Exploring the Role Delaware Plays as a Domestic Tax Haven
Bradley P. Lindsey
North Carolina State University
Jacob R. Thornock
Brigham Young University
Sept 24, 2012
Journal of Financial Economics (JFE), Forthcoming
Offshore tax havens, such as the Cayman Islands, have been shown to facilitate corporate tax avoidance. However, academic research has overlooked the possibility that the state of Delaware could serve a similar role domestically. We find that tax factors play an important role in determining where to locate subsidiaries and that these factors are economically larger than the legal and governance factors that are typically considered important determinants of incorporation decisions. In addition, the tax savings of placing subsidiaries in the state of Delaware are economically meaningful. For firms that appear to engage in tax strategies involving Delaware, we find a reduction in the state effective tax rate of approximately 1.5 percentage points, which is similar in magnitude to the tax savings of having foreign haven operations. Our results are consistent with Delaware serving as a domestic haven against state corporate taxation.
Number of Pages in PDF File: 48
Keywords: Delaware, Tax Haven, Tax Law, Tax Aggressiveness, Corporate Governance
JEL Classification: G38, H25, H71, K22
Date posted: January 12, 2011 ; Last revised: April 11, 2013
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