A New Jersey Senate committee on Monday advanced legislation to prohibit awarding state contracts and development subsidies to companies that seek to reduce their taxes through so-called inversion transactions.
The Senate’s State Government, Wagering, Tourism and Historic Preservation Committee signed off on Senate Bill S-1513, which would deny such taxpayer support to companies that engage in corporate inversions, a deal structure that sees a U.S. corporation merge with a foreign company and relocate its tax residence in a foreign jurisdiction in an effort to trim its U.S. corporate tax burden.
The legislation now heads to the Senate Budget and Appropriations Committee for further consideration.
Under the legislation, any company incorporated or previously incorporated in the U.S. that becomes incorporated in a foreign country or becomes a subsidiary of a corporation incorporated in a foreign country for the primary purpose of avoiding U.S. taxes would be disqualified from receiving state contracts and subsidies. That rule also would apply to funds from independent state authorities.
It is unclear why legislators think such a law would benefit New Jersey as corporate inversions take place because of the federal tax code rather than state.