Mark Cuban: If Your Company Is Moving For Tax Reasons, I'm Selling Your Stock

https://ca.finance.yahoo.com/news/mark-cuban-youre-company-moving-130751365.html

by bane • 12 years ago

178 202 12 years ago

ca.finance.yahoo.com

nostromo• 12 years ago

Perhaps we should drop the corporate tax rate to zero. It's simply too easy for a global company to avoid them. In the end, small and mid-sized businesses are the ones that get soaked.

It currently makes up about 10% of federal revenue. http://www.cbpp.org/cms/?fa=view&id=3822

nkozyra• 12 years ago

I think that's the eventual outcome, as there will likely always be some place with a low enough rate to compel businesses to setup shells.

antidaily• 12 years ago

Yeah. Then, raise taxes for those who can afford it to make that up. I like it. It'll never happen but I like it.

ericcumbee• 12 years ago

If we just moved to be inline with the rest of the world that would be an improvement.

cyorir• 12 years ago

That could pretty quickly sour relations with a lot of other countries, if we were cutting our own tax unilaterally. Anything like this would preferably be coordinated with other countries.

http://en.wikipedia.org/wiki/File:Effective_Corporate_Tax_Ra...

http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_Sta...

http://en.wikipedia.org/wiki/Tax_rates_of_Europe

MrZongle2• 12 years ago

What hasn't soured relations between the United States and other countries in the last 15 years?

Changing our tax rates seems downright benign.

Symmetry• 12 years ago

We could probably just stop trying to tax people in those other countries and they'd be happy enough to forget about the corporate tax thing, speaking of stupid US tax policies.

jimbokun3• 12 years ago

How do we replace that 10%? According to your link, that would be about $280 billion per year.

stephencanon• 12 years ago

Presumably by taxing dividends (and possibly capital gains, depending on who you ask) as normal income, and eliminating other quirks of the tax code that overwhelmingly benefit the wealthy.

patrickmay• 12 years ago

Cut spending. Does anyone really think that 10% of what the federal government does can't be eliminated entirely?

a-priori• 12 years ago

The idea would be to shift the tax burden from corporate profits to dividends and capital gains.

bduerst2• 12 years ago

I like your thinking, but there's a sliding scale (15%-35%), just like personal income tax, so that smaller businesses don't get hosed.

Theoretically it would also be easy to game payroll and income taxes this way. You could essentially file articles of organization for a corporation with you as the sole shareholder, and have your employer pay your corporation your wages, instead of you directly.

When it comes time to take money out, you pay a fat dividend with 15% dividend tax rate, instead of 35% income tax rate. There are of course some exceptions to this and it isn't possible in some states, but it would be possible.

bradleyjg• 12 years ago

When it comes time to take money out, you pay a fat dividend with 15% dividend tax rate, instead of 35% income tax rate.

If we were to eliminate the corporate tax we'd need to simultaneously eliminate the preferred tax status of qualified dividends and long term capital gains. We'd also need to crack down on wage substitutes (aka fringe benefits).

Still think it'd be a worthwhile tradeoff.

tsuraan2• 12 years ago

So, I create a corporate entity that provides my housing, transportation, other major needs. All my income is paid to this entity, which pays no taxes. I, as a biological person, get some basic stipend to cover daily costs, and live comfortably with all my necessities being paid by the corporate entity. How does the state collect any taxes at that point?

EDIT: thinking a bit more, I guess sales taxes could still be collected. Could a government function almost entirely off sales taxes?

karmicthreat• 12 years ago

Even now as far as the IRS is concerned you will personally pay tax on all of those services that were given to you. The IRS doesn't just tax cash transfers.

tedsanders• 12 years ago

I believe that the housing, transportation, and other major needs would be taxed just like the income they replace. (Or should be, in any case.)

This IRS page says that benefits are taxed like income: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employ...

My mother is self-employed, and there are strict rules about deducting business expenses (like home office square footage) but not personal expenses (like the rest of the house's square footage).

aidenn07• 12 years ago

What you just described is illegal. A corporation must act as an independent entity, not just be a shell around a single individual.

drhodes• 12 years ago

Your edit refers to something like the "Fair Tax", http://en.wikipedia.org/wiki/FairTax. It's been a while since I've read about it. From what I recall, some people are against it because they think it will disproportionately burden low income people.

cynicalkane2• 12 years ago

There are already laws stopping corporations from doing that. Otherwise corporations could just pay you in kind and write it all off as expenses.

hkarthik• 12 years ago

Then you start to look a lot like the large companies in Asia. I have a family friend who has been a General Manager at Birla Industries in India for 25 years.

