Tuesday, June 10, 2003

MD Court tries to Medic Budget with Long Arm Tax

Monday, the Maryland Court of Appeals, Judge John C. Eldridge, used a long handled ladle to reach into Delaware income and claim it taxable in Maryland. In a decision that will likely be appealed, the Maryland Court ruled that the defendant corporations were using Delaware corporations as vehicles to hide profits. Central to the Judge's reasoning was that the proper steps to establish a real and substantial business presence in Delaware had not been taken, and that the Delaware corporations were not much more than mail drops.

Lesson to be learned? Do it right. If you are going to properly form your entity to make lawful and effective use of Delaware's corporate, taxation laws and judicial structures, take the time and effort to establish an actual business presence. Sham's will be treated as shams.

There are a great number of reasons to incorporate in Delaware for business, and financial purposes. For ease of filing, cost, efficiency, tax and corporate friendly laws, and a specialized business court, Delaware is unsurpassed. It is important to properly plan your Delaware incorporation, however, and take the appropriate steps to meet your particular goals. Some of these steps are: obtaining legal and accounting advice; choosing the right type of corporate entity; choosing the right Delaware registered agent; assuring that all of your documents are filed correctly and maintained; and determining what level of business presence will be necessary to meet the goals of your incorporation plan. It was (apparently) on this last step that the defendant corporations were weighed and found wanting.

[later -- More here from the Wilmington News Journal.]

No comments: