New Jersey Gov. Chris Christie Absolute Veto- “Made in America Bill”.

New Jersey Gov. Chris Christie on Thursday vetoed a package of bills that would have required the use of U.S.-manufactured goods for a greater number of public contracts, including 50% US. sourced components, contending that the measures would hurt international development and increase costs for the public.

New Jersey already requires U.S.-manufactured goods for public works contracts, local public contracts, state construction contracts and local school contracts, but S1881 — which the state Legislature sent to the governor in December — would have covered all state contracts, including those of state universities. Companion bills sought to impose similar requirements on four bi-state agencies: the Port Authority of New York and New Jersey, Delaware River Joint Toll Bridge Commission, Delaware River Port Authority, and Delaware River and Bay Authority.

Christie said in his veto messages that the bills would “constrain purchasing decisions by setting artificial thresholds of reasonableness based almost exclusively on price.”

As a strong indicator where he stands on corporate inversions, Christie also had kind words for foreign-headquartered companies, which he said are responsible for more than 225,000 jobs in the state.

“These global companies seek global marketplaces that will support their investments. Those companies, in turn, infuse billions of dollars into New Jersey’s economy, not only in direct investment and jobs, but indirectly to thousands of other New Jersey businesses that provide goods and services to support their operations,” the governor said. “In stark contrast, these bills will chill international development and increase costs borne by taxpayers.”

While lawmakers tried to build flexibility into the proposed requirements by allowing public entities to secure waivers if U.S.-made products weren’t available or were too expensive, Christie said the end result would have been a more-complex bidding process and more-burdensome reporting requirements.

“Rather than helping Americans, these bills will simply drive up the price of doing business, and threaten job creation,” the governor said. “Building economic walls around our state, or our nation, will not improve the lives of our citizens.”

In a statement, Senate President Steve Sweeney, D-Gloucester, stated that  the veto was  a missed opportunity to support domestic businesses.

“The ‘made in America’ bills are more than an expression of economic patriotism. They could have been an effective way of boosting the state’s economy,” said Sweeney, a sponsor of the measures. “The recovery in New Jersey has lagged behind other states, so we should be doing all we can to generate economic growth and to promote economic opportunity.”

But the governor’s action won praise from the New Jersey Business and Industry Association.

“Governor Christie made the right decision,” NJBIA President Michele Siekerka said in a statement. “The bill would be unworkable given the nature of modern global supply chains, which make it difficult to find goods with U.S.-sourced components.”

New Jersey Senate would crack down on corporate inversions

Tax inversions are to some unpatriotic and unethical; they speak to the need for more loophole-thwarting regulations and tax reform. To others, the real threat to the U.S. corporate tax base is our corporate tax code itself, with the third-highest overall rate in the world and a worldwide system that requires American companies to pay a toll charge to bring their profits back home. Thus, the solution to the inversion “problem” is to dramatically cut the corporate rate and to move to a territorial tax system, not add even more unnecessary rules to an already complicated tax code.

Meanwhile, three measures in the New Jersey Senate that would crack down on corporate inversions by banning inverted companies from state contracts and other subsidies were voted out of committee Thursday, the latest move to stem the tide of companies pursuing mergers to reincorporate in tax-friendly jurisdictions outside the U.S.

In a 3 to 2 vote on Thursday afternoon, the New Jersey Senate State Government, Wagering, Tourism & Historic Preservation Committee passed bills S2397, S2361 and S2471, which would ban the award of state contracts other state subsidy grants to corporations that merge with foreign companies or shift their income abroad in order to avoid U.S. tax obligations.

New Jersey Sen. Shirley Turner, D-Mercer, who sponsored two of the bills said at the meeting that the measures are meant ensure that corporations who take advantage of the services and quality of life of this country pay their “fair share” of taxes. She pointed out that U.S.-based corporations are beneficiaries of the country’s educated workforce, transportation infrastructure and safety, among other advantages, that are made possible through taxes.