His housing is paid for, his drivers are all company employees, and he is given a generous "expense account" for all of his regular needs. I believe his salary has only been used for vacations (where he couldn't do any business) or for his son's tuitions at U.S. universities.

fleitz• 12 years ago

That's kinda the fucking idea.

If you have contract income you assign it to a corp and then pay yourself a wage so you can live and keep the rest in the corp to invest / pay dividends. (No you can't deduct everything, but the more frugally you live the less tax you pay)

The thing is most people don't like to live in the most frugal way possible and therefore end up paying some taxes on the things they like.

bluthru• 12 years ago

So not only are corporations super humans that have limited liability and now religious views, you don't want those extremely wealthy "people" to pay taxes, either?

I'm open to a "first world tax rate" for corporations, but dropping it to zero would do more harm than good.

lotharbot3• 12 years ago

As long as the US has existed, there has been corporate personhood. The Supreme Court has argued it in terms of corporations being essentially groups of people acting together for a common cause, and noted that working together should not invalidate the rights to free speech, religious practice, entering contracts, etc. Chief Justice Marshall said it this way in 1830: "The great object of an incorporation is to bestow the character and properties of individuality on a collective and changing body of men."

Key cases (you can find them all at http://supreme.justia.com/ ): Dartmouth College v. Woodward, 17 U.S. 518 (1819) Providence Bank v. Billings, 29 U.S. 514 (1830) Santa Clara County v Southern Pacific Railroad Company, 118 U.S. 394 (1886) United States v. United Auto Workers, 352 U.S. 567 (1957)

seanflyon5• 12 years ago

Taxes are a great argument against corporate personhood. People pay taxes on income, corporations pay taxes on profit. This is why so many corporations pay no taxes at all. If they want to be people they should pay income tax like the rest of us.

rayiner• 12 years ago

This is probably the best course of action. The teeth-gnashing over whether corporations should pay taxes should take a back-seat to whether it's practical to require them to. We have to acknowledge the race to the bottom that comes along with living in a globalized world. We don't have the leverage needed to tax these companies, and it's better if they stay here and don't pay taxes than if they move somewhere else and don't pay taxes.

mseebach• 12 years ago

I agree with you, but I really don't like the term "race to the bottom" - it's is just a fear-mongering term for competition and the inconvenience and sometimes embarrassment that comes with the realization that something you thought you were good at can actually be done cheaper and better.

"The bottom" is the best service/price tradeoff (with the desired service level delivered as efficiently as possible, ie. at the lowest price).

Ireland luring businesses with a low tax rate and Americans and other higher tax countries complaining about a "race to the bottom" is much more similar to the creative destruction that takes place when say Postgres and MongoDB displace an expensive Oracle DB (and the reactions of both Oracle and high-tax advocates are pretty similar).

snowwrestler3• 12 years ago

That would not actually help small and mid-size businesses, most of whom are organized as pass-through entities and are therefore not subject to the corporate tax rate.

kazinator• 12 years ago

I'd be in favor of this zero rate, if, at the same time, all "corporate welfare" ended also: no coddling of corporations by the state. Also, no protective measures such as tariffs.

amalcon• 12 years ago

The corporate tax is the only disincentive to use corporations. There must be one, or the corporate veil will start to be used for trivial things. We see this already, even with corporate taxes, in e.g. patent trolls or Hollywood films.

Small businesses are mostly proprietorships, partnerships, and LLCs anyway, which don't generally need to pay corporate taxes. Mid-sized businesses might be hurt by the corporate tax, though.

cynicalkane2• 12 years ago

The corporate tax is a terrible disincentive to make money. Wealthy entities that make money are more concerned with relative status than absolute status.

On the other hand, the corporate tax is a great way to ensure corporations retain profits instead of paying them out, thereby making the corporations larger.

