Yielding to vehement opposition from the state's bankers, New Jersey lawmakers have withdrawn a controversial bill that would have cost banks millions of dollars in additional taxes.
"They basically shot themselves in the foot with the thing," said Anthony S. Abbate, president and chief executive of Interchange Financial Services Corp., Saddlebrook. "It just highlights what happens when things are done in haste."
But the bill's withdrawal from the state Assembly hasn't satisfied bankers, who are still concerned that a bill to opt-in early to interstate branching is moving far too quickly through the Legislature.
"This thing is like a runaway freight train, and they're going to have to deal with the consequences later," Mr. Abbate said.
The opt-in bill, with its controversial provision allowing start-ups by out-of-state institutions, has passed both banking committees and is being considered by both houses of the state Legislature despite opposition from the New Jersey Bankers Association and most small banks. Passage is expected shortly.
"It's the biggest piece of banking legislation in New Jersey in years, and it's moving too quickly," said C. Mark Campbell, president and chief executive of Bergen Commercial Bank and president of the Community Bankers Association of New Jersey.
After a meeting with bankers and state officials this month, legislators told the state Treasury Department to revise the tax bill within 10 days, taking out a prickly provision that would have required banks in the state to report combined income of all subsidiaries.
Under the bill, banks wouldn't have been able to avoid taxes on their securities portfolios by chartering investment subsidiaries, which are currently taxed at one-fourth the corporate rate.
Lawmakers told Treasury Department officials to work with the New Jersey Bankers Association on a new draft.
The tax bill also would have reduced the thresholds for conducting taxable business in New Jersey. Out-of-state companies would have been subject to state taxes if they had deposits of $5 million or more in New Jersey, receipts of at least $25,000 from within the state, or transactions with at least 20 residents.
Lawmakers didn't give Treasury officials explicit instructions about that portion of the bill but will wait to see what the officials come up with, said Assemblyman Monroe J. Lustbader, chairman of the Assembly's Financial Institutions Committee.
"Everything in there is on the table," said W. Stuart Cameron, vice president of the New Jersey Bankers Association. "Legislators made it absolutely clear that this administration's intent to make New Jersey a banking capital in the Northeast must be preserved and they will not permit any tax bill to undermine that intention."
The bill had universally angered the state's bankers and caught the Banking Department by surprise. Even the two assemblymen who introduced it were "taken aback somewhat by the repercussions," Mr. Lustbader said.
The bill's original purpose was to level the playing field for in-state and out-of-state banks in an interstate branching environment.