July 5, 2020

The Tiny Building Where 285,000 Businesses are Based

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There are a few things that everybody hates.

Bug bites, going to the dentist, watchingvideos 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 opinionson 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 theirmoney in tax havens—places with loose, generous tax laws that charge either very little, orno taxes.

Tax havens are like buy-one-get-one-free icecreams, except instead of buying an ice cream, you put all your money in an overseas bankaccount, and instead of getting a free ice cream, you don’t pay any taxes on your overseasmoney.

So actually, I guess it’s not like buy-one-get-one-freeice cream at all and I should work on my metaphors.

When you think of tax havens, you probablythink 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 thinkof Delaware—a small, mid-Atlantic state with a population of 967, 000 that’s hometo plenty of old historical artifacts like the New Castle Courthouse or former Vice PresidentJoe Biden.

In fact, most people don’t really thinkof Delaware much at all—it’s only home to 0.

3% of the US population.

Sorry Delaware-eites….

um… Delawarriors…Delawalruses….

people fromDelaware.

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 companiesthan people.

Now, this could either be because of the state’svery respectable 1 to 138, 000 IHOP to resident ratio or because of Delaware’s extremelylax tax laws.

First of all, in Delaware, companies don’thave to pay corporate income tax on money that’s made outside of the state, and incomefrom interest and other investment isn’t taxed either, but mainly, Delaware is so advantageousfinancially because of what’s called the, “Delaware Loophole, ” which takes advantageof the fact that Delaware doesn’t tax what are called “intangible assets.

” Intangible assets are things that exist andhave value, but aren’t physical objects, like trademarks, copyrights, or my sense ofhumor—there may not be much physical evidence of these things, but I promise you they havevalue.

So let’s say, as a hypothetical, I starta corporation called, “Giraffe as Interesting.

” We sell giraffes, this is our logo, and ourmotto is, “our expert staff will get you a giraffe super fast.

” Let’s say that we have giraffe stores allacross the country—in California, Pennsylvania, North Dakota, South Dakota, East Dakota, WestDakota, Northwest Dakota, North-northwest Dakota, East-northwest Dakota, and of course, Florida.

Now, let’s say that my giraffe store inPennsylvania is raking in money—normally, all that money that store makes would be subjectto Pennsylvania taxes, but instead, I create a subsidiary of Giraffe as Interesting that’slocated in Delaware, and I transfer some “intangible assets” to that subsidiary.

So I give the ownership of the name Giraffeas Interesting, our logo, and our motto, to the Delaware subsidiary.

Now, my store in Pennsylvania will pay myDelaware subsidiary a trademark fee to use the name and logo and slogan.

So let’s say that my Pennsylvania storesold $100, 000 worth of giraffes, but they also paid $95, 000 to my Delaware subsidiaryfor the rights to use the name Giraffe as Interesting and this awesome logo and thatgreat motto.

My Pennsylvania store can deduct the moneythey paid to my Delaware subsidiary from their income, so now they only have to pay Pennsylvaniataxes on $5, 000, not $100, 000, and that $95, 000 they paid to my Delaware subsidiary doesn’tget taxed at all, because, again, in Delaware, they don’t tax what’s considered, “intangibleproperty.

” Every year, the government loses out on about$9.

5 billion because of the Delaware loophole.

That’s enough money to buy 392, 000 giraffesor a few dozen US senators.

So that’s the Delaware loophole and thatis what brings us to what you’ve all been waiting for—the two-story building that’shome to 15% of all US companies.

Now, there are a lot of important addressesin the world: 1600 Pennsylvania Avenue, 10 Downing Street, 4 Privet Drive, 42 WallabyWay, but perhaps the most exciting of them all is 1209 Orange Street, Wilmington, Delaware.

Believe it or not, this shabby building isthe legal address of over 285, 000 companies.

Why are they all in the same building? Because you have to have an address in thestate for, “service of process”—in other words, a place to get mail and legal documentsif you’re legally based there, but that law doesn’t say that you have to have staffthere.

So a company, the CT Corporation, bought thisbuilding at 1209 Orange Street and said, “hey companies, if you want, you can list thisas 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, AmericanAirlines, and Coca-Cola, all in the same two-story office space that looks like the headquartersfor 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 therebyqualifying it for the religious institution tax exemption or b—learn how to properlyidentify business expenses.

For option b you could a—spend a captivatingafternoon reading through the IRS’ fantastic archive of documents or b—spend an actuallycaptivating 40 minutes taking this Skillshare course teaching you to do exactly that.

It could end up being the most profitable40 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 makeeverything you do more efficient.

If you want to learn new skills and betteryourself, Skillshare is the place for you especially given their enormous library ofover 25, 000 classes.

If you sign up at skl.

sh/hai26, you will gettwo months of Skillshare for free and then, after that, their annual pricing works outto less than $10 a month.

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