Trump and Clinton share Delaware tax 'loophole' address with 285,000 firms

[A Little Weird]

There aren’t many things upon which Hillary Clinton and Donald Trump agree, especially as they court very different Delaware voters ahead of a primary on Tuesday. But the candidates for president share an affinity for the same nondescript two-storey office building in Wilmington. A building that has become famous for helping tens of thousands of companies avoid hundreds of millions of dollars in tax through the so-called “Delaware loophole”.
.....
The loophole is said to have cost other states more than $9bn in lost taxes over the past decade and led to Delaware to be described as “one of the world’s biggest havens for tax avoidance and evasion”.

But it’s not just big corporations that have chosen to make 1209 North Orange their official home.

Both the leading candidates for president – Hillary Clinton and Donald Trump – have companies registered at 1209 North Orange, and have refused to explain why.


http://www.theguardian.com/business/2016/apr/25/delaware-tax-loophole-1209-north-orange-trump-clinton

I'm surprised this is allowed in the US, I thought that was the point of Cayman Islands and other offshore tax havens.

[Auggie]

1. I'm not surprised

For years Florida recreational boat buyers could register as "Incorporated" companies in Delware to avoid paying sales taxes on new and used purchases.

[nichomachus]

2. The story is wrong

There are a lot of things Hillary Clinton and Donald Trump agree on. They just pretend they don't.

[doc03]

3. So what there a thousands of companies that are incorporated in Delaware

it isn't breaking any laws. I worked 40 years for a Delaware company, still receive a defined benefit pension from them.

[Marrah_G]

6. You see no problem with companies being in your state simply on paper, to dodge taxes?

[doc03]

8. The company I worked for was incorporated in Delaware but they paid taxes here in Ohio,

PA, WV and several other states they had facilities. Nothing illegal about it.

[Marrah_G]

9. If there is nothing shady about, why go through the extra trouble?

I hate dishonesty. (the company, not you) They are doing it because they get an advantage by doing it.

[doc03]

10. Post #4 explains it well n/t

[Marrah_G]

12. I read it. I still think it is wrong and dishonest

I believe the companies are wrong for doing it and the state is wrong for allowing it.

[doc03]

14. Sanders people would think something was dishonest if Hillary

belonged to the Girl Scouts or a 4H Club when she was young.

[Marrah_G]

15. Not at all

I supported Clinton in 2008.

[treestar]

19. don't see how that would work

Most certainly they cannot "dodge taxes" because if they are doing business in other states, you can bet those states will tax them. I seriously doubt businesses have to pay taxes only where they are incorporated.

The incorporate in Delaware because they know its corporate laws are relatively lax as far as the board of directors doing what they want without shareholder complaints interfering too often.

But that doesn't mean they can avoid taxes where they do business. And they can get sued in Delaware, which could be inconvenient if they are really not there.

[A Little Weird]

17. I have no trouble believing there are thousands of incorporated businesses in Delaware

I'm wondering why 285,000 of them are at a single address. You really don't think that seems bizarre? I don't assume they are breaking any laws, just dodging taxes in one of the many legal ways available to the well-connected.

[Corporate666]

4. Lots of people don't understand how corporate registration and taxation work, apparently

A company can be registered in any state so long as you have a mailing address. That mailing address does not need to be a building you occupy, just somewhere that you can get mail.

If you have a physical location in another state, you need to register as a "foreign corporation" in that state.

And most importantly, you pay taxes on the business you do *in that state*. So if a computer consulting company is located in New York, but their business is incorporated in Delaware, it doesn't mean they don't pay New York taxes, or that they get to skip out on any taxes at all. They don't. They still have to pay the same in taxes whether their company is located in DE or NY.

The reason companies register in DE is because they have good privacy laws that don't require you to disclose too much information. Furthermore, the court systems are known to be friendly to business. That's why many contracts will be stipulated to be argued in DE court if there is a dispute.



The article is terribly written. It says some companies use something called "the Delaware loophole", then says HRC's company is located in DE. But it doesn't say she is trying to use that loophole, or that they have any evidence whatsoever that she is. It just throws a bunch of shit at a wall that is supposed to make ignorant people say "Oh wow, she's DIRTY!" without actually doing any research whatsoever.

As for the loophole, it's based on the fact that DE has corporate tax exemption for holding companies - in other words, if you don't actually have any office there, you don't have to pay corporate tax. So if you have something intangible like a patent, you can assign it to your DE corporation and then you pay royalties to that corporation.

It's not illegal at all. Nor is it even 'shady'. Companies pay royalties all the time on patents and IP, and if other states created the same exemption, companies would keep their IP in those states.

I don't see any way Hillary could even possibly use the loophole to avoid taxes, nor would she, knowing she would be under scrutiny. Like the other hundreds of thousands of people who register companies in DE, it will be about privacy - which is especially important for someone in her position.

