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The tax part is pretty inaccurate. If you use business IP and transfer it to Delaware you will not avoid California tax on income from that IP. The unitary busi

The tax part is pretty inaccurate. If you use business IP and transfer it to Delaware you will not avoid California tax on income from that IP. The unitary business and formulary apportionment approach of California income tax (also the dominant approach of multistate income tax in other states) easily beats that strategy, by treating formally separate entities as one for taxation. The sort of income shifting described in the article works better in international taxation since there the dominant approach is a “separate accounting” aka separate entity approach. Indeed, even the Geoffrey case the article notes is famous for Geoffrey losing in South Carolina, and having its income taxed in that state. Nonbusiness income is taxed to commercial domicile, which does promote moving headquarters to a tax haven. But much less income is considered nonbusiness income than you’d expect, and further commercial domicile is a separate concept from place of incorporation. By far the dominant reason for Delaware as a corporate place of incorporation is its well developed corporate law and courts. It is more favorable to corporations in part, but not excessively so—VCs would not be pressuring corporations to incorporate in Delaware if it purely screwed shareholders at the corporation’s benefit. There are also estate planning and asset protection benefits of using Delaware (and certain other states) LLCs.

jawns 5y ago
Exactly right. I'm a Delawarean, and in my former career as a journalist I wrote about this phenomenon. It's all about the courts. It is a risk mitigation strategy for businesses. Having extensive, well-defined case law makes things more predictable.
- toyg 5y ago
  One of the peculiarities of the US is how you guys managed to effectively bootstrap industrial districts at continental level for the weirdest meta-stuff, from newspapers to movies to corporate accounting.
  - ghaff 5y ago
    Newspapers? I would have said those were pretty distributed. Yes, a couple of the big national ones are in NYC, but that's where the population is. Finance is certainly another example. Obviously at least a certain subset of tech. Oil. Is this really that unusual though? And, to the degree it is, how many other large countries have the same sort of distributed large population centers?
    - sellyme 5y ago
      > And, to the degree it is, how many other large countries have the same sort of distributed large population centers? Despite Australia seeming like the perfect candidate for this due to having approximately five cities of note, all spread out over an area larger than the contiguous US, there's basically no industrial specialisation on a per-city basis here. Here's the closest examples I can think of: The area surrounding Brisbane/Gold Coast is home to a large number of the nation's major theme parks and similar attractions (think any things named "<Noun> World"), but that makes a lot of sense for tourism purposes. Melbourne is the sporting capital of the world, but every other city in Australia also has an extremely strong sporting culture, so even though Melbourne has most of the biggest events (Australian Open, AFL Grand Final, the F1 race that they stole from Adelaide, the Boxing Day Test, etc), everywhere else is usually still packing out 50,000+ seat stadiums for various football codes or cricket on a weekly basis anyway, so it's definitely not anywhere near the level of exclusivity that somewhere like Hollywood enjoys. Then you've got theater in Sydney, but like theme parks that's fairly normal for the industry, and it's not a permanent exclusivity but more of a timed thing where shows start to travel after having been exclusively in Sydney for a certain period of time. That said, my understanding is that China is a very close fit to this discussion. Unfortunately I only know enough to list one example - Shenzhen, the place where basically every cheap electronical component is made - but I've definitely seen dozens of articles about various different hyper-specialised cities in China. I suppose it helps when the government can just go "hrm, we want to be better at this industry, let's build a 1mil population city specifically focused around it".
      - bigger_cheese 5y ago