However, opponents of the bills expressed concern that punishing corporations for what amounts to a “paper move” will scare companies away from investing in the state and hinder job creation.

Under the bills, inverted corporations would be ineligible for state contracts, economic development grants and other types of financial aid including reimbursement of taxpayer-subsidized programs, such as Medicaid.

Turner also introduced a joint resolution calling on federal lawmakers and the President to enact the “Stop Corporate Inversions Act of 2014.”

“The increasing trend of corporate inversions is not just a Washington problem; it’s a New Jersey problem, too,” Turner said in a statement released Thursday. “When multi-billion dollar corporations shift their income abroad to reduce their U.S. corporate tax rate, the state can no longer tax those corporate profits. Every other taxpayer must then pay more to make up for the lost revenue in order to maintain government services. It’s no wonder the state can’t meet its financial obligations.”

The growing popularity of inversions has spawned backlash from the Obama administration, which in September  introduced several rule changes stripping away tax benefits of inversion deals. However, with legislative changes still necessary to completely shut down inversions, U.S. Treasury Secretary Jacob Lew said this month that the White House is not done looking at its administrative options.

Meanwhile, Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, said last week that corporate tax reform that moves the country to a territorial system of taxation is the best solution to stop corporations from pursuing tax inversion deals.

Corporate Inversions: Much Ado About Nothing?

Last Monday, Treasury Secretary Jack Lew stated that the Obama administration is close to reaching a final decision on what action can be taken to discourage U.S. companies from moving their legal address abroad to avoid domestic tax rates, a process known as “corporate inversions”. Lew said that the administration’s decision would come “in the very near future.” “Any action we take will have a strong legal and policy basis but will not be a substitute for meaningful legislation — it can only address part of the economics,” said Lew. “Only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that leads to inversions.”

Tax inversions are to some unpatriotic and unethical; they speak to the need for more loophole-thwarting regulations and tax reform. To others, the real threat to the U.S. corporate tax base is our corporate tax code itself, with the third-highest overall rate in the world and a worldwide system that requires American companies to pay a toll charge to bring their profits back home. Thus, the solution to the inversion “problem” is to dramatically cut the corporate rate and to move to a territorial tax system, not add even more unnecessary rules to an already complicated tax code.

However, only targeted legislation that reduces the incentives and ability of firms to invert can truly protect the corporate tax base. Possible responses include allowing U.S. corporations to invert only if they truly become a foreign firm. This means current shareholders of the U.S. firm would have to own less than 50 percent of the new merged foreign firm, compared with the currently legislated 80 percent threshold. Additional measures that would likely be required to prevent inversions from further eroding the corporate tax base include preventing the practice known as “earnings stripping” and preventing corporations from using tax-deferred offshore cash in ways that benefit U.S. shareholders without paying U.S. taxes.

Despite the often vitriolic debate, when it comes down to the hard numbers, corporate inversions don’t appear to currently create a significant drain on U.S. tax revenue. The Joint Committee on Taxation projects that the U.S. would lose about $19.5 billion in tax revenue from 2015 to 2024 because of corporate inversions. Although that’s a considerable amount, that’s only 0.4% of the $4.5 trillion U.S. budget over the same time period, as the Tax Foundation notes. So is this “much ado about nothing”-at least not much?

Martin Milita is currently a Senior Director with Duane Morris Government Strategies, LLC, a full-service government affairs firm in DC, PA., NJ and Ohio. Duane Morris Government Strategies, LLC ., deals regularly with a myriad of complicated federal and state tax law matters, such as federal unrelated business income and compensation issues in the exempt organization realm, and state law sales and property tax exemption questions, which have gained national attention during the past few years.  The Duane Morris Government Strategies team is well-equipped to lead  clients through the maze of tax regulations and find solutions that add value, whether as part of routine tax planning or in connection with a change in public policy.