This would all be obvious if people remembered rule 1 of economics, which is that actors respond to incentives.

skywhopper2• 12 years ago

You would have to somehow balance it out against the fact that eliminating corporate income tax would invalidate a lot of incentives built into the corporate tax structure. No more flexibility for the government to encourage capital purchases or otherwise use tax policy as a policy driver.

It would also decrease the incentive to invest in their own company because the cost of building a new factory or raising workers' wages or hiring more workers would actually increase. Think about it, if a company were considering giving all of its workers a $5,000 raise. In a world with a 30% marginal corporate tax rate, the actual cost to your company's bottom line of such a raise would be $3,500/worker, because you only pay tax on net income. But with a 0% tax rate, the cost would be $5,000/worker, that's a 43% bigger cost. Plus, presuming that personal income taxes would need to be raised by ~11% to make up for the loss of corporate income taxes, the workers are going to end up a lot less likely to get substantial raises.

The benefits of eliminating the corporate income tax are going to have to be huge to make up for the disincentives it would create.

rthomas62• 12 years ago

I don't know, I think a ~35% boost in profits for all profitable American businesses is pretty huge.

maxk42• 12 years ago

You would have to somehow balance it out against the fact that eliminating corporate income tax would invalidate a lot of incentives built into the corporate tax structure.

The current corporate income tax structure favors large bureaucratic institutions that can afford to pass the barriers-to-entry to avoid taxation. Thus small enterprises end up spending more on taxes than large institutions do: it's a regressive tax.

Eliminating the corporate income tax would heal that inversion.

encoderer• 12 years ago

Honestly most small businesses pay taxes on their members' individual returns. Keep the corporate rate where it is, how about a non-refundable small business tax credit?

ranran876• 12 years ago

Another aspect of the corporate tax is that it in-effect is a secret tax. You see how much the gov't takes from you on your pay stubs, or your receipts at the store. But you don't see the effects of the corporate tax.

I'd think it would be healthy too move to a model of looking at corporations are simply intermediaries for organizing people. Ultimately the money that flows into the corporation has to flow out either through salaries, dividens or sales - and the money should be taxed at those points. If you tax it in the middle people just end up thinking "oh, well they're taxing the evil corporates, so that's good!" without seeing the dampening effect on salaries and their investments.

I understand that it's a bit simplistic, but I think the current model of hidding taxes is parasitic. You look at the insane sales taxes they have in Europe. They keep going up and the citizens don't really perceive it and so there is no push-back. Here in the US, when the sales tax goes up by half a percent people are up in arms.

Alupis• 12 years ago

I agree, maybe not 0% rate, however, instead of focusing on chastising and ridiculing companies that make [business smart] choices to alleviate their tax burden, we need to focus on fixing the core of the problem that promotes businesses to seek tax relief in the first place!

sp332• 12 years ago

Instead of 0, how about 20%? Right now the nominal rate for large companies is 35%, but they spend a lot of resources bringing the actual number lower. If we set the rate at 20%, then it becomes unprofitable for them to work so hard to avoid the tax. That means we get two advantages: companies can use that money for actual investment instead of dodging taxes, and the government might actually get more money since companies are dodging less and have more money to grow with.

eqdw• 12 years ago

Planet Money did a series on "policies economists would love and politicians would hate". One of their biggest suggestions was "eliminate the corporate tax rate and significantly raise income taxes on the high end". For exactly this reason, as well as what is said here https://news.ycombinator.com/item?id=8087103

The more money a company has, the more money they can use to employ people and be productive. The general public usually gets upset at what they see as severe profits to a corporation, but in general those profits aren't being "wasted" on the rich until they draw them out in salaries or dividends. It makes more sense to simply tax them at that point (at least, according to NPR)

dllthomas3• 12 years ago

It's worth noting that it's not corporate revenues that are taxed but corporate profits. Money that corporations use to hire people is not taxed at the corporate level.

That said, "[t]he more money a company has, the more money they can use to employ people and be productive" is still true and relevant because money is fungible. It is just less extreme than if corporate taxes were applied to that money as well.

