Stingers: The 2004 State Tax Survey

Tough times can make for tense relations between corporate tax executives and state tax authorities. Our survey suggests that even if economic conditions improve, the stage is set for more contentiousness than ever.

What is your overall impression of the tax environment in this state? Is it fair and predictable?

5 Least Fair:

  1. New Jersey
  2. California
  3. Massachusetts
  4. New York
  5. Pennsylvania

Ouch!

New Jersey was the falling star of CFO’s tax survey. The Garden State’s grab bag of tax-law changes in July 2002—particularly the introduction of an alternative minimum assessment (AMA) tax on a corporation’s gross receipts—earned it the label of the state with the most unfair and unpredictable tax environment.

In fact, New Jersey was ranked among the five most aggressive or least fair states in seven of eight questions we asked, and respondents said New Jersey’s tax policies were the most likely to dissuade companies from relocating to or expanding in the state. That’s a stunning change for a state that didn’t make the worst five in a single question in our 2000 tax survey, and is well known for actively courting business.

New Jersey was also the only state singled out multiple times by corporate tax officials asked to write in their top headaches. “Using New Jersey as a prime example,” wrote one, “state governors and legislatures changing only the corporate income tax to balance their budget without any comprehension as to what it does to business.” Another responded, “New, unique taxing schemes, such as New Jersey AMA.”

The state’s long-held reputation for fair tax administration also took a surprising beating, one that can’t be directly attributed to recent legislation. In fact, in the Council on State Taxation’s (COST) recent tax-administration scorecard—based on objective differences in state tax laws and policies—New Jersey’s score was the same as the average score for all states. And, says COST legislative director Joe Crosby, New Jersey tax-division director Robert Thompson and his staff are generally considered fair and evenhanded. He adds that “New Jersey has an independent tax court that is considered to have decisions that are fair and well reasoned.”

Yet CFO’s survey, which measures the subjective impressions of corporate tax officials, shows how easily such a reputation can be undone. Tax-court independence was the only subject in which New Jersey wasn’t ranked among the worst five states. New Jersey’s auditors, by contrast, were rated as the most unfair and unable to settle gray issues of any state’s. —T.R.

Hello, Goodbye

How do this state’s revenue-department policies and systems influence companies’ decisions to locate or expand there?

Least Desirable

  1. New Jersey
  2. California
  3. Massachusetts
  4. New York
  5. Pennsylvania

Kangaroo Courts

How would you rate the independence of this state’s administrative appeals process—tax board, administrative law judge, or tax court—from its audit department?

Least Independent

Discuss

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