        >Despite Australia seeming like the perfect candidate for this due to having approximately five cities of note, all spread out over an area larger than the contiguous US, there's basically no industrial specialization on a per-city basis here. Funny you should mention Melbourne. It is a good historical example of a city fueled by an industry. It grew out of the Victorian Gold Rush in 1850's and 60's. Melbourne went from less than 75k population to 500k in a 10 year period which was massive growth. At one point it was the richest city in the world. The legacy from all this still exists today. It is why a lot of Australian banks etc are Headquartered in Melbourne, because they have their roots in gold rush.
  - JumpCrisscross 5y ago
    > how you guys managed to effectively bootstrap industrial districts at continental level for the weirdest meta-stuff, from newspapers to movies to corporate accounting This is a common market flexing its economies of scale. India and China do similarly. If the EU could get its act together, it, too, would reap these benefits.
  - bradgessler 5y ago
    When it comes to running a business in the US, it’s almost better to think about each state as if it were its own country because you’re subject to a substantial amount of state laws. You can’t incorporate at a federal level—only state level. Federal law does it exist, but it feels like more a set of minimal standards. Most of the differences that people pay attention to are state laws because they usually go above the federal laws and regulations.
    - amelius 5y ago
      But patents are nation-wide, I suppose?
      - tomcam 5y ago
        Correct; in fact they are provided for in the Constitution
    - deleted 5y ago
      [deleted]
  - aasasd 5y ago
    Funny enough, it's a rather common trope in fiction, which loves to stereotype people into stratums by any imaginable criteria. IIRC blog posts were pointing out the geographical specialization in Hunger Games and saying that it's pretty ridiculous because not fault-tolerant. Basically, if California were to break off and fall into the ocean, a huge chunk of US tech and entertainment sectors would disappear.
    - throwbigdata 5y ago
      One of those would be a problem.
      - dopidopHN 5y ago
        I actually would be more concern about the food produced in California. The tech will be figured out elsewhere. The data center outside of the region would be fine.
      - heavyset_go 5y ago
        Yeah, as 2020 has shown me, I'll get pretty bored without a steady stream of new entertainment to enjoy.
      - aasasd 5y ago
        You really don't think that the US exports a ton of media and entertainment? And that, for example, it happens to impose and protect copyright laws to make sure those profits continue? I have trouble finding the export figures, but there's this: > The global media and entertainment market was worth $1.9 trillion in 2016, with extrapolations ranging to $2.14 trillion by 2020. About one third of the total ($735 billion in 2017) is made up by the U.S. entertainment industry. Edit: seems the export figure is quite a bit smaller, CNN lists tv/movies together with software at 49 billion: https://money.cnn.com/2018/03/07/news/economy/top-us-exports/index.html https://money.cnn.com/2018/03/07/news/economy/top-us-exports...
    - aasasd 5y ago
      Ah, and the second objection is cost of transportation, I think. Which is probably the main real-life reason to have at least some finance and law firms in CA and not shuttle all documents to NY or Dover and back again.
  - deleted 5y ago
    [deleted]
- vmception 5y ago
  Wyoming has had a Court of Chancery for several years now too They and any state could always lean on Delaware case law And if you don't like Delaware established precedent then you can argue for the opposite in any other state (like Wyoming) where the judges are less bound to the established case law Delaware is overrated The race to the bottom never ended and is much larger than a collection of states, it is international with many permutations and many legislatures interested in attracting business, because they're a business too
  - naniwaduni 5y ago
    > And if you don't like Delaware established precedent then you can argue for the opposite in any other state (like Wyoming) where the judges are less bound to the established case law That's the opposite of what you want.
    - vmception 5y ago
