Archives For tax haven

Amazon-LogoSince 2005 has avoided paying taxes on over $2 billion of income.  Like other multinational corporations, Amazon has taken full advantage of transfer pricing rules to legally exempt massive amounts of foreign profits from taxation.  Their winning strategy fulfills their obligation to their shareholders, but government authorities around the world, who had been complacent about the matter until recently, are cracking down on international tax avoidance schemes; Amazon, the global leader in e-commerce,  is at the front and center of the controversy. Continue Reading…

US corporate tax structure is a complex, messy and eternally in flux subject. Here’s the short version: Despite facing the second highest corporate tax rate (35%) on paper in the world, US corporations are able to reduce their tax liability through aggressive lobbying, transfer-pricing strategies, cost-sharing arrangements and other loopholes to some of the world’s lowest. General Electric (GE) has become the poster-child for tax-structuring excellence in the past few years (or wickedness, depending on how you look at it), but they’re not alone. The infographic offers a great overview of how they and other companies get out of paying over $60 billion to the IRS each year.

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Dear Santa

December 6, 2012 — 1 Comment

As an avid fan of what you do and someone who has been on the nice list for the last 12years, I would like to use my letter to you to make a case for re-locating your secret operation to Alaska. As you can see from the infographic below, there are several advantages in moving to America’s biggest state. I think it would really help you improve your business ;). Let me know what you think!

P.S. If you could help mediate this Fiscal Cliff situation, that would be a great Christmas Miracle.

P.P.S. I also want a Red Ryder B.B. gun.

Yours Truly,

JDKatz, P.C.

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The Highest State and Local Income Taxes on Million Dollar Earners

If you thought the partisan hackery over raising taxes on the wealthy was limited to Washington, think again.  National feuds have a way of trickling down to the state and local government (SLG) level, and tax policy is no exception.  In California voters passed proposition 30 – a tax hike measure which adds three new upper income brackets; but in New Hampshire, a constitutional amendment that, “explicitly forbids the Legislature from imposing any new income tax on personal income,” was also approved.

In 2012, SLGs across the country had historically high and low income tax rates on million dollar earners. asked Wolter Kluwer’s CCH division to calculate taxes for married couple with a $1,000,000 salary and $110,000 of itemized deductions in the largest city in each state.   We reproduced  and analyzed their data in the charts and tables below.  Here are the top 10 steepest bills:

  1. New York (New York City)
    • It’s no shock that the big apple, known for its high cost of living, has the highest tax rates in the nation.  Until recently, the state had a “millionaires tax,” which was actually a surcharge on individuals making over $200,000/year.  That was eliminated at the end of last year when Gov. Cuomo and legislative leaders came to an agreement on a massive state tax reform plan, which lowered rates for high income earners to less then what they were with the surcharge.  Of the cities/states analyzed, New York had the highest drop from 2011-12; still, the state remains the most expensive for millionaires.   Critics cite that the richest 1% of New Yorkers pay nearly 40% of the income tax, but that isn’t astounding given that nationwide the top 1% pay 37% of all income tax.
  2. Hawaii (Honolulu)
    • If you make over $400,000 in Hawaii, you’re stuck with the highest state income tax rate in the country.  There was no change in 2012 and potential homebuyers shouldn’t expect one anything soon.  Paradise isn’t a cheap date, but Hawaii is one of the richest states and its tax rates aren’t scaring millionaires away.  In fact, they have more millionaires as a percentage of their population then any other state!
  3. California (Los Angeles)
    • California has been making headlines with their new tax legislation.  Proposition 30 passed on Nov. 6th, by a vote of 54.5% – 45.5%, creating three new upper income brackets retroactive to Jan 1st.  The combined state and local income tax rate for Los Angeles is the highest in the country, but there are enough loopholes in the code to make California the third most expensive place for millionaires.
  4. Oregon (Portland)
    • There are no local income taxes in Portland, but the top state rate of 9.9% is enough to put the state in fourth place.  Unlike the above states though, the top rate starts at incomes of only $125,000.  But hey, at least Oregonians can rejoice in being one of only five states that have no sales tax.
  5. Maryland (Baltimore)
    • As a Maryland/DC based law firm with a specialty in tax law, it’s only fitting Baltimore and DC are the next two on this list.  The state tax top bracket – 5.75% isn’t exactly intimidating, but when you add “Charm City’s” 3.2% flat rate, you’re left with a healthy 8.95% rate for earners making $300,001 or more.
  6. District of Columbia
    • DC Residents are known for their “taxation without representation” license plates, referring to their lack of voting representation in congress and subjection to federal income tax.  To add insult to injury, the District itself, which always seems to be stripped for cash, has a top rate of 8.95% for individuals or couples making over $350,000.
  7. Minnesota (Minneapolis)
    • Million dollar earners in the City of Lakes will owe $78,874 in taxes to Minnesota in 2012, giving them the 7th steepest tax burden of the largest cities in each state.  If you were wondering about Minneapolis’ twin city – St. Paul, there is little to no difference in tax policy (they’re not called twin cities for nothing) except that the sales tax rate is 0.15% cheaper.
  8. Maine (Portland)
    • Maine doesn’t allow local governments to collect taxes, however, the top rate of 8.5% starts for couples making $40,700.  Millionaires shouldn’t feel too exploited here (not that there are many).  The lumber state usually falls in the bottom 10 in millionaire residents.
  9. Vermont (Burlington) 
    • Vermont cities collect very few local taxes, but unlike their neighbor Maine, the top rate of 8.95% starts for couples with $379,151 (Maine = $40,700) or more income.  This may deter some rich ski lovers from retiring in their winter mountain condo.
  10. Delaware (Wilmington)
    • Wilmington has an earned income tax rate of 1.25%, bringing the combined state and local income taxes to 8% and making Wilmington the 10th worst city for millionaires and taxes.   Like Oregon, Delaware has no sales tax.

