Delaware’s Baser Advantages Under Fire in PA
Senator Christine M. Tartaglione (above) has introduced a set of bills that would eliminate what she calls the “Delaware Loophole” in State taxation matters. She has introduced these bills before (2003/2004) but they did not pass.
The “Delaware Loophole” derives from a feature of Delaware Law that exempts Delaware corporations, that do not do business in the State, from taxation on income from intangible assets ( Copyrights, Patents, Royalties and Rents). Walmart pays all rents in the 28 states that have not outlawed the practice through an entity in Delaware and saves approximately $90 million per year according to CNN.
The Senator wants PA to join 22 other states in taxing entities on the local portion of their income derived from all global sources.
Whether from a local first, labor first or Senator friendly attitude, it is interesting to see the way the Pike County Courier wrote up this piece of news. Look for the descriptive terms that a Delawarean may disagree with…
The state Senate has re-introduced legislation intended to create a fairer tax system by closing the infamous “Delaware loophole.”
and…
…pay the subsidiaries outlandish royalties or other fees to shelter the money from taxes in other states.
further…
“This activity is an insult to hard-working business owners who spend their time thinking about innovation and efficiency rather than tax-dodging tricks,” Tartaglione said.
You would expect the Senator to lobby for her bill. The newspapers characterizations require a different explanation. Delaware has long realized this “loophole” would be going away as other states attack it. This is not the only reason entities are formed in the State of Delaware. The General Corporation Law is a much larger attractor of incorporations. However, the reputation derived from the “Delaware Loophole” lures many to incorporate in Delaware thinking they will be sheltered from taxes by virtue of that choice. That is dead wrong. Consult an attorney prior to making the decision to incorporate in Delaware from out of state.