      Not if you don't like the established case law and want to argue for a completely different outcome. Which is just me saying the exact same thing a second time. Let's see if we get to a third rehash of this optional preference.
      - naniwaduni 5y ago
        You do not want, at the same time, a jurisdiction that leans on well-established case law, but also does whatever the heck it wants because you're arguing for it. Not unless you're in a privileged position to influence the court in a way that anyone coming up against you can't, anyway.
        vmception 5y ago
        There are a lot of things I don't like about Delaware decisions I could play this game for the next 300 years before people catch on or fundamentally change anything about the nation state/jurisdiction/case law concept
- tomcam 5y ago
  Check out parent’s profile. Wish these books were around when my kids were young
JumpCrisscross 5y ago
> well developed corporate law and courts To put this into context, the average time in 2020 for a civil case to go from filing all the way to an appeal to the Delaware Supreme Court was 185.8 days; from submission to the Supreme Court, 32.8 days [1]. California’s courts don’t publish this information regularly, but the last time I checked, the comparable statistics were 3 years and one year. [1] https://courts.delaware.gov/aoc/annualreports/fy20/doc/2020StatisticalInformationReport.pdf https://courts.delaware.gov/aoc/annualreports/fy20/doc/2020S... page 8
- deleted 5y ago
  [deleted]
supercanuck 5y ago
It is actually simpler than this, and that is it is extremely difficult to pierce the corporate veil in Delaware. It is considered one of the strongest states for segregating the officers and shareholders except in cases of outright fraud.
rsj_hn 5y ago
Yup, this article falls squarely in the "misinformation" category, and the author has no experience with tax law, nor does he cite any authorities to support the tax avoidance thesis. He's just winging it, improvising, about corporate tax law. It's crazy how low journalistic standards have fallen as the line between news article and "personal blog" has been blurred. I am not ascribing ill motive to the author. Just incompetence in trying to write about a very complex topic that is far out of his depth, and doesn't allow for simple moralistic summaries like "Big biz not paying their fair share!".
- IG_Semmelweiss 5y ago
  I don't disagree, but the website URL is called "the hustle". I don't think it would be far fetched to think that the content should be viewed with a healthy dose of skepticism ?
dheera 5y ago
For the number of corporations that register in Delaware, why aren't Delaware's streets lined in gold? I dropped a few Google Street View pins randomly around Delaware and it looked pretty dated to me. Schools that look like jails, houses made of wood, potholed roods, narrow non-ADA-compliant sidewalks, and hardly any modern shiny train service. Aren't they scooping up trillions in taxes? Why aren't they building the next Shanghai/Silicon Valley/Singapore/whatever with that cash? It's really hard to believe from Street View that this is the place where big corporations are registered. https://i.imgur.com/FP3XZtx.jpg https://i.imgur.com/FP3XZtx.jpg
- deleted 5y ago
  [deleted]
- IG_Semmelweiss 5y ago
  There is a long line of countries that found black gold (oil) in the 70's, such as Venezuela , that are since economic basket cases. Or take some African countries with Diamonds. My point is that because you have a revenue source / competent niche, that does not guarantee a competent government. Usually the only thing you can guarantee is that unplanned riches or resources will lead to waste and corruption. Its not an accident that the norwegian sovereign fund is an rarity, not a rule. I am curious if there is a genesis to the level of crime and abandonment so pervasive in DE.... from the success DE enjoyed early on, via corp registration riches.
  - moehm 5y ago
    Just to enrich your comment, the grand parent should probably read "The Dictator's Handbook"[0] by de Mesquita or watch this adaption: https://www.youtube.com/watch?v=rStL7niR7gs https://www.youtube.com/watch?v=rStL7niR7gs [0] https://www.goodreads.com/book/show/11612989-the-dictator-s-handbook https://www.goodreads.com/book/show/11612989-the-dictator-s-...
  - Layke1123 5y ago
    Venezuela versus Norway? Tell me again, which one was sanctioned by the US and had the CIA trying to back a coup in it and which one didn't?

