New York Times:
Critics of the arrangement in Delaware say it cheats state governments out of money. Delaware, these people say, has created its own onshore Cayman Islands. Even the Swiss are complaining, claiming that the United States is letting this homegrown haven flourish even as the I.R.S. pursues offshore shelters.
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While there might be some abuses, there is one excellent reason for any small business to consider Delaware -- mobility. Delaware enables a small business to pick up and move across the country unlike any other state.
Let’s say you’re a writer who lives in NY, so you decide to incorporate your business in NY. A few years later, you move to California. To operate in California, you must qualify to do business. When that happens, your NY company becomes obligated to pay franchise taxes and file tax returns in both CA and NY.
Although many believe that it’s possible to reincorporate in California, there is no simple transaction to change the jurisdiction in which a corporation is formed. Instead, by incorporating in DE, and then qualifying the corporation to do business wherever the principal place of business is located, when the corporation moves to a different state, it can qualify to do business in the new state and surrender its home state qualification.
This approach does involve a little bit of extra expense, even for a corporation that is still doing business in its original home state, because the corporation has to (1) pay DE’s very small annual fee, and (2) maintain an agent for service of process in DE. However, the marginal additional cost gives the corporation an enormous amount of flexibility where there is any possibility of a move to another state one day.
I would ask that the major American corporations would come to Central and Eastern Europe to set up their corporate headquarters in a stable offshore headquarters followed by a physical location in one of the countries here and conduct all business, any manufacturing, employment, etc in a country that would appreciate it instead of one that is obviously happy to thank the major employer by hitting them with excessive and unfair taxes. Companies need to start talking tough too and dictate what they want or leave not because they have to but because it makes the most economic sense.
States' self-interests in times of massive deficits are going to result in increased dog-fights for their respective piece of the pie. It's a zero-sum game. Darwinian survival of the fittest. Each state will spend a lot of money to pay for these fights. One state's bountifulness will be another state's suffering. Funding for education in state X, means less funds for state Y. Providing social services in one state will necessarily entail less provisions in another state. Hunger, sickness, ignorance and other human shortcomings are distinguished by state.
Expect states to assert nexus (their right to tax a company) if a company's marketing department looks at a map of their state.
"United States" is a misnomer. States fighting against states was always ugly. It's gonna get uglier.
My Canadian cousin lived for a time in Delaware because her husband's Fortune-500 company, like about half the major corporations in America, is headquartered there. Although she would be considered a conservative here in Canada, my cousin describes the Tax Free State as a weird libertarian experiment of virtually no public space or services. She had to send her kids to private schools at huge expense, there was not much for her to do in her off-hours as a stey-at-home mom, there was nowhere you could go on foot, and virtually no municipal services of any kind.
She has since moved to Cincinnati and is much happier, and happily sends her kids to a good public school.
Delaware is a symbol of what's wrong with America and with American conservatism -- it's all about money, with no room for society or shared goals.
Delaware is as guilty as other states, and not the symbolic icon of American decline.
Federalism provides for separate sovereign states. Each state pitted against each other can't be unexpected. Each state provides for its self, to the detriment of other states. Florida want's money from wealthy retirees who prefer sunshine over cold winters - so no income tax. Someone going to sue you? Become a Florida resident and enjoy an unlimited homestead exemption. (Put all of you money in your home - creditors can't touch it. Ask Bowie Kuhn and OJ.) South Dakota provides service jobs in your state from credit card companies with their usury laws. There are many examples. One state's gain is another states loss.
This same business Darwinism is carried out on the global stage. Some countries have favorable tax treaties to attract business and jobs in their country
This concept of "'shopping," whether, tax treaty, legal forum, or simply finding a jurisdiction with favorable laws for your intentions or purpose, is hardy limited to Delaware.
typo
South Dakota provides service jobs in its state from credit card companies with their usury laws.
The US made a major move against offshore tax havens only to have the Swiss and Cayman Islands air out our dirty laundry. The reason that the Fed is against the offshore tax havens is the fear that corporations are not paying Federal Taxes, they are not worried about local tax havens since only the states are screwed.
Just another way for the corporations and their rich lackeys to fleece the American public. Shut it down!
My company's legal team says the best reason to incorporate in DE is because the corporate law is long and well established and investors like their take on corporate governance. I'm not so sure of the specifics, but I do know that when we tell prospective investors (venture money) of our DE incorporation, they are satisfied. Once when looking for venture for a firm that was incorporated in CA, I sometimes heard, "oh, we can always re-incorporate to DE..."
My guess, upon reflection, is that incorporators get screwed and investors make out like bandits in DE...
-frown-
.
DE is good for different classes of stock (stock preferences), proxy fights, trashing minority interests, and other corporate law issues.
Isn't the vice-president from there?
