NJ May Become First State to Ban Corporate Tax Inversions

Will NJ become the first state to ban corporate tax inversions?

Some lawmakers in the New Jersey state legislature recently announced plans to remove incentives and cut contracts with U.S. companies that move offshore for tax purposes. According to a NorthJersey.com report, the proposed law changes are the direct result of Pfizer Inc.’s merger with Allergan PLC in Ireland in an attempt to lower its corporate tax rate.

The objective of the proposed legislation

The federal government recently announced changes to offshore disclosure and tax inversion laws to limit the corporate tax incentives. However, the NorthJersey.com report showed that New Jersey would be the first state in the country to remove these contracts and incentives for U.S. companies headquartered in their states. According to a NorthJersey.com interview with Sen. Shirley Turner, a Lawrenceville Democrat, this legislation would be an opposition to Gov. Chris Christie’s push to the federal government to lower corporate taxes.

“I want to send a strong message to Pfizer as well as any other corporate deserters looking to do the same thing,” Turner explained. “They are parasites living off of our taxpayers, and it’s not like they’re going bankrupt by any means.”

The background of the merger

The Allergan PLC and Pfizer Inc. merger is significant because the $160 billion partnership would create the largest corporate tax inversion in the world. As both companies have operating headquarters in New Jersey and Ireland, the merger makes sense from an operations standpoint, but it also represents a recent trend. Many U.S. companies have effectively completed tax inversions in Ireland in the last few years because of its 12.5 percent corporate tax rate. Currently, the corporate tax rate in the U.S. is 35 percent. While many U.S. companies pay far less than the nominal rate, it still makes Ireland a desirable destination for larger domestic companies.

Criticism

One of the most significant arguments against this newly proposed legislation at the state level is that the federal government has not made corporate tax inversions less profitable. Therefore, if the federal government fails to address the problems that contribute to higher numbers of offshore tax evasion for larger companies, states like New Jersey do not have the resources to keep those tax dollars. In a statement cited by NorthJersey.com, Joan Campion, a Pfizer spokesperson, agreed with Christie’s criticism of the proposed legislation because it only stimulates more corporate tax inversions.

“This legislation discourages investment in New Jersey,” Campion argued. “A reformed tax code that includes a territorial system would stimulate investment in the United States and allow American businesses to compete on a level playing field.”