs – Key findings

The study’s key findings include:

  • States with low statutory tax rates can still impose high effective tax burdens due to factors such as tax incentive, apportionment, and throwback rules.
  • Corporate income taxes are just one part of a business’s tax burden. Sales, property, and unemployment insurance taxes can also impose significant burdens on businesses.
  • Tax Incentives chiefly benefit new firms, often to the disadvantage of established operations.
  • Incentive-heavy tax systems can reduce tax equity even among newly-established firms.
  • Different firm types experience dramatically different effective tax rates.
  • The impact of corporate income and gross receipts taxes depends heavily on structure and firm type.

Whereas other studies examine things like business tax collections per capita, the value of tax incentives for different businesses, or the relative ranking of a state’s business tax code, Location Matters is the first study to provide a clear illustration of how each state’s state and local tax burdens affect real firms.

Hartley Powell, principal in the Global Location and Expansion Services practice of KPMG LLP, said: “Understanding a location’s unique tax landscape can help companies operate more efficiently and effectively in both their existing locations and in new ones they might be considering. The Location Matters report is a comprehensive calculation of real-world tax obligations in all 50 states that can better inform companies’ overall location decisions.”

Full report: Location Matters: The State Tax Costs of Doing Business

The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.

KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 162,000 professionals, including more than 9,000 partners, in 155 countries.

This project was made possible through the support of a grant from the John Templeton Foundation. The opinions express in this publication are those of the authors and do not necessarily reflect the views of the John Templeton Foundation.