jawns 5y ago

Exactly right. I'm a Delawarean, and in my former career as a journalist I wrote about this phenomenon. It's all about the courts. It is a risk mitigation strategy for businesses. Having extensive, well-defined case law makes things more predictable.

toyg 5y ago
One of the peculiarities of the US is how you guys managed to effectively bootstrap industrial districts at continental level for the weirdest meta-stuff, from newspapers to movies to corporate accounting.
- ghaff 5y ago
  Newspapers? I would have said those were pretty distributed. Yes, a couple of the big national ones are in NYC, but that's where the population is. Finance is certainly another example. Obviously at least a certain subset of tech. Oil. Is this really that unusual though? And, to the degree it is, how many other large countries have the same sort of distributed large population centers?
  - sellyme 5y ago
    > And, to the degree it is, how many other large countries have the same sort of distributed large population centers? Despite Australia seeming like the perfect candidate for this due to having approximately five cities of note, all spread out over an area larger than the contiguous US, there's basically no industrial specialisation on a per-city basis here. Here's the closest examples I can think of: The area surrounding Brisbane/Gold Coast is home to a large number of the nation's major theme parks and similar attractions (think any things named "<Noun> World"), but that makes a lot of sense for tourism purposes. Melbourne is the sporting capital of the world, but every other city in Australia also has an extremely strong sporting culture, so even though Melbourne has most of the biggest events (Australian Open, AFL Grand Final, the F1 race that they stole from Adelaide, the Boxing Day Test, etc), everywhere else is usually still packing out 50,000+ seat stadiums for various football codes or cricket on a weekly basis anyway, so it's definitely not anywhere near the level of exclusivity that somewhere like Hollywood enjoys. Then you've got theater in Sydney, but like theme parks that's fairly normal for the industry, and it's not a permanent exclusivity but more of a timed thing where shows start to travel after having been exclusively in Sydney for a certain period of time. That said, my understanding is that China is a very close fit to this discussion. Unfortunately I only know enough to list one example - Shenzhen, the place where basically every cheap electronical component is made - but I've definitely seen dozens of articles about various different hyper-specialised cities in China. I suppose it helps when the government can just go "hrm, we want to be better at this industry, let's build a 1mil population city specifically focused around it".
    - bigger_cheese 5y ago
      >Despite Australia seeming like the perfect candidate for this due to having approximately five cities of note, all spread out over an area larger than the contiguous US, there's basically no industrial specialization on a per-city basis here. Funny you should mention Melbourne. It is a good historical example of a city fueled by an industry. It grew out of the Victorian Gold Rush in 1850's and 60's. Melbourne went from less than 75k population to 500k in a 10 year period which was massive growth. At one point it was the richest city in the world. The legacy from all this still exists today. It is why a lot of Australian banks etc are Headquartered in Melbourne, because they have their roots in gold rush.
- JumpCrisscross 5y ago
  > how you guys managed to effectively bootstrap industrial districts at continental level for the weirdest meta-stuff, from newspapers to movies to corporate accounting This is a common market flexing its economies of scale. India and China do similarly. If the EU could get its act together, it, too, would reap these benefits.
- bradgessler 5y ago
  When it comes to running a business in the US, it’s almost better to think about each state as if it were its own country because you’re subject to a substantial amount of state laws. You can’t incorporate at a federal level—only state level. Federal law does it exist, but it feels like more a set of minimal standards. Most of the differences that people pay attention to are state laws because they usually go above the federal laws and regulations.
  - amelius 5y ago
    But patents are nation-wide, I suppose?
    - tomcam 5y ago
      Correct; in fact they are provided for in the Constitution
  - deleted 5y ago
    [deleted]
- aasasd 5y ago
  Funny enough, it's a rather common trope in fiction, which loves to stereotype people into stratums by any imaginable criteria. IIRC blog posts were pointing out the geographical specialization in Hunger Games and saying that it's pretty ridiculous because not fault-tolerant. Basically, if California were to break off and fall into the ocean, a huge chunk of US tech and entertainment sectors would disappear.
  - throwbigdata 5y ago
    One of those would be a problem.
    - dopidopHN 5y ago
      I actually would be more concern about the food produced in California. The tech will be figured out elsewhere. The data center outside of the region would be fine.
    - heavyset_go 5y ago
      Yeah, as 2020 has shown me, I'll get pretty bored without a steady stream of new entertainment to enjoy.
    - aasasd 5y ago
      You really don't think that the US exports a ton of media and entertainment? And that, for example, it happens to impose and protect copyright laws to make sure those profits continue? I have trouble finding the export figures, but there's this: > The global media and entertainment market was worth $1.9 trillion in 2016, with extrapolations ranging to $2.14 trillion by 2020. About one third of the total ($735 billion in 2017) is made up by the U.S. entertainment industry. Edit: seems the export figure is quite a bit smaller, CNN lists tv/movies together with software at 49 billion: https://money.cnn.com/2018/03/07/news/economy/top-us-exports/index.html https://money.cnn.com/2018/03/07/news/economy/top-us-exports...
  - aasasd 5y ago
    Ah, and the second objection is cost of transportation, I think. Which is probably the main real-life reason to have at least some finance and law firms in CA and not shuttle all documents to NY or Dover and back again.
- deleted 5y ago
  [deleted]
vmception 5y ago
Wyoming has had a Court of Chancery for several years now too They and any state could always lean on Delaware case law And if you don't like Delaware established precedent then you can argue for the opposite in any other state (like Wyoming) where the judges are less bound to the established case law Delaware is overrated The race to the bottom never ended and is much larger than a collection of states, it is international with many permutations and many legislatures interested in attracting business, because they're a business too
- naniwaduni 5y ago
  > And if you don't like Delaware established precedent then you can argue for the opposite in any other state (like Wyoming) where the judges are less bound to the established case law That's the opposite of what you want.
  - vmception 5y ago
    Not if you don't like the established case law and want to argue for a completely different outcome. Which is just me saying the exact same thing a second time. Let's see if we get to a third rehash of this optional preference.
    - naniwaduni 5y ago
      You do not want, at the same time, a jurisdiction that leans on well-established case law, but also does whatever the heck it wants because you're arguing for it. Not unless you're in a privileged position to influence the court in a way that anyone coming up against you can't, anyway.
      - vmception 5y ago
        There are a lot of things I don't like about Delaware decisions I could play this game for the next 300 years before people catch on or fundamentally change anything about the nation state/jurisdiction/case law concept
tomcam 5y ago
Check out parent’s profile. Wish these books were around when my kids were young