For all the juicy details, check out this data table we made from the information above:

Related Posts: The Top 10 Countdown: Which States Get the Most Federal Funding, What Size Fits the United States Government; Small, Medium or Large?, 2012 Tax Rate Card

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

The London 2012 Olympic Games begin next week and many sponsored companies are quick to add the ubiquitous Olympic logo to their advertisements. In addition, Olympic Park is serving as a tax haven for the entire duration of the games because of special tax rules included as part of the original bid in London. As a result, sponsors are not required to pay taxes on earnings from the Games. However, two companies – Coca-Cola and McDonalds – have stated they are intending to pay corporate and income taxes for the all of the Olympic Games.

The Revenues and Customs of England said the tax breaks are available to all foreign nationals and include corporations, athletes, judges, journalists, and any international workers for the Games. The relief is not available for U.K. based companies though. As a result of such a large-scale tax break for all these companies, the U.K. has the potential to lose a significant amount of money from the Games. One organization known as “38 Degrees” has collected more than 150,000 signatures to urge sponsors to reconsider their tax break.

The cost of McDonalds declining the break is extremely minimal – only  0.1% of its annual sales in the U.K. Coca-Cola and McDonalds are 2 of 11 international companies who pay nearly $1 billion to sponsor the Winter and Summer Olympics over the four-year cycle.

“Coca-Cola has never intended to, and will not be making, any corporate or income tax exemption claim with respect to any activity concerning our involvement with the London 2012 Olympic and Paralympic Games,” the corporation said.

In even more recent news, General Electric and Visa also declined the tax-relief offered by the Summer Games. The goodwill and public relations that will come from declining the tax relief will most likely outweigh the benefits of not paying taxes for revenues derived from the Games.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

When we hear the words, “tax haven,” we generally think of offshore locations such as the Cayman Islands or Isle of Man. However, we often overlook tax havens when they are right in front of our eyes. Not only is Delaware the first state, but it is also the first offshore haven right on America’s shores.

1209 North Orange Street seems innocuous in its name, however it is the legal address of 285,000 businesses. Among them are American Airlines, Walmart, Coca-Cola, Ford, General Electric, etc. These are global companies with substantial employee bases and ubiquitous recognition. 1209 North Orange is merely a dropbox location for these businesses. Beyond these giant corporations are small start-up businesses, mom and pop shops, scoundrels, and swindlers and they all showed up to minimize taxes, dance around regulations, and perhaps cover their tracks.

A classic tax avoidance operation is through a “shell company” whereby the process of buying and selling is mitigated through an “alleged” company to disguise the actual company’s profits. It takes less than an hour to incorporate a company in Delaware and the government is so eager about business coming in, the office of its secretary of state stays open until midnight Monday-Thursday.

“Shells are the No. 1 vehicle for laundering illicit money and criminal proceeds,” said Lanny A. Breuer, assistant attorney general for the criminal division of the Justice Department. “It’s an enormous criminal justice problem. It’s ridiculously easy for a criminal to set up a shell corporation and use the banking system, and we have to stop it.”

However, most of the businesses in Delaware are legitimate incorporations that use legal means to reduce their tax bills. Since 1792 when Delaware was ratified as the first state, many companies were lured to open business here because of its friendly corporate and tax laws.

To put in perspective how much Delaware has become a tax haven – nearly half of all public corporations in the U.S. are incorporated in Delaware. 133,297 businesses were set up in this state last year and there are currently more corporations than people living in the state (945,326 to 897,934)! Delaware has received roughly $860 million in taxes from these corporations, which accounts for a quarter of the state’s budget.

Delaware is also utilized as a tax bill reducer. The state allows companies to shift their revenue and royalties to their “holding company” where they are not taxed. This loophole has enabled corporations to reduce their tax payments by an estimated $9.5 billion. Obviously, tax officials are seeing through these evasion schemes, however there is little that can be done because most of the practices are completely legal.

What differs Delaware from the typical offshore havens like the Caymans, Isle of Man, and Jersey is its lack of transparency and secrecy. Most offshore havens require full disclosure of the company’s business, assets, debts, etc. before opening any type of account. In Delaware, you can essentially operate a business abroad and have just a mailing address in the state and receive all the tax benefits as if you lived there.

Delaware may be basking in tax income, however states like Pennsylvania are receiving the brunt end of the opportunity. Pennsylvania is claiming they are being robbed of their tax dollars. A major company involved in natural gas and drilling is said to have more than 400 subsidiaries all registered in Delaware, even though they do business in Pennsylvania. According to the Pennsylvania Budget and Policy Center, in 2004 the Delaware loophole cost Pennsylvania nearly $400 million in lost revenue in 2011.

Delaware officials are adamant about keeping the situation the same. It is hard to work around a legitimate tax haven, however if more cases of illegal practices arise, there may be more leverage to alter the state’s tax structure. For now, 1209 North Orange Street will remain America’s biggest tax haven.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.