26 ms·

How South Dakota has become a global tax haven

133 points by simonebrunozzi 5y ago

LeanderK 5y ago
So what taxes does South Dakota actually levy on the trusts? I doubt the beneficiaries actually live in South Dakota and setting up a trust does not imply the movement of businesses. Does South Dakota gain much from this tax haven-laws?
- boomboomsubban 5y ago
  The trustee must live in South Dakota for at least half the year. I'm unsure if there are any other taxes involved but it at least creates a number of high income financial jobs in the state.
  - protomyth 5y ago
    South Dakota has a lot of financial jobs (check where your credit card is issued from) and benefits quite a lot from their tax structure. They have no income tax but do sales taxes.
    - donarb 5y ago
      That's another quirk of South Dakota law. Essentially the state has no limit on interest rates, which is why all the credit card companies have offices there.
  - counternotions 5y ago
    Do they really though? For some coastal elite business tycoon, is the estate tax scheme worth spending half a year in SD?
    - boomboomsubban 5y ago
      The tycoon just needs to hire someone to live in South Dakota, they don't need to be the trustee.
      - yborg 5y ago
        It's like any tax haven, a law firm is the trustee and the lawyers need to live in SD half the year.
  - metwo 5y ago
    Where did you read that? My understanding is the trustee need never set foot in the state to receive full asset protection under state law.
    - boomboomsubban 5y ago
      I think you're confused as to who the trustee is, they are the one who legally owns the money but has no legal right to use it. The people who can receive/use the money are the beneficiaries, and the people putting money into a trust are the grantors.
hn_throwaway_99 5y ago
The ban on the rule against perpetuities is particularly egregious in my opinion. It serves absolutely no public good and is basically just a tool to entrench aristocracies. Also an example of how so many of our laws are bought and paid for by the rich and powerful. My guess is that 99% of South Dakotans don't even know what a dynasty trust is, much less have a reason to own one.
- kova12 5y ago
  Can you elaborate, why exactly is it bad? I am not an expert, but if I was to set up trust, perpetual would be exactly what I'd look for.
  - NovemberWhiskey 5y ago
    The basic idea that is that the public interest is poorly served by allowing people who are long dead to exercise control over property based on ideas they held while alive. For example, imagine I'm a successful tobacco plantation owner in 17th century Virginia, and I define my identity and my legacy as such. I create a perpetual trust and transfer ownership of my land to it; and I place restrictions on that land that it can only be used for growing tobacco. What if tobacco is no longer a profitable crop in the future, because smoking tobacco is made illegal? What if tobacco is wiped out by a pest, or can no longer be grown due to changes in climate?
    - dantheman 5y ago
      So, it sounds more like you have a problem with the trusts and not estate taxes. If we got rid of estate taxes then we could just pass the money on directly.
      - NovemberWhiskey 5y ago
        I don't really know where you get that idea. I think the two issues are separable, and probably orthogonal. In fact, I'm fairly sure the rule against perpetuities predates the existence of any substantive probate or estate taxes.
giancarlostoro 5y ago
Puerto Rico blossomed over tax benefits by bringing your business there, then that stopped and things were not the same since unfortunately. It now has some tax incentives for people bringing their businesses there or so I have heard from relatives.
- wpietri 5y ago
  Tax incentives and tax havens are pretty different. Every US state uses tax policy to encourage industry. Tax havens are places that use their legal power to help rich people elsewhere avoid accountability and their tax laws at home. None of these rich people are moving to South Dakota to open factories. They're just sending their money there so it's harder for people in their own states and countries to see what's actually going on.
  - lotsofpulp 5y ago
    Is there even much money being sent to South Dakota other than fees and a few meager salaries to satisfy government paperwork or trustee residency requirements?
    - wpietri 5y ago
      Good question! From this I was thinking yes: "The state’s trust assets have more than quadrupled to $360 billion over the past decade, the report finds." But you're right, unless there's special language to the contrary, presumably those trusts just put the money elsewhere.
nodesocket 5y ago