Gustomaximus• 12 years ago

Or table this with WTO, G20 or new body to set a minimum tax at a few key points like company tax and income. We're going to see increasingly mobile assets and company structures IMO so a global body working together to set benchmarks makes sense. The alternate seems to be countries will be stuck in a race to the bottom in trying to attract companies & talent.

manishsharan2• 12 years ago

I appreciate the sentiment but that will not mean much. Ethics rarely figures in Investment decisions, which are made on the basis of excel spreadsheets and quant algorithms. If on the other hand you were to find employment for people who found their employers' tax avoidance to be distasteful and wanted to quit to make a statement, then you might be able to make a difference by starving such companies of talent.

drdeadringer• 12 years ago

Ethics rarely figures in Investment decisions

However, it seems to be a "coming thing". I began altering my investments a handful of years ago to include what I found tasteful not just on return, but on ethics//morals as well. I don't see how this is different from "voting with your feet" or "voting with your dollar".

Starving companies of investment and sales are part of the same mixture as starving companies of talent.

manishsharan2• 12 years ago

A significant chunk of investment in the American stock market and real estate is done by foreign investors and funds and hedgefunds etc. These decisions are made primarily based on the spreadsheets ; as a backend software guy in the capital markets and banking sector, I see first hand how automated this decision making has become. I have had score of meeting with Investment and Financial advisors ( for s/w development/testing , not financial advise )and I see first had how hard data oriented these folks are in their decision making.

elsewhen• 12 years ago

i'm sure you know this, but when you invest in a company, you are actually just buying shares off of some other investor - the money doesn't go 'to' to company (except in IPOs and secondary offerings). of course the stock price can affect a company in some pretty important ways.

diminoten• 12 years ago

In order for this to work, everyone would have to hold the same set of ethics, which is not only untrue, but grossly untrue as you span the globe.

Otherwise, the varying ethics among people will more or less wash out, even if everyone did act based on a set of ethics in their investing.

Voting with your feet/dollars works because it stays inside the realm of utility, and is therefore much more "standard" across the population.

A car is useful almost everywhere, for example, but how that car is made might rub different people different ways.

ArtDev2• 12 years ago

In some cases, those dividends can be blood money.

There are plenty ethical ways to make money from investments.

josho2• 12 years ago

Cuban's not arguing this from an ethics perspective. He's saying that it may temporarily boost shareholder value, but the trade off is increasing his personal tax liability (he's assuming the tax shortfall will be made up by increased taxes to the remaining taxpayers).

jahabrewer• 12 years ago

I find it difficult to balance my distaste for corporations that act irresponsibly with my laziness in regard to my investment portfolio. I use a slight variant on the three-fund portfolio (http://www.bogleheads.org/wiki/Three-fund_portfolio). I value its simplicity because it saves me time and gives an acceptable expected return. However, using large total market funds means that I'm invested in so many companies that it would take a very long time to investigate each one for responsibility.

Good on Mr. Cuban for standing up here.

donatj2• 12 years ago

I don't understand the whole "If you behave logically as a business we hate you" sentiment.

You enact business unfriendly practices business leave. It is the job of a business to make money, the most money possible, at all costs. That is its single purpose existing.

parfe4• 12 years ago

Just because you "behave logically" does not mean you behave morally or ethically. Perhaps you should reflect on why immoral behavior would result in people hating you.

JonFish855• 12 years ago

Are you saying that a company moving money around in an advantageous way is immoral? How so? Presumably you deduct the maximum amount you can from your taxes. That's what the business is doing: shuffling it's money around in a way that minimizes their costs.

Sure, I can see the argument of people who don't really like it, but to say it's immoral seems a bridge too far for me.

joelrunyon6• 12 years ago

How is following the law to a "T" morally or ethically wrong?

Isn't the greater moral or ethical wrong here is how terribly convoluted the tax code is?

sbmassey• 12 years ago

Why assume paying higher taxes than necessary to a government is moral? It is not as if governments are widely considered to be admirable ethical organizations. Just the alternative, really.

paulhauggis• 12 years ago

yet, downloading software and music for free, without compensating the author/creator, is seen around here as 'moral'. So is using Adblock on websites, depriving that company of revenue.

I see this as leveling the playing field.

aidenn07• 12 years ago

Judge Learned Hand would disagree with you:

"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."

Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).

"Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."

Commissioner v. Newman, 159 F2d 848 (1947)

donatj2• 12 years ago

I'd argue if your morality is illogical, it's probably the morality that is wrong

jMyles• 12 years ago

How did this become gospel?

throwaway5752• 12 years ago

Sure, and as Cuban spells out pretty clearly in his tweets, he is taking into account the higher taxes he will personally pay in the calculation of his overall returns.

