Is Delaware a corporate tax haven?

Evidence from the BYU Accounting Symposium, where I am sitting right now. This is a big part of the story:

One of the most prevalent corporate state tax planning strategies involves subsidiaries organized in the state of Delaware. This method, using a subsidiary commonly referred to as a Passive Investment Company (PIC) or Delaware Trademark Holding Company, exploits the fact that Delaware does not tax income generated by intangible assets, such as a trademark, when held by the Delaware-based subsidiaries of a Delaware holding company. To reduce taxation in a state that has high tax rates, the high-tax rate parent company or high-tax subsidiary pays the low-tax Delaware subsidiary a fee for the use of the trademark or other intangible asset. The fee is deductible against income earned in the high-tax state company, and is not taxable in the state of Delaware. Thus, by engaging in a PIC strategy, the firm does not pay taxes to any state on the income shifted to the Delaware subsidiary and benefits from a deduction taken in a high-tax state for use of the intangible asset.

The idea that Delaware is a tax haven is not new, exactly, but this is a fascinating paper. Of course, the strategy described above would result in other states are losing tax revenue to Delaware. Thus, according to one of the commentators in this session, 22 states now have taken steps to counter this strategy. Could the door for PICs be closing? I don't know the answer to this, but the authors claim based on interviews of accountants that the strategy is alive and well.

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