Instead those companies are among the 285,000 that are technically based in a small building in Wilmington, Delaware, The New York Times reports. The firms all only have a dropbox at the Delaware address, but they use it as a means to reduce their tax bills. Delaware’s friendly corporate tax laws mean that more than half of the public companies in the U.S. are incorporated in the state. Indeed, as Adam Clark Estes noted in a tweet, the state is home to more corporations than people.
Delaware isn’t the only place on U.S. shores where companies can locate to reduce their tax bills. In Cheyenne, Wyoming, more than 2,000 companies are registered at just one address, which houses a firm that specializes in creating shell companies that corporations can use to hide their assets, according to Reuters. The firms are common in states where regulations are light.
Though legal, shell companies — or companies that exist but don’t have any major assets or significant business activities — can in some cases be used as fronts for illegal businesses in corporate-friendly states. They’re also just one of the many ways that major firms try to reduce their tax bills. Thirty of America’s most profitable companies paid no income taxes over the past three years, according to a report released last year by the Citizens for Tax Justice. In addition, nearly 300 companies paid an average tax rate of 18.5 percent between 2008 and 2010 — way less than the official corporate tax rate of 35 percent.
One common way big companies avoid paying taxes on much of their profits is by parking their earnings overseas. Apple CFO Peter Oppenheimer said in a call with analysts in March that the company has no plans to repatriate its overseas earnings because it would result in “significant tax consequences.” At the time, Apple paid an international tax rate of less than 3 percent on its overseas money, which accounts for about two-thirds of its profits, the Wall Street Journal reported at the time.
Apple, along with Google and other companies, was also part of a coalition that lobbied Congress for a tax holiday on repatriated overseas profits that would result in a $1 trillion boon for the firms, according to Bloomberg.
In another example of sidestepping corporate taxes, Facebook structured its initial public offering in such a way that it could avoid paying federal and state income taxes on its 2011 earnings, according to a February report from the CTJ.