NJ Firms Stand to Lose Tax Breaks Unless Workers Come to Office

New Jersey companies must bring their employees back to the office at least three days a week to keep getting billions of dollars in tax breaks if lawmakers don’t take action to loosen the requirements before breaking in July.

Since the Covid-19 pandemic, the state Legislature has repeatedly relaxed in-office requirements for companies participating in decade-old tax incentive programs. But the most recent waiver expired at the end of March, meaning businesses must now comply with a mandate that workers spend at least 60% of their time on site or risk losing their tax credits.

The New Jersey Assembly has since passed a bill, A4046, providing companies another workaround to the rule, which would apply retroactively to April 1. But this time around, the legislation is stuck in the Senate, where Democrats want to make a stronger push to get people back to city centers still clawing back from the pandemic downturn. The Legislature typically breaks for several months after passing the state budget that’s due June 30, meaning there’s little time to decide whether to continue adjusting the programs before businesses start seeing repercussions for missed office days.

The debate underscores how states are grappling with how to tailor past and future economic development initiatives with post-pandemic shifts in how people work. Many tax incentives across the country were originally structured to bring workers and their wallets to specific, underserved areas, and are now less compatible with the hybrid schedules that companies are seeing more demand for from employees and new hires.

“The whole premise of the credit is fundamentally that there are economic spillover effects from the presence of their workers in the places where they’re situated,” said Peter Chen, a senior analyst at New Jersey Policy Perspective and a critic of corporate tax breaks.

Business groups have called for the new round of concessions, arguing companies that have been counting on the tax relief shouldn’t be punished for the pandemic’s unpredictable impact on work habits. But opponents of such measures point out the state only agreed to forgo billions in tax revenue because the programs promised to reinvigorate struggling cities.

Competing Interests

Assembly Budget Chair Eliana Pintor Marin’s (D) bill is aimed at companies participating in four tax incentive programs that were overhauled in 2013 under a sweeping tax measure signed by then-Gov. Chris Christie (R). Called the Economic Opportunity Act, the law lifted how much the state could award in tax breaks and expanded the number of locations where companies could qualify.

One of the biggest changes made in 2013 was expansion of the Grow New Jersey Assistance Program, which provided eligible businesses with tax credits ranging from $500 to $5,000 for every job created or retained. The incentive was designed to spur economic growth in cities, by requiring companies to make capital investments and hire workers in places like Camden, Newark, and Trenton. More than 170 projects continue to get $3.7 billion in tax credits under the program, according to the New Jersey Economic Development Authority, which oversees state tax incentives.

Companies originally had to demonstrate employees were at a work facility at least 80% of the time, but the figure was lowered to 60% in 2020 in response to the public health crisis.

Since then, legislators have passed bills providing businesses temporary pathways to keep their tax breaks without meeting the 60% in-office threshold. The most recent one was signed into law in January and said businesses only had to demonstrate employees were physically present 10% of the time if the employers made payments to the EDA.

“What New Jersey has gone through is what a lot of other states have been going through as well,” Pintor Marin said in an interview. “This is really to not hurt the businesses that have been complying with everything except being able to bring employees back.”

The latest workaround awaiting Senate approval would still allow companies to make payments to the state in exchange for lower in-office requirements, but isn’t as flexible as before. City-based businesses must demonstrate their employees are there half the week, while firms in suburban areas must bring in workers 40% of the time.

Pintor Marin said her bill holds urban businesses to a higher standard because cities “really, really rely on the foot traffic during the work day” and have “suffered” from the decline in commuters, she said. It’s less strict by design on suburban office parks that have fewer pedestrians, she said.

It’s unclear whether the Senate is willing to approve more concessions. Senate Democrats last debated the accommodations in December and raised concern then that the state wasn’t doing enough to help its urban centers. Pintor Marin’s bill doesn’t have a companion in the Senate, and a spokesperson for the Democrats who control the chamber declined to comment.

Embracing Flexibility

While lawmakers figure out how to contend with past tax incentives, New Jersey is crafting future programs to not only embrace remote work, but take advantage of it.

Last year, the state began offering residents who work for New York companies an incentive to challenge New York tax bills. Normally, employees owe income tax to the state they’re located in. But remote workers could owe income tax to New York if their employer is based there. Called the “convenience of employer” rule, the tax policy is under fire from commuter states that lose billions crediting residents for taxes owed to New York. New Jersey officials hope a successful challenge could one day get the rule overturned and keep that tax revenue within state lines.

As part of that effort, New Jersey is also offering $35 million in grants to businesses that reassign their New Jersey-based employees to office buildings or home offices in the state. The funding is only available to companies relocating workers from states with a convenience rule, like Delaware, Nebraska, and New York.

New Jersey is also crafting new tax incentives to place less emphasis on the location of new jobs. The state’s Emerge Program, created under a 2020 economic recovery law, offers eligible companies annual tax credits ranging between $500 and $4,000 for each new job created. It stipulates that workers spend at least 80% of their time in the state.

“I think everyone understands that workers now want and need flexibility,” Pintor Marin said. “And I think that employers also understand that and they’re willing to work with that.”