Federated fights back vs. NJ tax legislation

CINCINNATI — A heated exchange took place between Federated Department Stores and New Jersey's governor last week, as the department store retailer strongly opposed new state tax legislation that it said would double its corporate taxes in that state.

Federated said that under the new law its corporate state tax would jump $5.7 million and would force the retailer to cut jobs and possibly stores in that state. Federated, which paid $4.4 million in such taxes last year, employs 10,000 people and operates 32 Macy's and five Bloomingdale's locations in New Jersey, as well as extensive logistics facilities.

"To put this in perspective, a New Jersey corporate income tax liability of $10 million a year would consume approximately 17 percent of our New Jersey net profits," Zimmerman wrote in a letter to New Jersey Gov. James McGreevey, "transforming New Jersey from one of the most desirable states in which we do business to one of the least desirable states."

McGreevey fired back that Federated has tried for years to lower its taxes by claiming losses, which was disavowed by the state Supreme Court.

"Adhere to the law," McGreevey directed at Federated. "Conduct ethical obligations and this state will be your strongest advocate. But particularly disingenuous is when Federated continues to litigate against the state of New Jersey and would violate universally accepted accounting practices."

Tom Vincz, director of communications for New Jersey's Office of the State Treasurer, said that Federated wants to apply losses from its pre-bankruptcy days to deduct its current taxes. Before Macy's East re-emerged as a new company in 1994 and was purchased by Federated, he said, the company was known as Macy's Northeast and had pre-bankruptcy losses of $682 million. Federated also held the Jordan Marsh and A&S divisions, which Vincz said had pre-bankruptcy losses of $333 million and $65 million, respectively.

Carol Sanger, vp of corporate communications for Federated, said that the company couldn't comment on the matter since it is pending litigation.

Zimmerman noted in his letter to McGreevey that Federated has a substantial investment in the state and paid more than $33 million in taxes to the state and local governments in New Jersey last year. It also collected and remitted $40 million in sales tax, with annual out-of-pocket costs of collection of more than $1.2 million.

But the new legislation will result in layoffs and store closings, Zimmerman said. The company anticipates laying off 50 to 60 union employees at one of its distribution centers in New Jersey, and each store and facility in the state is undergoing review to determine which make sense to continue operating. Federated will also limit hiring employees to "must-fill" positions and will drastically pare down the number of seasonal employees.

In addition, Zimmerman noted, the company will cancel or postpone non-essential New Jersey projects, such as store remodels, and consider relocating several new store locations to alternate sites outside of New Jersey.

Federated's grievances are "an isolated case," Vincz said, adding that McGreevey's administration had worked with the business community from the time the bill was drafted to its adoption. "The business community had a great deal of input in the planning of the bill, and the administration was very forthcoming to them."

McGreevey enacted the restructured corporate business tax and other budget bills at the beginning of July to address a possible deficit of $6.1 billion. Under the previous legislation, loopholes allowed some major corporations to pay only $200 a year in corporate taxes, including 30 of the top 50 employers. The new law should generate $1.8 billion in revenue for fiscal year 2003, up from a little over $1.0 billion in fiscal year 2002, Vincz said.