Gas Drilling Companies & Walmart are using "The Delaware Loophole" to avoid paying PA. taxes

[JPZenger]

http://www.pasenate.com/?p=7756

Administration’s Trust Issues Create Tax Disparity

by PA. State Sen. Christine M. Tartaglione

"Last May, I wrote to Pennsylvania Revenue Secretary Dan Meuser about the longstanding problem of the Delaware Loophole, which allows corporations to shelter income through Delaware mailing addresses to avoid paying Pennsylvania income taxes.

In 2004, the Department of Revenue estimated that Pennsylvania was losing more than $400 million in potential revenue through this flaw in state law....

More than nine months later, at a recent budget hearing, Secretary Meuser could not answer a question about what, specifically, his department is doing to ensure that corporations are not using Delaware subsidiaries to avoid paying Pennsylvania taxes.

If the administration applied the same zeal and effort to tax enforcement on corporations as they are on consumers, painful cuts to education and human services could be avoided.

While the Corbett administration cracks down on the little guy, 23 states have already adopted “combined reporting” requirements for corporate income taxes, effectively closing the Delaware Loophole and recovering millions in lost revenue. Several states have sued large corporations, revealing disturbing contortions of tax law that allowed them to pay lower taxes and drive away competition from small, local businesses.

Time after time, the Corbett administration has demonstrated this sympathy and “concern” for corporations and deep distrust of families."
-------------
http://www.pasenate.com/?p=3329

By PA. Senator Jay Costa

Excerpts:

"Delaware has no corporate tax on income from “non-tangible assets,” such as leases, trademarks, royalties and copyrights. Large corporations form Delaware subsidiaries and transfer ownership of such assets, then makes steep payments for the use of the assets, making them deductible expenses in Pennsylvania.

Most of the Delaware subsidiaries have no employees, and simply exist to collect revenue and redistribute it. On building at 1209 N. Orange St. in Wilmington, is headquarters for 6,500 registered companies but has only 35 parking spaces. More than 700 corporations are headquartered in five floors of a downtown Wilmington high rise.

WalMart and Home Depot have real estate investment trusts in Delaware that collect lease payments from local stores.

Nearly three quarters of Pennsylvania corporations pay no income tax. Pennsylvania’s revenue department estimated several years ago that combined reporting could bring more than $400 million in tax revenue back to the state. That loss of revenue contributes to Pennsylvania having the highest corporate net income tax in the nation, an unfair burden to businesses that don’t use Delaware subsidiaries.

According to the Pennsylvania Budget and Policy Center, only 15 percent of 783 Marcellus exploration companies paid Corporate Net Income taxes in 2008. A significantly larger number of drillers — including nine of the top 10 permit holders in the Marcellus Shale — structure their businesses as limited liability companies (LLCs) or limited partnerships (LPs). This allows them to avoid the corporate net income tax altogether and pay the much lower personal income tax on company profits.

Using the Delaware Division of Corporations on-line database, the Communications and Issues Development Office has identified more than 400 Delaware subsidiaries linked to Marcellus Shale gas exploration.

According to the Center for Budget and Policy Priorities, there are numerous ways that the Delaware subsidiaries can be used to shift income to tax-free companies in Delaware. They include:
•Royalty payments
•Technology and formula trademarks
•Land leases

Nearly every company drilling, processing or transporting gas in Pennsylvania has at least one, and usually several, Delaware subsidiaries. One of the largest, Anadarko, has 89 corporations registered in Delaware.

EXCO Holding PA Inc. is registered in Delaware….Penn Virginia has 14 Delaware entities, all at 1209 N. Orange St…..PVR Radnor is not in Radnor. It’s in Delaware at 1209 N. Orange, but so is PVR North Texas and PVR Lexington and PVR Savannah….Range Resources is perhaps the granddaddy of them all, having been registered in Delaware for more than 30 years, but there have been lots of new kids on the block at 2711 Centerville Road.

Sen. Tartaglione is calling for immediate consideration of Senate Bill 679, requiring “combined reporting” to close the loophole.

Now 23 states have adopted the practice – representing nearly two-thirds of of the economy. Combined reporting would add little to corporate accounting because three quarters of companies that would be affected already do business in states that require combined reporting. Most of the large corporations that would be affected by reform in Pennsylvania maintain facilities and workers in numerous combined-reporting states year-in and year-out."


------------
Sen. Tataglione said nearly two-thirds of the businesses that make up the Marcellus Shale Coalition are registered at one address: 1209 N. Orange Street, Wilmington, Delaware. The small office building with 35 parking spaces is home-base to thousands of businesses, including two-thirds of the Fortune 500.

Here's a list of some of the 6,500 corporations that are "headquartered" at this non-descript little office building:

http://www.corporationwiki.com/Delaware/Wilmington/1209-N-Orange-St-Wilmington-DE-19801-a20516.aspx

[ProgressiveProfessor]

1. The vast majority of major US Corps are sited in Delaware

Has mostly to do with corporate governance laws. Its not unique to PA or the companies you cited.

Corps with business nexus in a state also pay some state taxes associates with that nexus.

[JPZenger]

2. Not paying PA. taxes on profits generated in PA.

Yes, registration alone in Del. is not an issue. However, when the Republicans have refused Democratic efforts for several years to close the loophole that allows companies to avoid taxes from profits GENERATED in PA, that is a big issue. As noted above, many other states have closed that loophole, PA has not.

http://www.philly.com/philly/blogs/inq-phillydeals/Comcast-Wal-Mart-Exxon-owe-PA-tax-reformers-say.html

The article above notes that the State Senate Majority Leader's brother happens to be a Wilmington corporate lawyer.

Much more about this issue.

http://pennbpc.org/sites/pennbpc.org/files/Combined-Reporting-May-2010.pdf

Dems have introduced bills in the legislature every year to deal with this problem. They get stopped in the State Senate, which the GOP has controlled for many years.

[ProgressiveProfessor]

3. Is there some form of reciprocity agreement between the states?

Formal or informal?

This was also true when we controlled the state. Why wasn't something done then?

[JPZenger]

4. There are reciprocity agreements for personal income tax. I haven't heard of any for corporate tax.

I don't claim to be an expert on state tax law.

[Curmudgeoness]

7. I agree with your statement about this going on for so long.

Delaware has been a tax haven state for as long as I can remember, no matter who is in control of this state. For some reason that is incomprehendible to me, no one seems interested in closing this loophole....so instead we have a high corporate tax that causes problems for the companies who are operating here without running everything through Delaware.

With the state of the economy and budget in PA, it is about time we do something about it.

[HopeHoops]

5. Walmart doesn't pay taxes. That's their business model - no taxes and no US made products.

Unfortunately, it seems to be working and the very people who are most hurt by their policies are the ones they call "customers".

[JPZenger]

6. Walmart

Walmart also has a history of never planting a single tree unless they are required by the local government.