The relentless media barrage of hit pieces on taxes continues. It’s non-stop with outrage inducing prose aimed at drumming up enough outrage to justify the ludicrous tax changes being purposed by the current administration including a 3.5 trillion dollar infrastructure bill that isn’t even infrastructure. Learn more about the real purposed tax changes and how they hurt middle class, upper middle class, and impeded innovation at https://www.advantaira.com/blog/how-bidens-3-5t-infrastructure-bill-impacts-average-americans-saving-for-retirement/ https://www.advantaira.com/blog/how-bidens-3-5t-infrastructu...
- clairity 5y ago
  the infrastructure bill is awful, but pitting it against tax policy proposals is a false dichotomy. both can be bad and in need of change. taxes should be simple, continuous and highly progressive. if it were so, most americans (90+%) would enjoy the same or lower tax rates with little change in public services and potentially a boost in infrastructure. we’re highly inefficient and there’s little political will to change that.
IG_Semmelweiss 5y ago
Being against estate taxes and being against entrenched aristocracies are not mutually exclusive positions. Being against taxes on already-taxed monies benefits self-made families as well. Provided that old money can lose money by squandering inherited wealth, the two positions are very logical and to the benefit of society. The issue here that no one seems to mention is that aristocracies should not be able to leverage the state to protect their wealth. Old money in france and italy is sustained due to protection of state. The US rich, due to the growth of the growth of the state apparatus, having increasing ability use the state to shield aristorcracy here. Quick examples: - TARP bailouts - Neverending wars to benefit defense industry - Biden admin reversing hospital pricing transparency executive order.[1] - All the newly minted 'czars' - Disney IP laws - Antitrust failures in the last 30 years I don't think anyone has a problem woth the rich if they get there by playing by the same rules everyone else plays by. However when you see major rich politicians on TV, dining without masks, while telling everyone else this is prohibited, you know the problem is not the rich, but the rule-makers Edit: added source per request [1]https://www.natlawreview.com/article/cms-backs-price-transparency-providers-and-plans https://www.natlawreview.com/article/cms-backs-price-transpa...
- onlyrealcuzzo 5y ago
  > Biden admin reversing hospital pricing transparency executive order Source? All I can find is that the admin plans to do the exact opposite and actually enforce the rule that was in place but no one has been following (because it wasn't enforced): https://www.washingtonpost.com/politics/2021/07/12/health-202-biden-says-he-enforce-trump-era-rules-requiring-hospitals-post-their-prices/ https://www.washingtonpost.com/politics/2021/07/12/health-20...
  - IG_Semmelweiss 5y ago
    The wapo article you mentioned is 3+ months old. The CMS final rule was only issued after : https://www.natlawreview.com/article/cms-backs-price-transparency-providers-and-plans https://www.natlawreview.com/article/cms-backs-price-transpa... First paragraph: On August 2, 2021, the Centers for Medicare and Medicaid Services (“CMS”) issued its hospital inpatient prospective payment system (“IPPS”) final rule (“Final Rule”) for fiscal year 2022. In addition to a number of other changes, the Final Rule **repeals the price transparency requirement** for hospitals, discussed in our September 2, 2020 blog post, obligating hospitals to report certain contract terms with Medicare Advantage (“MA”) plans for cost reporting periods ending on or after January 1, 2021.
NoblePublius 5y ago
I don’t understand why it’s more reasonable to characterize those who do business in low tax areas as “tax dodgers” than it is to characterize high tax governments as “new business haters.”
GaryTang 5y ago
The fact that a single state can accomplish something of this magnitude gives me hope for America.
RickJWagner 5y ago
Native of South Dakota here. If you've never visited, give it a try. Flat lands, no pollution, little traffic, friendly people who put a great value on freedom. Truly a great state. Mount Rushmore is in South Dakota, as is the Corn Palace and Wall Drug. (If you want to study ingenuity in business, have a look at Wall Drug.) Just don't visit in the winter months. One of the few things that will give you a negative impression of the state.
- simonebrunozzi 5y ago
  > (If you want to study ingenuity in business, have a look at Wall Drug.) I wasn't aware of Wall Drug [0]. From their homepage: Wall Drug has a rich history in the state of South Dakota. Nestled in the city of Wall in the western part of the state, Wall Drug has grown from its humble beginnings in 1931 to a thriving oasis. Wall Drug offers dining, activities, gifts and souvenirs, visitor information and, of course, free ice water. Many road-worn travelers stop at Wall Drug and leave awake and refreshed, just like they did more than 80 years ago. [0]: https://www.walldrug.com/ https://www.walldrug.com/

