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The
Delaware connection
The nation’s “First State” — Delaware — leads the
U.S. in corporate pandering
By Lisa Rayner
Tea Party Publisher
Many corporations doing business in Flagstaff are
incorporated in Delaware, including Safeway, Albertson’s (which
also owns Osco Drugs), Dillards, Circle K, Michael’s, Barnes &
Noble, Payless Shoes, McDonalds, the GAP, and, of course, Wal-Mart.
Other corporations with local ties
that are incorporated in Delaware include W.L. Gore, Nestlé (new
owner of Flagstaff’s Purina plant) and Pulitzer, Inc., the owner
of the Daily Sun, Flag Live! and Mountain Living
(Pulitzer’s subsidiary, Flagstaff Publishing Company, is
incorporated in the state of Washington).
Why are so many companies that do
business in Flagstaff incorporated in Delaware? It turns out that
many companies doing business all over the world are incorporated in
Delaware.
In the news lately are reports
about how U.S. multinational corporations use offshore locations
like Bermuda and the Cayman Islands to hold financial assets, thus
avoiding U.S. corporate taxes. However, we also have our own
“on-shore” corporate tax havens. Most of the problem lies with
one state — Delaware.
Corporate lawyers wrote Delaware’s corporate laws.
Corporations incorporated in Delaware are not required to disclose
the names of owners or officers, finances, nor even the company’s
purpose. By contrast, on the Arizona Corporation Commission Web
site, you can easily find information on the owners, officers and
finances of corporations incorporated in Arizona. The Delaware
Division of Corporations Web site offers information on why and how
to incorporate in the state, but no company listings: “Take a
closer look and discover Delaware's corporate advantage,” says the
site.
Delaware has long been known as the home of Du Pont, the
“better living through chemistry” company. Du Pont was founded
in Delaware in the late 1700s. I grew up in Delaware. Both of my
parents worked for Du Pont, as did many of my friends’ parents. Du
Pont family mansions dot the suburbs of Wilmington, Del. When I was
in high school in the early ‘80s, students whose parents worked
for banks and credit card companies began appearing at my school. I
have since discovered why Delaware is so attractive to large
corporations.
The Lawyer’s Guide to Delaware (www.hg.org/guide-delaware.html)
explains how the system works. The Guide is published by Richards,
Layton & Finger, Delaware's largest law firm. The firm handles
corporate law and litigation, holding company taxation and assists
with “complex financial transactions.”
“Delaware has
evolved the most modern and flexible business organization laws in
the United States, has adopted modern banking and consumer credit
laws and has reduced personal income taxes and established a
nationwide reputation for innovative tax structure,” says the
Guide. “Our legal framework is intentionally crafted to foster
robust business activity. Our widely copied business laws lead the
nation in clarity and predictability.”
Despite Delaware’s small
size, more than 525,000 corporations are incorporated in Delaware,
including nearly 60 percent of “the Fortune 500 largest U.S.
corporations” says the Guide. The human population of Delaware is
only 783,600.
Delaware rakes in half a billion
dollars annually through this cheaper-by-the-dozen strategy.
The big reason for corporations to
incorporate in the state is to avoid taxes. “A corporation
incorporated in Delaware but not doing any business in Delaware and
simply maintaining a statutory corporate office in Delaware is
exempt from Delaware corporate income tax,” says the Lawyer’s
Guide. Corporations that do conduct actual business in the state
also have a number of tax advantages.
Energy companies are among the larger companies attracted to
Delaware’s permissive financial environment. Enron incorporated
more than 650 of its subsidiaries in the state. Peabody Energy, the
company that owns two coal mines on Black Mesa is incorporated in
Delaware. So is Reliant Energy, which is partnering with the Hopi
Tribe through its newly formed Delaware subsidiary, Reliant Energy
Mesa Vista, LLC, to build a coal-fired power plant on the
reservation. Also incorporated in Delaware are Texaco, Shell,
Phillips Petroleum, Ford, General Motors and Halliburton.
Then there is Delaware’s well-known grip on chemical and
pharmaceutical companies. ICI and Hercules chemical companies,
headquartered in Delaware, were split from Du Pont by federal trust
busting in the early 1900s. Corporations like Dow Chemical,
Monsanto, GlaxoSmithKline, AstraZeneca and Pfizer have since
discovered Delaware’s corporate “advantages,” too.
Delaware is also a stronghold for agribusiness. Tyson Foods,
ConAgra, Cargill, Hormel and Archer Daniels Midland are all
incorporated in Delaware. Rural southern Delaware is known primarily
for its broiler chicken factory farm operations.
Delaware law is especially lenient toward financial
institutions. Look at the return addresses on your credit card
statements. More often than not, there is a Wilmington, Delaware,
P.O. Box. Credit Card companies and banks (or their financial
holding companies) incorporated or headquartered in Delaware include
Chase, Citibank, MBNA, First USA, Bank One and Wells Fargo.
Due to the Financial Center
Development Act, enacted in 1981 and expanded in 1984, “Delaware
has become a regional financial center,” says the Lawyer’s
Guide. The Act “permitted the acquisition of up to two newly
established Delaware or national banks located in Delaware by an
out-of-state bank holding company. ... These local banks have been
used to market nationwide, commercial and consumer bank products
free of the usury (debt and interest) limitations that are common in
most other jurisdictions. … Delaware is largely free of usury
restrictions.”
Delaware also exempts
“investment companies” from its corporate income tax and taxes
on royalties and license fees for patents, trademarks, copyrights
and other intellectual property. “With increasing frequency in
recent years, (Delaware investment companies) …
have been used to hold intellectual property as part of a
plan to reduce overall state income taxes,” says the Lawyer’s
Guide.
In this age of terrorism, Delaware hopes that foreign
corporations note that, “Delaware law also provides an explicit
mechanism by which a non-U.S. corporation may temporarily transfer
domicile to Delaware in the event of an emergency condition in the
corporation's home jurisdiction, such as insurrection, war, foreign
domination or expropriation or nationalization of substantial
assets.”
All that would be needed to stop such greedy pandering to
multinational corporations is a simple federal law that prevents
states from creating such tax loopholes. Of course, politically
speaking, it will be a long, uphill battle.
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