I really have no reason to move my company headquarters to a different state, as my state has a pretty low tax rate.
According to some articles i read online, changing the headquarters state to your business is as simple as filing for a new corporation in the state you wish to “move” to, and dissolving your company in the current state.
Is it really that easy to escape business taxes? If it is, then why isn’t every single business incorporated in a state like Alaska or Nevada, they have zero state income taxes!
So why doesn’t Wal-Mart buy a trailer home in the Nevada desert and call it Wal-Mart World Headquarters, I must be missing something?
“That a corporation or other tax entity must maintain a physical presence in the state (such as physical property, employees, officers) for the state to be able to require it to collect sales or use tax”
I’m sure there is more depth to it that Wikipedia doesn’t mention, but couldn’t a corporation just have it set up like this to show nexus:
Business operates in Minnesota
Business headquarters are a dive bar in nowhere, North Dakota
All business income is deposited into accounts in nowhere, North Dakota
That would seem to satisfy nexus for the company to be based and taxed at North Dakota levels
You said “Business ‘operates’ in MN”. That’s what nexus is: where you operate, i.e. actually transact business activity. That’s sufficient nexus to say MN gets its bite at all the income earned from work performed or product made in MN or shipped from MN. Or sold in MN from facilities located in MN.
ND won’t bother you a bit as long as you pay whatever taxes they charge on all the income you report to them. Once MN figures out what’s been going on they’re gonna be real unhappy with you.
All the above is general rules; each state is free to have their own tweaks on exactly how they keep score of interstate businesses.
If you’re at all serious about this, check with a business attorney in your local area. If you’re close enough to a border to have other small businesses playing tax domicile games, they’ll know about it and tell you what rules practically apply to your particular combo of two states.
Sometimes there’s room for gamesmanship. But only rarely and not very much.
Moving just the headquarters doesn’t really affect the taxes paid to other states where the business actually operates - Target will pay taxes to NY as long as it has stores in NY. Moving the headquarters will matter in cases where that headquarters basically determines where the business operates, or where there are important issues other than taxes… For example, a bank operates wherever it has branches, but a separate subsidiary that only handles credit card operations may only have a nexus in the state where it is headquartered if that is where all of the offices are- but more importantly, that state’s laws will determine the interest rate and fees that can be charged ( there’s a reason so many credit card operations are/were in South Dakota.)
MN Department of Revenue would disagree, and demand that business to pay Minnesota taxes (+ penalties for late payments). AIf the business disagrees, they would have to fight it (in MN court). They will lose, because MN Tax Court Judges aren’t fooled by such silly actions*. Then the business will have had to pay their own tax lawyers, plus pay the taxes ordered by the Court, plus pay the MN state lawyer’s costs, plus pay the late penalties, plus possibly have to pay more penalties for attempting to evade taxes.
Just isn’t worth the risk to reputable businesses.
Some friends of my parents operated a trucking business, with nearly all the trucks running in Minnesota, the drivers & the owners living in MN, customers being mostly MN businesses, but the business incorporated in Wisconsin and the address used just across the border in Wisconsin (at the owners riverside cabin, I understand). They avoided paying MN taxes, MN workers comp fees, MN unemployment taxes, MN license plate fees, etc. Some of these were paid in WI, where the rates were lower, and some it appears, were not paid to either state.
They got caught in the end, and lost their case in MN Tax Court. The unpaid taxes & penalties were enough that the owners decided to file for bankruptcy, with these unpaid. (Also left the employees on the hook for unpaid Social Security taxes, pensions, etc.)
This kind of corporate shenanigans is rife in the EU as well, although the individual countries are beginning to tighten up on it. Unsurprisingly, two American companies, Amazon and Starbucks have been the biggest, but far from the only culprits.
When I order something from Amazon, the order is processed by, and the goods come from a local warehouse; the invoice comes from Amazon société à responsabilité limitée in Luxembourg where I read that “Capital companies are fiscally opaque”.
Starbucks, as I vaguely understand, routes all its purchasing through the same country, and engineers the prices to the outlets so as to reduce apparent profits to near zero.
So; maybe Walmart could set up an office in Nevada and route all purchasing orders through there. They would then have the goods delivered to the stores at prices inflated enough so that the stores barely cover their costs. In fact I see that their HQ is in Arkansas; is that a low/no tax state?
This is a different issue really, thats called “off shoring profits” or “profit shifting”, it’s semi legal depending on where and how its done. In practise it’s almost impossible to stop a company exaggerating it’s costs in high tax regime countries by charging nebulous “consulting” fees from a subsidiary based in a low tax regime country.
Really the only solution is a revenue tax (which is effectively what GST / VAT are, but of course it’s always shifted to the consumer).
Arkansas is relatively low tax. But it’s also where Walmart was founded as one small retail store in the small town of Bentonville. Which small town now hosts their massive HQ.
So they may have darn good tax reasons to keep HQ in Arkansas. But it’s definitely not true they moved there at some point for the purpose of tax avoidance.
Within the US, choice of state doesn’t matter at all for Federal taxation, which is the bulk of the total business (and personal) tax burden. Our states are mostly small, use the same currency, speak the same language, have major cities straddling borders, have lots of interstate trade, etc. As a consequence, significant inter-state or multi-state taxation has been a part of our business and regulatory climate for 100+ years now.
Most of the opportunities for shenanigans have already been found by enterprising businesspeople and duly closed by enterprising legislatures. But among each generation of businessmen the hope springs eternal as our OP demonstrates.
Having sat jury in corporate litigation (Exxon-Moble v SABIC*), I can attest to this. EVERYTHING is set up professionally, smoothly, and thoroughly. They speent two weeks, essentially, setting up the details, filling the background, and laying out the issues. So thourough were they that the verdict was reached in VERY short order, and it withstood challenges all the way to SCOTUS.**
I felt bad for SABIC, but they screwed up - Despite specific warning. They made a rookie mistake, didn’t correct it when warned, and their case, which was essentially “You live with the deal you made” was exactly what bit them in the backside.*** Unanimous ruling.
*** Little known fact: The case was actually tried under SAUDI laws for ussurption - Despite being conducted in Chancery Court in Wilmington, Delaware. Hence the huge award - Saudi law at that time made no provisions for less than complete recoupment of any usurped funds and any income generated by the use of those funds. Ouch.