An extra 5% return on 2% of your portfolio may be dwarfed by increased income taxes as the result of multiple large corporations re-domeciling.

ArtDev2• 12 years ago

Considering that not all giant companies are bad actors, shouldn't we hold them to higher standards?

bsg75• 12 years ago

It is the job of a business to make money, the most money possible, at all costs.

By that logic you would support the removal of all consumer, labor, and environmental protections?

driverdan• 12 years ago

This is a false premise. OP said absolutely nothing about changing / eliminating existing laws. Even if OP said something about tax laws your argument would be a slippery slope fallacy.

privong• 12 years ago

I don't understand the whole "If you behave logically as a business we hate you" sentiment.

I agree with this. Businesses will work to maximize their benefits under a system (just like most humans will).

It is the job of a business to make money, the most money possible, at all costs. That is its single purpose existing.

I think that is the market-pressure for what businesses should do and the single goal of many investors. But I am not sure convinced that is truly the single purpose of a business.

GauntletWizard• 12 years ago

Yes, the concept of a Benefit Corporation [1] does exist, and we should encourage more of them, and more business to write their charters to act like them. Maximizing investor profit is only one metric of a business.

[1] http://en.wikipedia.org/wiki/Benefit_corporation

qntm• 12 years ago

And that's not worth hating?

snappy173• 12 years ago

wat?

this isn't what cuban is doing. at all. it's more like:

"because you behave logically, i can and will encourage you to behave in my best interest."

hate has nothing to do with it.

jimbokun3• 12 years ago

"It is the job of a business to make money, the most money possible, at all costs. That is its single purpose existing."

This is a popular meme, but I've also read People On The Internet claiming there is no legal basis for this belief.

Do you have any sources to persuade me otherwise?

rosser2• 12 years ago

It is not the job of a business to make "the most money possible." That tired bullshit meme needs to die.

Yes, businesses need to make money. I'm not saying otherwise. But even the fiduciary duty that publicly traded corporations have to their shareholders isn't "maximize profit above all other considerations." The kind of short-term, next-quarterly-results-are-all-that-matters thinking behind that notion is possibly one of the most destructive ideas in the history of markets.

Argorak• 12 years ago

Because the very same business try to play themselves as being society-minded, if it helps them.

hrktb• 12 years ago

Business' goal is to make money, but countries let business exist to employ people and sustain the economy. Clients deal with businesses to have services provided. Employees work for businesses to sustain their lives, etc.

Businesses don't exist in a vacuum, they don't only exist for themselves and should act more like a part of a whole. If a business breaks the social or economic tissue around it, it will eventually be seen as harmful and face sanctions. If a business is unwilling to benefit the society, it might be a good thing to let it leave for somewhere else.

qeorge• 12 years ago

"It is the job of a business to make money, the most money possible, at all costs."

I hear this a lot, but its not true. Why do you think this is true? I think this belief often come from a misunderstanding of fiduciary duty.

For context, I own 3 businesses. They do not exist to make the most money possible at all costs.

seanflyon5• 12 years ago

Could you explain what a corporation's actual fiduciary duty is?

gonehome• 12 years ago

It is the job of a business to make money, the most money possible, at all costs. That is its single purpose existing.

I don't think that's the single purpose of a business existing. I hear this all the time and I'm not sure where it comes from. Lots of businesses exist to change things or provide ways to solve problems with money being the means to allow them to do this.

It's why you can have businesses that take long bets on better tech (Tesla, Space X) or work to fix large broken systems that are hard to enter (Palantir). Google also started with similar goals.

Shinkei• 12 years ago

"It is the job of a business to make money, the most money possible, at all costs. That is its single purpose existing."

I don't know if you are terribly inexperienced or trolling, but this is provably false. Besides the obvious examples of non-profits, one can easily imagine a business model that desires market-share over margin (looking at Japanese business models or even Amazon). I think you should read more before you take such an amoral view towards business and I sincerely hope you are never at the helm of a business I invest in.

