‘Working Remotely Here to Stay’: NJ Considering New Tax Break for Hybrid Offices

by Daniel Munoz, NorthJersey.com

This story is being republished under a special NJ News Commons content-sharing agreement related to COVID-19 coverage. Link to story: northjersey.com/story/news/state/2023/01/12/nj-murphy-considers-new-hybrid-office-tax-break-as-remote-work-grows/69799670007/

New Jersey officials say they’re contemplating a new tax break designed to lure companies interested in having their staff work from home rather than in the office full time.

Teased by Gov. Phil Murphy in his State of the State address last week, the proposal is still under development and would require approval from state lawmakers. It’s an attempt to align the state’s incentive programs with a new post-pandemic reality where employees expect flexible work schedules, said Tim Sullivan, CEO of the New Jersey Economic Development Authority.

“There’s economic opportunity for New Jersey residents to get good jobs in remote or hybrid work settings, and as long as those people are paying New Jersey taxes, then there’s a framework whereby it makes sense to incentive them,” he said in an interview.

Under the broad outlines sketched by Sullivan, the state would offer tax breaks to companies willing to buy small, satellite offices in New Jersey to serve as occasional workspaces for their local employees. Currently, those employees may be classified as working in New York, Philadelphia or wherever else their main offices are located. Under Murphy’s vision, they’d be considered New Jersey workers, steering more tax revenue toward the Garden State.

Murphy envisions pairing a hybrid incentive with other programs for New Jersey communities that are losing out on revenue as workers become more scarce in downtown areas. But specifics remain to be worked out, Sullivan said.

“Any reduction of the occupancy or foot traffic and office utilization in Newark, Jersey City, Camden, wherever you’re talking about, is not great for those places,” he said.

Plans for a new hybrid-work incentive were first reported by Politico New Jersey.

According to Sullivan, the new tax credit could be funded by unused subsidies from other programs. The incentive would accompany and not replace the much larger NJ Emerge, a 2020 program that seeks to attract large employers to the state but has so far found few takers.

“We must recognize that in the new, post-pandemic business environment, not every new job created for a New Jerseyan is going to be housed in a physical office in New Jersey,” Murphy said in his State of the State address. “For many New Jerseyans, working remotely is here to stay.

“Let’s take this moment to focus on incenting jobs in New Jersey, wherever they are, regardless of whether they are in an office building in Newark or at a kitchen table in Cherry Hill,” he added.

Sullivan said he knew of no other state in the region that was trying to appeal to hybrid workers in this way.

NJ relaxing stance on work-from-home: The proposal is the latest sign that the administration is bowing to the new realities of work-from-home, after it sought to nudge employees back toward the office last year.

In July, the Economic Development Authority, which oversees more than $8.7 billion in taxpayer subsidies, said it would resume enforcing a requirement that companies receiving tax breaks have those workers in the office at least three days a week. The agency argued the breaks were meant to help boost restaurants and other businesses that benefit from an on-site workforce.

Businesses pushed back, saying they were already struggling to fill jobs in a tight labor market, and the state scaled back its request last month.

A measure that passed the state Legislature with bipartisan support will allow more than 800 private employers to maintain tax breaks and other incentives as long as workers show up in-person one day a week. The legislation granted a one-year reprieve, with the three-days-a-week rule set to come back in force in 2024.

After the USA TODAY Network New Jersey reported on the authority’s plans last year, at least two companies with 1,000 employees between them − a software firm in Holmdel and a financing company in Jersey City − said they would forgo state aid amounting to a combined $34 million rather than cut remote work.