So what taxes does South Dakota actually levy on the trusts? I doubt the beneficiaries actually live in South Dakota and setting up a trust does not imply the movement of businesses. Does South Dakota gain much from this tax haven-laws?

boomboomsubban 5y ago
The trustee must live in South Dakota for at least half the year. I'm unsure if there are any other taxes involved but it at least creates a number of high income financial jobs in the state.
- protomyth 5y ago
  South Dakota has a lot of financial jobs (check where your credit card is issued from) and benefits quite a lot from their tax structure. They have no income tax but do sales taxes.
  - donarb 5y ago
    That's another quirk of South Dakota law. Essentially the state has no limit on interest rates, which is why all the credit card companies have offices there.
- counternotions 5y ago
  Do they really though? For some coastal elite business tycoon, is the estate tax scheme worth spending half a year in SD?
  - boomboomsubban 5y ago
    The tycoon just needs to hire someone to live in South Dakota, they don't need to be the trustee.
    - yborg 5y ago
      It's like any tax haven, a law firm is the trustee and the lawyers need to live in SD half the year.
- metwo 5y ago
  Where did you read that? My understanding is the trustee need never set foot in the state to receive full asset protection under state law.
  - boomboomsubban 5y ago
    I think you're confused as to who the trustee is, they are the one who legally owns the money but has no legal right to use it. The people who can receive/use the money are the beneficiaries, and the people putting money into a trust are the grantors.

hn_throwaway_99 5y ago

The ban on the rule against perpetuities is particularly egregious in my opinion. It serves absolutely no public good and is basically just a tool to entrench aristocracies. Also an example of how so many of our laws are bought and paid for by the rich and powerful. My guess is that 99% of South Dakotans don't even know what a dynasty trust is, much less have a reason to own one.

kova12 5y ago
Can you elaborate, why exactly is it bad? I am not an expert, but if I was to set up trust, perpetual would be exactly what I'd look for.
- NovemberWhiskey 5y ago
  The basic idea that is that the public interest is poorly served by allowing people who are long dead to exercise control over property based on ideas they held while alive. For example, imagine I'm a successful tobacco plantation owner in 17th century Virginia, and I define my identity and my legacy as such. I create a perpetual trust and transfer ownership of my land to it; and I place restrictions on that land that it can only be used for growing tobacco. What if tobacco is no longer a profitable crop in the future, because smoking tobacco is made illegal? What if tobacco is wiped out by a pest, or can no longer be grown due to changes in climate?
  - dantheman 5y ago
    So, it sounds more like you have a problem with the trusts and not estate taxes. If we got rid of estate taxes then we could just pass the money on directly.
    - NovemberWhiskey 5y ago
      I don't really know where you get that idea. I think the two issues are separable, and probably orthogonal. In fact, I'm fairly sure the rule against perpetuities predates the existence of any substantive probate or estate taxes.

giancarlostoro 5y ago

Puerto Rico blossomed over tax benefits by bringing your business there, then that stopped and things were not the same since unfortunately. It now has some tax incentives for people bringing their businesses there or so I have heard from relatives.

wpietri 5y ago
Tax incentives and tax havens are pretty different. Every US state uses tax policy to encourage industry. Tax havens are places that use their legal power to help rich people elsewhere avoid accountability and their tax laws at home. None of these rich people are moving to South Dakota to open factories. They're just sending their money there so it's harder for people in their own states and countries to see what's actually going on.
- lotsofpulp 5y ago
  Is there even much money being sent to South Dakota other than fees and a few meager salaries to satisfy government paperwork or trustee residency requirements?
  - wpietri 5y ago
    Good question! From this I was thinking yes: "The state’s trust assets have more than quadrupled to $360 billion over the past decade, the report finds." But you're right, unless there's special language to the contrary, presumably those trusts just put the money elsewhere.

nodesocket 5y ago

The relentless media barrage of hit pieces on taxes continues. It’s non-stop with outrage inducing prose aimed at drumming up enough outrage to justify the ludicrous tax changes being purposed by the current administration including a 3.5 trillion dollar infrastructure bill that isn’t even infrastructure. Learn more about the real purposed tax changes and how they hurt middle class, upper middle class, and impeded innovation at https://www.advantaira.com/blog/how-bidens-3-5t-infrastructure-bill-impacts-average-americans-saving-for-retirement/ https://www.advantaira.com/blog/how-bidens-3-5t-infrastructu...

clairity 5y ago
the infrastructure bill is awful, but pitting it against tax policy proposals is a false dichotomy. both can be bad and in need of change. taxes should be simple, continuous and highly progressive. if it were so, most americans (90+%) would enjoy the same or lower tax rates with little change in public services and potentially a boost in infrastructure. we’re highly inefficient and there’s little political will to change that.