At its heart, business is about creating value and exchanging that value for currency. You build a great house, mine raw ore and create steel, invent a new medicine... your product is your goal and future growth is just as important (if not more!) than your current revenues.

jusben13694• 12 years ago

What missing here is any reference to time. Amazon is taking a short term loss on profit to maximize their long term ability to make as much money as possible. That's what maximizing market share is about.

spinchange• 12 years ago

It is not expressly the job of a business to make, "the most money possible at all costs." There's a component of to what degree, and priority. Apple, for instance, could probably make even more money than they do, using cheaper, lower quality parts/builds, or with lower manufacturing standards, but they don't do that because of the priorities they have, driven by their corporate values. It's a trade off.

Mr. Cuban, as an investor and citizen of the US, is willing to make a personal and professional trade off investing in companies that have a lower P/E multiple (earnings) at the expense of staying in country and keeping jobs there. This is based on his values.

I bring Apple up intentionally because they're an example of a company that uses international tax law & vehicles to basically have no U.S. liability. So, they don't share the same values as Mr. Cuban, but they do make other trade offs in their business that come at the expense of the absolute maximization of profit, because of different ones.

jiggy20112• 12 years ago

A corporation has a duty to do right by it's shareholders, in this case a shareholder is making a judgement about what he considers right.

jusben13694• 12 years ago

That's weird that you sort of put your foot in the water here and are more right than 8 or so of these replies. A business, that Cuban's referencing, job is to optimize shareholder value. There might be rare occasions where that means paying higher costs or having lower revenues than is possible but for the most part the best way to do that is to make as much money (profit) as possible within the law.

slightlycuban• 12 years ago

I don't understand the whole "If you behave logically as a business we hate you" sentiment.

FWIG, Cuban's attitude sounds like "what is good for the business isn't always good for the investor". In a less twitter-friendly format, filing offshore creates a tax-shortfall that will be borne by your stakeholders. While this cost might not be felt by Mr. Cuban, in this case he would be acting logically (in a sense).

It is the job of a business to make money, the most money possible, at all costs.

First time I've heard that one. Here I thought the purpose of a business was to create value for its stakeholders. Mind you, value can be products for your consumers, jobs for your employees, or capital for your owners. Usually this means money, but not always.

jusben13694• 12 years ago

He's saying their economic behavior will hurt his overall wealth in the long run so he wants to discourage their behavior. Both are acting as rational economic actors.

nickjamespdx• 12 years ago

Go Mark Cuban, I never liked you before today. Thanks.

wyager2• 12 years ago

Why? I don't understand how businesses are morally obligated not to select the optimal tax environment for them.

After all, a very common defense for compulsory taxes is "if you don't like them, you can leave." Is that not what's happening here?

jimbokun3• 12 years ago

I don't understand why Mark Cuban is morally obligated to invest in corporations doing things he doesn't like.

wyager2• 12 years ago

I don't understand why Mark Cuban is morally obligated to invest in corporations doing things he doesn't like.

I never implied he was. I'm curious what his reasoning is.

AngrySkillzz• 12 years ago

The point is that a lot of companies keep their funds in offshore tax shelters but have their de facto bases of operations in the US. They benefit from the advantages that the US government provides (stability, well-educated workforce, infrastructure, etc.) without paying their fair share of the cost (i. e. corporate taxes), and it's not like they can't afford it.

briandh4• 12 years ago

What's missing in your comment, though, is that many other developed countries offer those same benefits, and yet they don't tax foreign-earned income.

jusben13694• 12 years ago

They're certainly entitled to optimize their tax structure. It's the age old tension of capitalism where optimizing for the individual can harm the greater good. Joe Smith at the top of the river dams it not realizing/caring that it'll impact 100 farmers down the river. Cuban's just calling them out saying "Your actions will dry up the taxation pool resulting in me being squeezed elsewhere and forever so I don't want to encourage that behavior as it's not in my long term economic interests"

JonFish855• 12 years ago

So what about companies who incorporate in Delaware? Are these companies he doesn't want to invest in?

ericd3• 12 years ago

That's to take advantage of Delaware's well fleshed out corporate law, not to avoid paying any taxes. I pay more in taxes to do that, in fact.

JonFish855• 12 years ago

That may be some, but a good chunk of companies save a lot of tax dollars by doing this (according to http://www.nytimes.com/2012/07/01/business/how-delaware-thri... among others).

trollian• 12 years ago

Or companies that aren't repatriating their profits to avoid paying US tax?

mmcconnell1618• 12 years ago

Delaware, Nevada, etc. let you skip STATE tax but your corporation would still be based in the United States and Federal taxes would still be due.