[Dem2]

7. Thanks for posting this information

I thought it wasn't all that big a deal (from what I've read in the past), but I'm not an expert on this topic.

[Marrah_G]

11. Thank you for the information

But if it is no big deal, if they aren't gaining an advantage, why do it? Why lie and say they are a DE company when they are not? And shame on DE for allowing it.

People are getting sick of this sort of thing. Just because something is legal doesn't make it right.

[treestar]

20. companies from all over the world incorporate in Delaware

Delaware lets them. It is not a "lie." They do it due to the laws and courts which they deem somehow favorable. (Whether this is true is another question, but that is the perception).

The reason is likely the DuPont Company, which was such a large employer in Delaware, they could get laws favorable to corporations through. But it is mostly about internal operation of corporations, shareholder rights, being able to sue the board of directors. There is a business judgment rule that is very favorable to the board - so if shareholders sue over something the board did, they have a harder time winning.

It has nothing to do with evading taxes.

[A Little Weird]

23. Actually it does have to do with evading taxes

How Delaware Thrives as a Corporate Tax Haven
“Companies are able to turn taxable income into tax-exempt income in Delaware and then use it to reduce their tax bills in other states,” said Bradley P. Lindsey, an accounting professor at North Carolina State University and one of three authors of a 2011 study titled “Exploring the Role Delaware Plays as a Domestic Tax Haven.” Delaware does not tax certain profit-making intangible items — like trademarks, royalties, leases and copyrights. Yet those same intangibles can be part of a tax strategy that allows them to be classified as deductions in other states, reducing a company’s tax bill there.
http://www.nytimes.com/2012/07/01/business/how-delaware-thrives-as-a-corporate-tax-haven.html?_r=0

As an example, this article focuses on tax revenue lost to Pennsylvania because the fracking companies have taken advantage of the Delaware Loophole:

Delaware Tax Haven: The Other Shale Gas Industry Loophole
In 2004, the center estimated that the Delaware loophole had cost the state $400 million annually in lost revenue — and that was before the energy boom.

More than two-thirds of the companies in the Marcellus Shale Coalition, an industry alliance based in Pittsburgh, are registered to a single address: 1209 North Orange Street, according to the center.

These fiscal figures, as Wayne points out, predate the ongoing shale gas "Gold Rush" in the Marcellus. SEIU of Pennsylvania has calculated $550 million/year in lost tax revenue in the state from the shale gas industry due to the loophole.
http://www.nationofchange.org/delaware-tax-haven-other-shale-gas-industry-loophole-1344174888

There's much more out there that can be found easily using the Google.

[treestar]

24. How can it be done that way without the other states allowing it?

If they can "use it" to lower the other state's taxes, that state must be allowing them to write off the taxes they pay to Delaware. It specifically says the other states allow the deductions.

They are taking advantage of the laws the way the states write them.

from the first article

State lawmakers in Pennsylvania are now trying to close the loophole, arguing that their state is being robbed of its tax dollars. Of particular concern is that many companies involved in drilling for natural gas in the Marcellus Shale region of Pennsylvania are, in fact, incorporating in Delaware instead.

“Delaware is an outlier in the way it does business,” said David E. Brunori, a professor at George Washington Law School and an expert on taxation. “What it offers is an opportunity to game the system and do it legally.”

[A Little Weird]

25. Here's how it works

Basically a company sets up a corporate office in Delaware that is nothing more than an address. Then the company makes a sham transaction from the arm of the company that exists in the other state to the one in Delaware. In this way, the company's taxable profits in the state where they actually operate are greatly reduced and the bulk of their profits get taxed at the much lower tax rate in Delaware. The company saves money, Delaware makes out like a bandit, and the taxpayers of the other state are shorted out of tax revenue that should have gone to their state.

So the fracking companies are destroying Pennsylvania and reaping great profits and it is the company owners that largely profit. The citizens of Delaware do pretty well too considering they get the tax revenue without any of the environmental costs.

It is both legal and reprehensible.

[cui bono]

13. I'm no expert on this by a long shot but that doesn't make sense.

She has an address there, why? It's not about not needing to pay taxes there if you don't have an office there, it's about having an office there for the reason of not paying taxes elsewhere.

.

[A Little Weird]

16. So 285,000 companies share the same address

And you don't think there's something shady going on? I thought Sanders supporters were supposed to be the gullible ones.

[cui bono]

18. Seriously. And they didn't bother to come back and try to make sense of what they said.

I smell... Brock...

.

[treestar]

21. It's only an address that serves as Delaware address

for Delaware corporations. So there is an address for service of process for someone who wants to sue them.

[LAS14]

5. It's not a loophole. I hope...

... the accounting professionals and others that debunked this idea a week or so ago also see this post. I don't follow the details, but it sure looked like no one with any background in these things thought there was anything suspicious about using this address.

Aha! While I was typing this one of those knowledgeable people found this post. See #4.