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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.