Those who face unacceptable levels of confiscation of their lives and labor and the fruits thereof, can simply go elsewhere.
In the old days, that required a Conestoga wagon, or steerage fare on some steamer. But in this age of Internet commerce and electronic fund transfers, an interesting question begins to arise: In just what jurisdiction can a given electronic transaction or fund transfer be said to have occurred? Is it “fraud” for a corporation to arrange things so its most profitable divisions are incorporated in lower-tax jurisdictions like Nevada or Wyoming?
“Forget complicated wire transfers to the Cayman Islands or secret Swiss deposit boxes,” the Los Angeles Times reported Monday. “Californians who want to hide their money from tax authorities are increasingly opting for a simpler alternative: socking it away just over the state line. ... Seminars, webcasts and radio advertisements bray that it’s easy to slash a California tax bill -- or eliminate it altogether -- by creating a corporation in Nevada, where there is no income tax on businesses or individuals. ...
“Promoters peddling the packages call it good tax planning,” offered Times reporter Evan Halper. “California officials call it something else: tax fraud. They say the cash-strapped state’s coffers are being drained as even some of the smallest California businesses shift their profits into hastily created corporate shells in the Silver State.”
But it’s the complexity of the tax code itself that teaches businessmen the wisdom of setting up separate corporations to, say, own a California bakery’s ovens and lease them right back to a bakery owned by the same parties, thus creating a “leasing cost” to offset profits.
If a smart businessman now takes the additional step of locating that “equipment holding company” -- and its profit-generating potential -- in Nevada or some other state without a state income tax, who created the situation that made it worthwhile to go to that bother? Why, the taxman himself.
“Experts say California investigators will have a tough time stamping it all out,” moans the statist L.A. Times, whose writers appear never to have met a tax they didn’t love. “Nevada corporate secrecy laws can make it impossible to unearth how exactly money is being used once it is shifted there. Unlike most other states, Nevada doesn’t work cooperatively with the IRS to root out tax cheats -- something the office of the Nevada secretary of state highlights in a pamphlet titled ‘Why Incorporate in Nevada?’
“The pamphlet also says: ‘Stockholders, directors and officers need not live or hold meetings in Nevada, or even be U.S. citizens.’ And it touts ‘minimal reporting and disclosure requirements.’ ”
Oh, the horror!
Derek Rowley, president of the Nevada Resident Agent Association, says many tax reduction strategies involving Nevada corporations are perfectly legal, and that there are numerous other legitimate reasons Californians might incorporate in Nevada, such as laws many Californians believe offer more privacy protection for investors and shield business owners from being held personally liable in lawsuits against their company.
What the Times insists on calling “the incorporation schemes,” meanwhile, may have received a boost from a 2003 U.S. Supreme Court decision that allows Nevada taxpayers audited by the California tax board to sue for harassment.
“The decision is related to a case winding its way through the Nevada courts, in which a jury verdict in favor of the taxpayer, inventor Gil Hyatt, could cost California hundreds of millions of dollars,” reports Times staff writer Halper, who apparently believes all our earnings start out as the property of the state, and that the state is thus “cost” any amount which we’re able to keep clutched in our own desperate hands.
“Caveat emptor” remain the best advice to those who choose to remain in high-tax California. As that state’s politicians continue to squander their once bright reputation to build their welfare-state Tower of Babel, it’s inevitable their henchmen will become more and more ruthless in tracking down every dollar of tax tribute they figure is “theirs.”
Golden State tax investigators bragged to the Times that their computers can compare bank, sales and payroll records linked to California addresses. “Tax professionals say the state is still a few years away from foolproof technology,” the Times reports.
Yep. And computer tracking of the sale of irrigation equipment will nip those commercial pot-growing operations in the bud any day now, too.
But is it really a “scam,” a “crime,” a “fraudulent scheme” for other states to allow and even welcome Californians to establish business entities in their lower-tax environments?
No more than it was a “scam” or “fraudulent scheme” for the wisest heads of families to gather up whatever wealth they could carry and flee the confiscatory policies of Lenin or the Nazis, fleeing to the far freer shores of America, where hard work and entrepreneurship had at least a reasonable hope of a just reward.