TribLIVE

| Business


 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Delaware governor fears impact of closing 'loophole'

On the Grid

From the shale fields to the cooling towers, Trib Total Media covers the energy industry in Western Pennsylvania and beyond. For the latest news and views on gas, coal, electricity and more, check out On the Grid today.

By John D. Oravecz
Saturday, May 11, 2013, 12:01 a.m.
 

Delaware Gov. Jack A. Markell said $50 million to $200 million in corporate taxes that Pennsylvania estimates it could recover if the Legislature closes a Delaware “loophole” would have a “very significant impact” on his state.

But other states that have either tried to emulate Delaware's status as the nation's most corporation-friendly state or lessen its dominance have not had any impact, he said on Friday during a visit to Pittsburgh.

The state House on Monday adopted legislation to close the Delaware loophole and enact comprehensive corporate tax reforms. House Bill 440, sponsored by Rep. David Reed, R-Indiana, was approved by a vote of 129-65. It now goes to the Senate.

Reed's bill also would reduce the state's corporate income tax rate from 9.99 percent to 6.99 percent by 2019.

The Delaware loophole is used by multistate corporations to take deductions to avoid state income taxes, the Department of Revenue has said. Certain types of payments that have no economic benefit or purpose, made by a corporate subsidiary in one state to a subsidiary in another state, and resulting in a deduction, often are abused. Interest payments are one type often manipulated in sham transactions, state officials have said.

Reed's bill requires a legitimate business purpose for out-of-state transactions within a company, such as the use of a patent for a manufacturing process.

The Pennsylvania Budget and Policy Center estimates $50 million to $200 million annually could be recovered by closing the loophole.

Markell said that's “a big number” in the context of his state's $3 billion annual budget, although he said he is not familiar with the Pennsylvania issue.

Corporations in general prefer to incorporate in Delaware because of the state's laws, courts and the body of case law those courts have developed, Markell said. He pointed to its national reputation and importance of its Court of Chancery, where controversial corporate cases most often are heard.

“We are proud that over half of the Fortune 500 companies are incorporated in our state,” he said.

The impact of corporate activity of all kinds accounts for about 20 percent of Delaware government's revenue, he said.

“Some states have a adopted our laws wholesale,” he said, mentioning Nevada as one. But because they don't have Delaware's experienced judges and corporate case law, he has noticed no impact.

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

Subscribe today! Click here for our subscription offers.

 

 
 


Show commenting policy

Most-Read Business Headlines

  1. Kennametal plans plant closings, job cuts in fallout from oil and gas decline
  2. Consol Energy posts $74M profit in fourth quarter
  3. BNY Mellon is putting iconic Citizens Bank Tower up for sale
  4. BNY Mellon expands  role for treasury exec
  5. Almost half of households exhaust their income
  6. Alibaba finally called out on counterfeits
  7. Credit card privacy a myth, study shows
  8. Fight to lift crude export ban grows
  9. Wolf signs ban on new drilling beneath state land
  10. Emergency room visits decline as navigators steer patients to proper medical care
  11. Traders in oil playing risky game