This video was made possible by Skillshare. Learn from more than 25,000 classes for free
for two months by signing up at skl.sh/hai26. There are a few things that everybody hates. Bug bites, going to the dentist, watching
videos that aren’t made by HAI and other Wendover Productions associated entities,
hand dryers, running out of things to put in a list, and of course, paying taxes. Of course there are a lot of different opinions
on taxes overall, but most seem to agree that they don’t like paying taxes themselves,
and nobody hates taxes more than corporations. That’s why often, corporations store their
money in tax havens—places with loose, generous tax laws that charge either very little, or
no taxes. Tax havens are like buy-one-get-one-free ice
creams, except instead of buying an ice cream, you put all your money in an overseas bank
account, and instead of getting a free ice cream, you don’t pay any taxes on your overseas
money. So actually, I guess it’s not like buy-one-get-one-free
ice cream at all and I should work on my metaphors. When you think of tax havens, you probably
think of places like the Cayman Islands, which doesn’t tax corporate or personal income,
or Bermuda, which also doesn’t tax corporate or personal income, but not many people think
of Delaware—a small, mid-Atlantic state with a population of 967,000 that’s home
to plenty of old historical artifacts like the New Castle Courthouse or former Vice President
Joe Biden. In fact, most people don’t really think
of Delaware much at all—it’s only home to 0.3% of the US population. Sorry Delaware-eites….um… Delawarriors…Delawalruses….people from
Delaware. Yet, Delaware is the legal home to over 65%
of all Fortune 500 companies, and 80% of publicly traded US companies. In fact, Delaware is home to more companies
than people. Now, this could either be because of the state’s
very respectable 1 to 138,000 IHOP to resident ratio or because of Delaware’s extremely
lax tax laws. First of all, in Delaware, companies don’t
have to pay corporate income tax on money that’s made outside of the state, and income
from interest and other investment isn’t taxed either, but mainly, Delaware is so advantageous
financially because of what’s called the, “Delaware Loophole,” which takes advantage
of the fact that Delaware doesn’t tax what are called “intangible assets.” Intangible assets are things that exist and
have value, but aren’t physical objects, like trademarks, copyrights, or my sense of
humor—there may not be much physical evidence of these things, but I promise you they have
value. So let’s say, as a hypothetical, I start
a corporation called, “Giraffe as Interesting.” We sell giraffes, this is our logo, and our
motto is, “our expert staff will get you a giraffe super fast.” Let’s say that we have giraffe stores all
across the country—in California, Pennsylvania, North Dakota, South Dakota, East Dakota, West
Dakota, Northwest Dakota, North-northwest Dakota, East-northwest Dakota, and of course,
Florida. Now, let’s say that my giraffe store in
Pennsylvania is raking in money—normally, all that money that store makes would be subject
to Pennsylvania taxes, but instead, I create a subsidiary of Giraffe as Interesting that’s
located in Delaware, and I transfer some “intangible assets” to that subsidiary. So I give the ownership of the name Giraffe
as Interesting, our logo, and our motto, to the Delaware subsidiary. Now, my store in Pennsylvania will pay my
Delaware subsidiary a trademark fee to use the name and logo and slogan. So let’s say that my Pennsylvania store
sold $100,000 worth of giraffes, but they also paid $95,000 to my Delaware subsidiary
for the rights to use the name Giraffe as Interesting and this awesome logo and that
great motto. My Pennsylvania store can deduct the money
they paid to my Delaware subsidiary from their income, so now they only have to pay Pennsylvania
taxes on $5,000, not $100,000, and that $95,000 they paid to my Delaware subsidiary doesn’t
get taxed at all, because, again, in Delaware, they don’t tax what’s considered, “intangible
property.” Every year, the government loses out on about
$9.5 billion because of the Delaware loophole. That’s enough money to buy 392,000 giraffes
or a few dozen US senators. So that’s the Delaware loophole and that
is what brings us to what you’ve all been waiting for—the two-story building that’s
home to 15% of all US companies. Now, there are a lot of important addresses
in the world: 1600 Pennsylvania Avenue, 10 Downing Street, 4 Privet Drive, 42 Wallaby
Way, but perhaps the most exciting of them all is 1209 Orange Street, Wilmington, Delaware. Believe it or not, this shabby building is
the legal address of over 285,000 companies. Why are they all in the same building? Because you have to have an address in the
state for, “service of process”—in other words, a place to get mail and legal documents
if you’re legally based there, but that law doesn’t say that you have to have staff
there. So a company, the CT Corporation, bought this
building at 1209 Orange Street and said, “hey companies, if you want, you can list this
as your address and get your mail here and we’ll deal with it so you don’t have to.” Therefore, 285,000 companies said, “yep,
cheerio, that sounds great,” which is how we ended up with Apple, Google, Walmart, American
Airlines, and Coca-Cola, all in the same two-story office space that looks like the headquarters
for an imaginary superhero called “boring-man,” whose superpower is coloring things beige. Now, let’s say you want to pay fewer taxes. You could a—declare your body a temple thereby
qualifying it for the religious institution tax exemption or b—learn how to properly
identify business expenses. For option b you could a—spend a captivating
afternoon reading through the IRS’ fantastic archive of documents or b—spend an actually
captivating 40 minutes taking this Skillshare course teaching you to do exactly that. It could end up being the most profitable
40 minutes of your life. If you really want to round out your afternoon,
I’d also recommend taking Thomas Frank’s productivity masterclass which can help make
everything you do more efficient. If you want to learn new skills and better
yourself, Skillshare is the place for you especially given their enormous library of
over 25,000 classes. If you sign up at skl.sh/hai26, you will get
two months of Skillshare for free and then, after that, their annual pricing works out
to less than $10 a month.
Delaware is not a tax haven. Delaware Corporations are still subject to all US Taxes, federal, state, and local. Businesses formed in Delaware, but doing business in other states, still have to pay taxes in states where they do business.
The problem is not with Delaware Corporation law; but with the tax laws in other states. For the example in the video, if PA is upset that they're not getting revenue from intangible assets, they should revise PA corporate tax laws.
Finally, the "building on Orange St" is a regulation required in every state. *Every state* requires that all registered business have a publicly identifiable address where legal documents can be served. That address can be an office, or you can pay a registered agent. So if an employee is having their wages garnished, there is a public address where the court order can be served. The registered agent is legally responsible for getting the document to the appropriate party.
A whole video about why companies choose Delaware and not a single mention of Chancery/corporate governance. Lol OK.
This is the second half as interesting video Delaware is mentioned in. The other was about the auction for the most expensive license plate.
Except that it's mathematically wrong. "Each year, the government loses out on . . ." isn't correct, as sales would go down if more taxes were paid (i.e., prices would have to be raised), so there would be less income.
Government is losing out on 1/4 of 1 percent of gross revenue. Damn it Delaware wtf?!
Nothing to see here you lookie loos, move along.