JumpCrisscross 5y ago

> well developed corporate law and courts To put this into context, the average time in 2020 for a civil case to go from filing all the way to an appeal to the Delaware Supreme Court was 185.8 days; from submission to the Supreme Court, 32.8 days [1]. California’s courts don’t publish this information regularly, but the last time I checked, the comparable statistics were 3 years and one year. [1] https://courts.delaware.gov/aoc/annualreports/fy20/doc/2020StatisticalInformationReport.pdf https://courts.delaware.gov/aoc/annualreports/fy20/doc/2020S... page 8

deleted 5y ago
[deleted]

supercanuck 5y ago

It is actually simpler than this, and that is it is extremely difficult to pierce the corporate veil in Delaware. It is considered one of the strongest states for segregating the officers and shareholders except in cases of outright fraud.

rsj_hn 5y ago

Yup, this article falls squarely in the "misinformation" category, and the author has no experience with tax law, nor does he cite any authorities to support the tax avoidance thesis. He's just winging it, improvising, about corporate tax law. It's crazy how low journalistic standards have fallen as the line between news article and "personal blog" has been blurred. I am not ascribing ill motive to the author. Just incompetence in trying to write about a very complex topic that is far out of his depth, and doesn't allow for simple moralistic summaries like "Big biz not paying their fair share!".

IG_Semmelweiss 5y ago
I don't disagree, but the website URL is called "the hustle". I don't think it would be far fetched to think that the content should be viewed with a healthy dose of skepticism ?

dheera 5y ago

For the number of corporations that register in Delaware, why aren't Delaware's streets lined in gold? I dropped a few Google Street View pins randomly around Delaware and it looked pretty dated to me. Schools that look like jails, houses made of wood, potholed roods, narrow non-ADA-compliant sidewalks, and hardly any modern shiny train service. Aren't they scooping up trillions in taxes? Why aren't they building the next Shanghai/Silicon Valley/Singapore/whatever with that cash? It's really hard to believe from Street View that this is the place where big corporations are registered. https://i.imgur.com/FP3XZtx.jpg https://i.imgur.com/FP3XZtx.jpg

deleted 5y ago
[deleted]
IG_Semmelweiss 5y ago
There is a long line of countries that found black gold (oil) in the 70's, such as Venezuela , that are since economic basket cases. Or take some African countries with Diamonds. My point is that because you have a revenue source / competent niche, that does not guarantee a competent government. Usually the only thing you can guarantee is that unplanned riches or resources will lead to waste and corruption. Its not an accident that the norwegian sovereign fund is an rarity, not a rule. I am curious if there is a genesis to the level of crime and abandonment so pervasive in DE.... from the success DE enjoyed early on, via corp registration riches.
- moehm 5y ago
  Just to enrich your comment, the grand parent should probably read "The Dictator's Handbook"[0] by de Mesquita or watch this adaption: https://www.youtube.com/watch?v=rStL7niR7gs https://www.youtube.com/watch?v=rStL7niR7gs [0] https://www.goodreads.com/book/show/11612989-the-dictator-s-handbook https://www.goodreads.com/book/show/11612989-the-dictator-s-...
- Layke1123 5y ago
  Venezuela versus Norway? Tell me again, which one was sanctioned by the US and had the CIA trying to back a coup in it and which one didn't?