Good Afternoon, Chairman Sarlo, Vice Chair Cunningham and members of the Committee.  My name is Christina Renna, President & CEO of the Chamber of Commerce Southern New Jersey (CCSNJ) and it is my pleasure to testify in strong support of S-563 (Madden/Sweeney), which restricts authority to terminate reciprocal personal income tax agreements with other states. 

The CCSNJ was proud to be the leading business organization in the state to engage on this critical issue with the outstanding support of Senate President Steve Sweeney and Assembly Majority Leader Lou Greenwald in 2016.  At that time, then-Governor Chris Christie announced his intent to dissolve the New Jersey/Pennsylvania Income Tax Reciprocity Agreement.  He argued that this agreement, which has been in place since 1976, would raise the additional revenue needed fill an unanticipated budget shortfall.

For those unfamiliar with the reciprocal income tax agreement, it can be best explained as follows: New Jersey does not collect income taxes from people living in Pennsylvania and working in New Jersey. In return, Pennsylvania does not collect income taxes from people living in New Jersey and working in Pennsylvania. Instead, Pennsylvania residents report and pay tax on income earned in New Jersey on a Pennsylvania tax return; similarly, New Jersey residents report and pay tax on income earned in Pennsylvania on a New Jersey tax return. 

Due to the coronavirus pandemic, many commuters who would normally commute across the border instead have worked from home to help slow the spread of the virus. Prior to the virus, census estimates show approximately 250,000 workers would commute across the border between the two states, about 125,000 from each state, including 90,000 in Burlington, Camden and Gloucester Counties alone. That makes the math behind this agreement significant: New Jersey’s income tax is one with several graduated tax rates – the highest 10.75% , whereas Pennsylvania has a flat income tax rate of 3.07%.

It is important to note that the New Jersey Statute adopted in 1976 provides the Director of the Division of Taxation the authority to enter agreements with the taxing authorities of other states.  New Jersey’s reciprocal income tax agreement with Pennsylvania includes language that allows for the agreement to be dissolved when one of the parties indicates its intent to withdraw from the agreement with written notice 120 days before the start of the next calendar year.  This can be done with no input or oversight from the Legislature or the taxpayers; as written it is purely an Executive Branch decision.

On September 2, 2016, exactly 120 days before the end of the year, Governor Christie announced his intent to end the reciprocal income tax agreement, which sent shockwaves throughout the state.  The CCSNJ immediately responded by meeting with then-New Jersey Treasurer Ford Scudder, Senate President Sweeney, Majority Leader Greenwald and senior staff in the Governor’s office.  We assembled a high-level Working Group of both member and nonmember companies from all regions of the state in order to assess the impacts of the dissolution of the agreement and to educate policymakers on these impacts.  

The threat of income tax reciprocity being dissolved highlighted this agreement’s importance to companies’ strategies to attract and retain the right workforce, especially businesses located in close proximity to great Philadelphia, including Camden and Trenton. Companies were worried about the potential of losing their employees to Pennsylvania companies and equally worried about the ability to attract new talent to New Jersey. 

CCSNJ member companies – including Campbell Soup Company and Subaru of America, just to name a few – heard directly from their Pennsylvania resident employees who were extremely concerned over the impact that ending the agreement would have on their paychecks. Campbell Soup Company employees alone sent approximately 4,000 emails to legislators and the Governor. 

Changing the rules of taxation after four decades would have forced employers to take action in order to protect current employees and remain attractive to future employees. For example, Campbell Soup Company estimated that approximately 500 employees – nearly 40 percent of their workforce – live in Pennsylvania, but work in New Jersey.  Subaru’s workforce is very similar with 40 percent of their workforce coming from outside New Jersey, including the Pennsylvania area.

On November 22, 2016 – nearly three months after announcing his intention to end the agreement – Governor Christie changed course and decided to keep it in intact.  However, this experience shed light on how readily – and with no input from residents and businesses – this agreement can be dissolved.  

CCSNJ was pleased when last session the Legislature pursued this measure to ensure a situation similar to that of 2016 does not happen again. S-878 (Madden/Sweeney) was introduced and passed both houses unanimously. However, we were extremely disappointed when Governor Phil Murphy vetoed the bill, making the same arguments as the previous administration.

Given the unprecedented circumstances presented by the outbrake of the virus, should there ever be a discussion about dissolving the agreement in the future, this legislation assures that the Legislature and most importantly, those impacted by the agreement – the taxpayers and businesses - have a voice in the process. 

Requiring both executive and legislative approval on tax policy that has such significant impacts on taxpayers is sound public policy and a measure that we commend Senator Madden and Senate President Sweeney for putting forth again.  For these reasons, we respectfully urge you to vote “yes” on S-563 (Madden/Sweeney).