IG_Semmelweiss 5y ago

Being against estate taxes and being against entrenched aristocracies are not mutually exclusive positions. Being against taxes on already-taxed monies benefits self-made families as well. Provided that old money can lose money by squandering inherited wealth, the two positions are very logical and to the benefit of society. The issue here that no one seems to mention is that aristocracies should not be able to leverage the state to protect their wealth. Old money in france and italy is sustained due to protection of state. The US rich, due to the growth of the growth of the state apparatus, having increasing ability use the state to shield aristorcracy here. Quick examples: - TARP bailouts - Neverending wars to benefit defense industry - Biden admin reversing hospital pricing transparency executive order.[1] - All the newly minted 'czars' - Disney IP laws - Antitrust failures in the last 30 years I don't think anyone has a problem woth the rich if they get there by playing by the same rules everyone else plays by. However when you see major rich politicians on TV, dining without masks, while telling everyone else this is prohibited, you know the problem is not the rich, but the rule-makers Edit: added source per request [1]https://www.natlawreview.com/article/cms-backs-price-transparency-providers-and-plans https://www.natlawreview.com/article/cms-backs-price-transpa...

onlyrealcuzzo 5y ago
> Biden admin reversing hospital pricing transparency executive order Source? All I can find is that the admin plans to do the exact opposite and actually enforce the rule that was in place but no one has been following (because it wasn't enforced): https://www.washingtonpost.com/politics/2021/07/12/health-202-biden-says-he-enforce-trump-era-rules-requiring-hospitals-post-their-prices/ https://www.washingtonpost.com/politics/2021/07/12/health-20...
- IG_Semmelweiss 5y ago
  The wapo article you mentioned is 3+ months old. The CMS final rule was only issued after : https://www.natlawreview.com/article/cms-backs-price-transparency-providers-and-plans https://www.natlawreview.com/article/cms-backs-price-transpa... First paragraph: On August 2, 2021, the Centers for Medicare and Medicaid Services (“CMS”) issued its hospital inpatient prospective payment system (“IPPS”) final rule (“Final Rule”) for fiscal year 2022. In addition to a number of other changes, the Final Rule **repeals the price transparency requirement** for hospitals, discussed in our September 2, 2020 blog post, obligating hospitals to report certain contract terms with Medicare Advantage (“MA”) plans for cost reporting periods ending on or after January 1, 2021.

NoblePublius 5y ago

I don’t understand why it’s more reasonable to characterize those who do business in low tax areas as “tax dodgers” than it is to characterize high tax governments as “new business haters.”

GaryTang 5y ago

The fact that a single state can accomplish something of this magnitude gives me hope for America.

RickJWagner 5y ago

Native of South Dakota here. If you've never visited, give it a try. Flat lands, no pollution, little traffic, friendly people who put a great value on freedom. Truly a great state. Mount Rushmore is in South Dakota, as is the Corn Palace and Wall Drug. (If you want to study ingenuity in business, have a look at Wall Drug.) Just don't visit in the winter months. One of the few things that will give you a negative impression of the state.

simonebrunozzi 5y ago
> (If you want to study ingenuity in business, have a look at Wall Drug.) I wasn't aware of Wall Drug [0]. From their homepage: Wall Drug has a rich history in the state of South Dakota. Nestled in the city of Wall in the western part of the state, Wall Drug has grown from its humble beginnings in 1931 to a thriving oasis. Wall Drug offers dining, activities, gifts and souvenirs, visitor information and, of course, free ice water. Many road-worn travelers stop at Wall Drug and leave awake and refreshed, just like they did more than 80 years ago. [0]: https://www.walldrug.com/ https://www.walldrug.com/