you know that in Nevada, there are over 130,000 corporations
with no employees?
Meanwhile in Delaware, an unbelievable 500 corporate headquarters
are squeezed in on the 13th floor of a single office building.
So what do these phantom companies do?
They exist only on paper as part of an elaborate shell
game played by large, multi-state corporations to avoid
paying state taxes, leaving others to pick up the tab for
supporting key public services.
Understanding the Shell Game
One of the most legendary players of this shell game is
Toys-R-Us. It set up a subsidiary in Delaware that owns
its corporate logo and trade name. Their motivation? Delaware
does not tax income from corporate trademarks.
So now when Toys-R-Us turns a profit in Tennessee, it sends
much of those profits to the Delaware subsidiary for the
“rights” to use the logo, leaving little or
no income to be taxed under Tennessee’s business excise
tax, or Delaware’s.
The Toys-R-Us example is only the tip of the iceberg in
a series of related loopholes. However, all of these schemes
have one thing in common; they involve the use of subsidiaries
to shuffle money back and forth in order to avoid paying
is Toys-R-Us a Bad Actor?
Not necessarily. Toys-R-Us is just doing what its stockholders
expect it to do, make the greatest amount of profit it can
while staying within the letter of the law.
The problem is not Toys-R-Us. The problem is the law, a
law that allows one group to avoid paying its fair share
while others pick up the tab.
Going to the Root of the Problem
States across the nation are getting wise to the shell game. As a result, 21 states have closed this growing loophole by enacting combined reporting statutes. In doing so, these states now require multi-state corporations to combine all their related affiliates into one company for tax purposes, essentially negating all these loopholes at once. It's time for Tennessee to do the same!
to download printer-friendly handout on new campaign.
"Growing Number of States Considering a Key Corporate
Tax Reform," by Michael Mazerov of the Center on Budget
and Policy Priorities to learn more.