The Assembly this week will consider a bill to ban inverted companies — U.S. firms that reincorporate abroad to reduce their corporate tax rate — from receiving state contracts or subsidies. The bill would also require the companies to repay any subsidies that have already been doled out.

The discussion comes in the wake of Pfizer’s announcement last week that it had agreedto a $160 billion merger with the smaller, Ireland-based company Allergan. Pfizer will move its headquarters to Ireland to take advantage of the lower corporate tax rate there.

The bill (A-3624), which was first introduced in September 2014, was met with Republican resistance in committee. It will likely face similar opposition before the full Assembly on Thursday.

The U.S. has one of the highest corporate tax rates in the world, and the federal government has been grappling with the inversion issue for some time. The U.S. Treasury Department issued new guidance last week to try and discourage the practice further.

 State legislators from both parties realize the issue is one that will be dealt with primarily on a federal level. The question is whether the state can also play a role in discouraging the practice.

The bill’s Democratic sponsors are effectively looking to punish corporate tax dodgers by not allowing them to receive state contracts or state subsidies.

“We’ve seen, especially in recent years, that this tactic of tax inversions has been used more frequently. I think those of us here in our state don’t begrudge any company for making a decision that they feel is in the best interest of their company’s longevity moving forward,” said Assemblyman Troy Singleton, one of the bill’s sponsors.

But, Singleton said, inverted companies shouldn’t be rewarded by receiving New Jersey tax dollars.

“It’s in our best interest not to provide our hard-earned and finite state economic development resources to companies that are then going to avoid paying what we believe is everyone’s fair share in taxes,” he said.

Republicans say the bill would end up penalizing New Jersey residents by increasing the exodus of high-paying jobs from the state.

“What this bill says is we’re not interested in the high-paying jobs of companies that are inverted,” GOP Assemblyman Declan O’Scanlon said. “I’m not sure we should be disinterested in any high-paying jobs.”

O’Scanlon said the bill creates a double standard between foreign companies and newly made foreign companies.

“[The bill says] as long as you were a foreign company to begin with, we want your business and we want your jobs. But newly made foreign companies, we don’t want you, we don’t want your business and we don’t want your jobs,” he said.

The Pfizer-Allergan deal will likely be the biggest corporate inversion ever.

Pfizer is headquartered in New York but has New Jersey operations in Peapack and Madison.

In New Jersey, the company was approved for up to $9.2 million in tax breaks from the state Economic Development Authority (EDA) under the Business Employment Incentive Program in 2010 for pledging to create 250 new jobs.

“Payments will be reduced proportionately based on the actual number of jobs reported,” EDA spokesperson Virginia Pellerin said.

To date, none of the tax credit has been disbursed.

Under the terms of the bill the Assemboy will consider on Thursday, if the Pfizer-Allergan merger goes through, Pfizer would be responsible for repaying the tax credits, if it does end up taking advantage of them.

“If we can’t stop [companies] in terms of inversions, at least we should be able to protect ourselves by not allowing them to continue to be parasites here in our state receiving tax dollars,” said Democratic state Sen. Shirley Turner, one of the bill’s sponsors in the Senate.

Senate Democrat spokesman Richard McGrath would not give a date for when the measure might appear on the Senate voting agenda, but said Senate President Stephen Sweeney will “review the bill to determine what next steps should be taken.”

The measure was introduced in both Houses in September, after Burger King announced it was merging with Canadian-based chain Tim Hortons to reduce its U.S. tax burden.

“They’re trying to get all of the benefits of being an American company, but at the same time they don’t want to be good corporate citizens. They have renounced their citizenship and they want us to continue to subsidize them,” Turner said.

Jon Whiten, executive director of the left-leaning think tank New Jersey Policy Perspective, said state residents lose out twice from inversions on the national level.

“First because there are fewer federal dollars around to flow into the state to fund safety net programs, transportation and other needs. And second, because corporations have less federal income on the books, the state isn't able to collect as much corporate tax to fund higher education, health care and other key priorities,” Whiten said.

Pfizer says the inversion will allow it to increase its investments in the United States.

“The lower tax rate and improved access to our global cash will allow Pfizer to sustain our investments both in R&D and in the U.S.,” spokesman MacKay Jimeson said in a statement. “Upon close of our merger with Allergan, Pfizer will also be able to leverage newly accessible capital to fund complementary research efforts in the U.S. that advance science and accelerate the development of new cures and treatments.”

State Republicans want Pfizer to continue to invest in the New Jersey economy and see the proposed legislation as counterproductive.

“Unfortunately, if you chase capital away, what ends up happening, is that a big company like Pfizer that employs a lot of people, if you’re not competitive, the expansion projects that they want to have don’t happen here in the United States or in New Jersey, they happen elsewhere,” Republican state Sen. Steven Oroho.

For Oroho, and many Republicans, the problem won’t be solved until the corporate tax rate is lowered, which would make the country more competitive and end the need for companies to pursue inversion as a corporate strategy.

original article