Forbes: Why All Governors Need A ‘Empleos Ahora’ (Jobs Now) Tax Haven Strategy Like Puerto Rico


 

One could argue that the new face of American leadership can be found in Puerto Rico. Take, for example, newly elected Governor Alejandro Garcἰa Padilla.  He won a narrow election in what could someday be America’s 51st state, on an island with 3.7 million people.  Perhaps most importantly, the new administration seems to be continuing the business- and investment-friendly policies of previous governor Luis Fortuño. Indeed, it appears that on either side of the political spectrum, Puerto Rico is committed to becoming a tax-friendly investment haven. The rest of the continent would do well to take a look.

Following in Fortuño’s footsteps, Padilla seeks to expand an economy roughly the size of Delaware.  As the new governor articulated in his message platform, his plan will “attract industries that cannot operate outside the United States because of security and tax reasons.”

From the mainland, looking out toward the Caribbean, Puerto Rico’s strategic path towards a U.S.-based tax haven makes a lot of sense.  In recent years, it has become harder and harder to repatriate income into the United States, with an estimated $8 trillion settling offshore.  Certain industries, such as those investment funds regulated within U.S. securities law, still might prefer to do business within an American-based jurisdiction.  Then, there’s the issue of real tax advantages, such as simplification and lower effective rates.  Where else within U.S. territorial waters can the U.S. stop the filing of a federal income tax return, other than Puerto Rico?  Recently, the Internal Revenue Service issued this advice in Topic 901; as of January 4th, 2013:

“In general, United States citizens and resident aliens who are bona fide residents of Puerto Rico during the entire tax year, which for most individuals is January 1 to December 31, are only required to file a U.S. federal income tax return if they have income from sources outside of Puerto Rico or if they are employees of the U.S. government.”

How can someone potentially prove that all of his or her income is sourced within Puerto Rico?  Well, a first step is moving yourself and your assets there.  Sources, such as Bloomberg, are now reporting that at least ten wealthy investors have already made the jump.  Then, for some, there is utilizing the new law that was set up to lure businesses into Puerto Rico – known as Act 22, it exempts those who qualify from income tax on their interest, dividends, and certain long-term gains from securities.  There’s no need for a Phil Mickelson apology tour like hedge fund billionaire John Paulson has attempted.  Puerto Rico incentives will matter to those who meet their attractive conditions.

On the international front, legal advisers explaining Act 22 advise foreign investors that as long as they do not own residential holdings within the United States (excluding Puerto Rico), they may not be subject to U.S. estate taxes.  This tax code structure could provide Puerto Rico with the best of both worlds on how money walks onto the island – foreign assets if you want it offshore, and domestic governance if you need it onshore.

Since states like Florida (without a personal income tax) have attracted $86 billion in adjusted gross income due in part to tax factors (1995-2010), Puerto Rico’s competitive climate could show other states how tax code incentives work with financial services.  Governors like Louisiana’s Bobby Jindal are pressing to repeal state personal income taxes altogether for the same goal:  Más dinero para tu bolsillo (more money in your pocket).  Within the next decade, if these state initiatives do not pass… Puerto Rico could have more money in its tax-haven pocket as a result.

Travis H. Brown is a contributor to Forbes.com: Source Link

How State & Local Governments Tax U.S. Businesses

By Travis H. Brown –

During my book tour travels to share information about taxpayer mobility for How Money Walks, I often field the question about how our states and cities attract or discourage business investment within their community.  Lately, there has been more debate in Washington, DC and beyond about how to why to lower corporate income taxes from groups such as the United States Chamber of Commerce.

I had the occasion to join a Cato Institute workshop hosted by Chris Edwards and Richard Rahn where the topic of comparative levels of taxation on American businesses was discussed.  According to Edwards, our federal tax on corporate income generates about $300 billion a year.  While this corporate income tax rate was once thought to be competitive, other countries such as Canada or Japan have since lowered their rates relative to ours.

However, what I found interesting is just how this revenue compares with the widely-variable ways to collect taxes on businesses at the State & Local Government level.  By contrast, Edwards estimates that state and local governments collect about $640 billion a year from various business taxes in 2012.  This is based upon the Council of State Taxation’s annual survey with Ernst & