A Taxing Battle

Federated Department Stores (Cincinnati) says it will cut jobs and possibly close stores in New Jersey, blaming a tax increase that more than doubles what the company owes the state.

Federated also will curtail hiring and end plans to remodel or expand existing stores, chairman James Zimmerman says. The announcement is the first such complaint since the new tax law was approved last week.

Federated operates 32 Macy's stores and five Bloomingdale's outlets in New Jersey, as well as operations and distribution offices. It employs about 10,000 in the state.

The department store retailer says it paid $4.4 million in corporate taxes to New Jersey last year. Now, thanks to a law Gov. James E. McGreevey had enacted to balance the state's budget, Federated says it would owe $10 million.

“I can tell you unequivocally that we cannot and will not absorb a $5.7 million New Jersey tax increase without taking commensurate measures to reduce expenditures there,” Zimmerman wrote McGreevey.

The measures include plans to cut up to 60 union jobs at a distribution center, Zimmerman says. He says the company is also reviewing operations at all of its New Jersey locations. “From this, we anticipate there will be store closings,” he says.

State Treasurer John E. McCormac fired back a letter, demanding Federated release detailed financial records, including all net profits and salaries for top executives. Federated should also disclose its revenues and net profits from several of the old regulations, including one that allowed New Jersey businesses to transfer profits to states that don't charge corporate taxes, McCormac says.

The business tax is expected to bring in at least $1.8 billion, $1 billion more than the state collected in corporate revenues last year. McGreevey says the new tax and the other budget bills were needed to address a possible $6.1 billion deficit.

Business leaders who campaigned against it insisted McGreevey's plan would hurt companies and drive jobs and corporations out of New Jersey. But the governor says the tax would close loopholes that let 30 of the top 50 employers in the state pay just $200 a year in taxes.

Business groups said Federated's announcement will likely be the first of many such complaints.