If Mark Cuban resides in Texas then the net effect of lower tax revenue in the state of Delaware should be almost zero to him personally.

vonmoltke• 12 years ago

Delaware, Nevada, etc. let you skip STATE tax but your corporation would still be based in the United States and Federal taxes would still be due.

It's not that simple, and it doesn't allow corporations to skip state taxes. I only know Texas' law in detail, but Texas imposes franchise taxes on all companies "transacting business" within the state. Basically, any company with a physical presence in Texas is considered to be "transacting business" and may be subject to franchise tax. So, if your entire operation is in Texas it doesn't matter if you incorporate in Texas or Delaware, you are going to pay Austin the same.

Eliezer• 12 years ago

Hi! This is the Market Economics Fairy! Just a quick reminder that if virtuous people selling a stock would predictably lead its profits to be temporarily priced lower relative to the rest of the stock market, even a small group of profit maximizers can just swoop in and buy that stock! So this is a completely ineffective strategy for virtuous people to drive a stock price lower! And if Cuban sells the stock after the news of their move breaks, he's already locked in all of the company's expected profit from that move, because the stock will already be priced higher! Sincerely, the Market Economics Fairy!

busterarm3• 12 years ago

He doesn't care about that. He's not looking at it from the trader's perspective but from the value investors.

His actions follow through completely with his intentions here - he's signaling that the equity has lost value. This can hurt the company's value if he builds consensus, whether they lock in the short term profit or not. It's even the subtext of his whole argument: they aren't looking at the long-term consequences of their actions but are chasing short-term gains completely at the expense of their future.

Edit: And as much as I align with the trader's perspective on markets, traders tend to blow up and with great frequency...much more-so than value investors.

zak_mc_kracken3• 12 years ago

he's signaling that the equity has lost value.

But it hasn't. If anything, such announcements are followed by a stock value increase since the savings that will result from this move will add up to the bottom line, and the market responds positively to this kind of news.

Lay offs are another of these things that tend to drive stocks up.

neekb2• 12 years ago

Let's put it a different way. Let's assume for a second that the taxes are more or less "fixed" and need to be paid. SO - you can have companies participate to a lesser or fuller extent. The rest falls on us as INDIVIDUALS.

The moral angle here is that companies shouldn't avoid the taxes of the very environment that enabled them to succeed in the first place.

So I think what he's basically getting at is that paying your (corporate) taxes is basically like "giving back" to that system/environment.

That's the way I think about it, anyways.

joelrunyon6• 12 years ago

What if you believe that the actual taxes are overinflated & used improperly?

neekb2• 12 years ago

Then you just joined a very large club. I don't think that means you shouldn't pay them, however.

Also, there are tons and tons of people who complain about taxes but don't do anything about them. Do you vote? Did you ever run for any public position? Did you ever write a letter to someone in a public position making an awesome suggestion, or volunteering your time to help fix the system you think is overinflated? (Just examples, you know what I mean...)

Of course I WISH taxes were lower, I love money! But I also believe that despite it's many, many, GLARING flaws... The USA is the best country on the planet, and I want to support that.

jasonwocky• 12 years ago

Move? Vote? Write your Congressman?

icebraining3• 12 years ago

Let's assume for a second that the taxes are more or less "fixed" and need to be paid

That's a big assumption.

knodi• 12 years ago

Corporations are people.....

mikepmalai• 12 years ago

U.S. could probably address this issue if they moved to a territorial tax regime. It would bring a lot of offshore cash back to the United States (especially in tech) that can later be redistributed back to investors and the economy via buybacks, dividends, and domestic M&A.

The United States currently has a "worldwide" tax system and taxes U.S. companies on income earned both domestically and abroad in foreign countries. The tax on foreign earnings usually isn't assessed until the company brings it back to the United States (you'll hear companies talk about getting hit with a repatriation tax if they bring their "trapped" offshore cash back onshore to the U.S.). Most U.S. companies will try to avoid paying repatriation tax and keep substantial portions of their foreign cash earnings overseas to "reinvest" indefinitely.

