Exploring the Role Delaware Plays as a Domestic Tax Haven

48 Pages Posted: 12 Jan 2011 Last revised: 11 Apr 2013

See all articles by Scott Dyreng

Scott Dyreng

Duke University - Accounting

Bradley P. Lindsey

Utah State University - School of Accountancy

Jake Thornock

Brigham Young University

Date Written: Sept 24, 2012


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.

Keywords: Delaware, Tax Haven, Tax Law, Tax Aggressiveness, Corporate Governance

JEL Classification: G38, H25, H71, K22

Suggested Citation

Dyreng, Scott and Lindsey, Bradley P. and Thornock, Jacob, Exploring the Role Delaware Plays as a Domestic Tax Haven (Sept 24, 2012). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1737937 or http://dx.doi.org/10.2139/ssrn.1737937

Scott Dyreng

Duke University - Accounting ( email )

Box 90120, Fuqua School of Business
Durham, NC 27708-0120
United States

Bradley P. Lindsey (Contact Author)

Utah State University - School of Accountancy ( email )

Huntsman School of Business
3540 Old Main Hill
Logan, UT UT 84322-3540
United States
435.797.4126 (Phone)

Jacob Thornock

Brigham Young University ( email )

Provo, UT 84602
United States
8014220828 (Phone)

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