The New Jersey Supreme Court ruled that companies operating in the state may not use out-of-state subsidiaries to hold their intellectual property and subsequently shield profits from the state’s corporate income tax.The judgment, which applies only to New Jersey, means that companies will no longer be able to use a shelter strategy to transfer property such as trademarks or patents to subsidiaries in low- or no-tax states. Companies have generally paid the subsidiary for the use of brands or other proprietary property and then deducted those payments from their state income taxes. The income collected by the subsidiary is than taxed at a lower rate, or not at all.
The New Jersey case involved apparel retailer Lane Bryant, which had transferred trademarks to a Delaware corporation it also owned. Lane Bryant then paid Lanco for the use of those trademarks.
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