The company I worked for for twenty plus years pulled the same Intellectual Properties Dodge that WorldCom did back in the late 90's. Essentially charging royalties to all corporate subsidiaries for the use of various patents and copyrighted items. The issue for me was that the only real asset the company had in that IP portfolio was the name of the Corporation itself. So what it meant was that in every state where we did business a 5% of gross revenues was charged and said fees were laundered through Delaware. The subsidiaries were given 'forgiveness' for their reduced revenues and the corporation avoided $30 million in annual state corporate income taxes - just for the privilege of using the damn name. Perfectly legal, but I doubt would have passed the smell test in the various State Legislatures if those that actually knew what was going on hadn't been being paid to look the other way.
Can you believe it!??
These dirty, rotten corporations trying to hang on to their money...wh
If this idea spreads, you could have ordinary citizens trying to keep more of what they earn..and then where would these bloated, rapacious, money-sucking government bureaurocrats be??
Why, they might actually have to curtail their spending.. and then how could they even exist??
They might actually have to lay someone off.
Yep they just might have to lay off the teachers who teach your kids, or the policeman who is there to protect you or the fireman who just might be able to keep your home from burning to the ground. Perhaps you would rather it be the engineers and the construction workers who build and maintain the roads and bridges you use. Or how about the local hospital you might be rushed to in an emergency. Yep we sure do have a lot of silly ways to spend tax dollars.
I notice you didn't mention the bloated bureaucrats sitting of their fat behinds in the thousands of administrative jobs that could probably be cut by 25% and no one would notice.
You tax-sucking libs just quiver at the thought of the public trough drying up.
This can't possibly be a shock. The first thing I learned in my contracts class in law school is that you incorporate a business in Delaware for the tax breaks.
I'm sure quite a few businesses have done just that and reaped the benefits.
Tell us a little about the tax breaks. DE works to save ONLY STATE income/franchise taxes for a multi-state business that creates an intangibles holding company. If you are licensing intangibles for royalties, incorporating in DE has benefits. I can't think of any other compelling tax reason to incorporate in DE. NO FEDERAL BENEFITS.
Unless you want an intangibles holding company or have a need for sophisticated state corporate law, save about $50 a year - DE's filing fee. You have to register in any state that you actually do business in, and pay that state's corporate income/franchise taxes.
For taxes, it doesn't matter where you incorporate. Where you do business matters. So incorporating in Nevada while doing business in California will actually cost you more in taxes - Nevada's filing fees. No income/franchise tax savings. A probably a higher bill from your lawyer who, while knowledgeable in CA law, has to research NV law.
State laws determine property rights. To the extent that ownership or property rights impact a tax law, incorporating in a specific state may have significance.
Your statement is like an ice cube on the top of an iceberg. Ask you professor to expatiate about these tax breaks. I doubt that he/she could.
Have you taken a tax law course yet?
The 'loopholes' are very beneficial to those who want to find them, however, it takes a crooked Lawyer, and a cagey Accountant to execute them...
You don't even have to be crooked or cagey....y
These days you don't even have to do all that; just go online to the State of Delawre's web site, find an agent in the state, pay a few fees and you're done. Last year the cheapest you could do it was about $220, but they've raised the fees $100 for the current year.
.
You are overlooking the principal culprits. These loopholes are usually legal, so your indictment of crooked lawyers and cagey accountants is misplaced.
Direct your indignation toward congress and state legislatures.
My startup technology company is incorporated in Delaware. Delaware is NOT a tax haven. We are paying TAXES on investment monies and we have not earned one red cent. We are considering moving the corporation to texas where we are based.
Delaware..
You may want to look into incorporating in Nevada first. Jes something I hoid. 8-]
Wrong.
Stop watching those late-night infomercials.
You have a lousy accountant.
Amalek, you are clueless. If you really knew anything about the tax structure of Delaware you would not have posted your uninformed comment.
It will cost you mare money to dissolve in DE and re-incorporate in TX. Pay DE their annual filing fee and chalk it up to experience. Leave it alone.
Besides, if you go public or have a need for some esoteric class of stock permitted by DE law, retaining your present incorporation may be beneficial.
I used to wonder if anybody other than corporations actually lived in Delaware. But I guess Joe Biden does.
Some posters are ignorantly implying a connection between Biden and this issue. There is none.
Hit on "motor-mouth" for other issues. He has no relevance to this one.
This matter could interest VP Biden. In the event it interests Biden, could he influence any decision re: De as a corporate tax haven? Could anybody tell him to keep out of these matters; who would have the standing to bar VP Biden from trying to influence decisions on these matters? This is 1 of those, "What if?", questions which occupy idle minds like my mind. It may be important or it may not be important.
Keep Biden out of this. He is irrelevant of this issue.
Biden (federal). The federal constitution limits what he can do. Unlike Cheney, he probably wants to follow it.
DE corporation law (state).
Besides politely asking, there is nothing else that Biden can do.
And don't expect Biden to be polite.
I was wrong, but not completly.
Ignore the above post. The feds can regulate inter-state commerce, but are very reluctant to do so. So reluctant, and rarely have they done so (PL 86-272 an exception) I completely forgot their authority to address this issue. Practicality overrode my understanding of the law.
But still, I think I was correct in suggesting that one should not expect Biden to be polite.
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First Posted: 05-29-09 11:23 PM | Updated: 05-29-09 11:29 PM