At this point, the United States is one of the few advanced economies that still taxes its companies on their active foreign earnings (I believe only 8 of the 34 OECD countries use worldwide tax system) and also has one of the highest tax rates. Most OECD countries use a territorial tax systems that largely exempts active foreign earnings from domestic taxation.

briandh4• 12 years ago

This point is not brought up enough. It is often buried or left out entirely in these discussions.

Corporations that invert will not stop paying US taxes. They will stop paying it on foreign-earned income.

busyant• 12 years ago

Unfortunately, you can always game the system:

http://www.bloomberg.com/news/2012-10-05/pfizer-s-u-s-losses...

Double_Cast• 12 years ago

This sounds like a tragedy of the commons. Is it feasible to excise tax corporations who move overseas like a tariff?

danielweber• 12 years ago

Businesses are fungible. What's the difference between "I'm moving my business overseas" vs "I'm closing down my American business and starting an overseas business?"

Trying to catch this is nailing jelly to a tree.

zak_mc_kracken3• 12 years ago

That's totally going to convince companies to stop doing that.

vasilipupkin2• 12 years ago

I would say it slightly differently: if your company is willing to spend time and resources on the move for tax reasons and if taxes is such a big part of the future expected bottom line, that it's likely the company is not seeing huge opportunities going forward - and that is a negative signal for the stock.

x86_64Ubuntu• 12 years ago

It's funny how people behave as if taxing companies is some sort of NP-Hard problem. When in fact, we've done it before, and even during the greatest market expansion in the 1950s-1970s. But no, we should go ahead and give up taxing companies, and allow them to use our courts, our infrastructure, our legal protections as American entities and American natural resources to their hearts content.

briandh4• 12 years ago

Inverted companies still pay taxes on US income, it's just foreign income that is no longer taxed.

walkon• 12 years ago

The resources they are consuming are for the ultimate goal of satisfying consumer demand in an efficient enough way to profit from it. Are you a consumer? If so, you're an direct and indirect consumer of those resources.

downandout4• 12 years ago

Let's remember that Mark Cuban didn't receive his fortune by making smart investments. He received it by winning the dotcom lottery. When listening to investment advice, perhaps we should listen to people that made their fortunes through smart investing. Public companies have a responsibility to their (rational) shareholders to minimize expenses that have no possible ROI. Taxes are chief among those.

andyakb• 12 years ago

Give me a break. Cuban is the first to admit that he got lucky in terms of his valuation, but it wasnt his first exit and his extensive writing on business should show that his success was not the result of luck.

Further, if it werent for his intelligent investing, he would have lost nearly all of the proceeds from that sale, like so many others did(1). It was exactly his smart investing that allowed him to _keep_ his "lucky" windfall

(1) http://investmentxyz.blogspot.com/2006/05/cubans-collar-anat...

downandout4• 12 years ago

You're missing my point. He "made" his fortune by selling a company at a spectacular overvaluation. That's fine, but don't pretend that he turned a few million into a few billion through smart investing.

With regard to the moves he made after the ridiculous Broadcast.com sale, all he did was lock in his profits. That turned out to be the correct move, but that doesn't necessarily say anything about his investing skills. It just shows that he realized that he had hit the lottery and wanted to insure his win.

Warren Buffett made his money through smart investing. Mark Cuban did not, so I'd rather listen to Warren Buffett and others like him than an opinionated guy that got lucky.

ken472• 12 years ago

Such naked ad hominem. Your argument would be much more compelling if you were capable of addressing Mark Cuban's arguments directly.

downandout4• 12 years ago

I did address them. I said:

Public companies have a responsibility to their (rational) shareholders to minimize expenses that have no possible ROI. Taxes are chief among those.

If you're asking for my opinion, in my opinion what he is saying is absolute nonsense. The populist drivel spewed in those tweets is an attempt to appeal to his Shark Tank audience. If he appears relatable, the show's ratings rise and he gets the accompanying ego boost. He's doing it for the same reason that centimillionaire Hollywood types advocate for socialist candidates & ideals that are in direct conflict with their own financial interests: popularity.

Any company that has options available to it that will lower their tax bill without negatively affecting their income and growth prospects should pursue them. In fact, they have a legal responsibility to their shareholders to do so.

josho2• 12 years ago

So, I guess this means Cuban has no stake in Apple & Google to name a few?

Mark Cuban: If Your Company Is Moving For Tax Reasons, I'm Selling Your Stock

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