Think U.S. corporate use of off-shore tax havens is a bad thing? How about in-country tax havens that give companies a way to dodge state taxes.
The NY Times reports that more states are cracking down on corporate use of Delaware as a place to set up shell corporations that provide a way to reduce or even eliminate state tax liability in the real homes of corporations. About 20 have moved to outlaw the ruse.
You don’t even need to ask. Of course Arkansas is being taken advantage of by corporations. Some half-hearted efforts to do something about it in the legislature have gone nowhere. You can lay some of blame for the erosion of corporate taxes in Arkansas on the dodge.
Defenders of the arrangement — corporate executives, tax lawyers and, unsurprisingly, Delaware officials — rebuff such criticism. Mailbox subsidiaries like the ones along North Orange Street do nothing to minimize companies’ federal tax bills, they say. Corporations must still pay Uncle Sam. Moreover, these people say, many companies are drawn to Delaware for its business-friendly laws and courts, not to save on taxes.
That is certainly the view at 1209 North Orange Street, a nondescript low-slung building at the corner of West 13th Street. This address serves as a tax minimizer for dozens of brand-name companies, among them Dillard’s, the department store chain based in Little Rock, Ark., and Kentucky Fried Chicken, which is part of Yum Brands of Louisville, Ky. All of them, and nearly two-thirds of the Fortune 500, have tax-exempt subsidiaries at this address to reduce their state tax bills.
UPDATE: I’m reminded that Arkansas Advocates for Children and Families did a study and report on the damage caused the state by this tax avoidance scheme several years ago. Legislators?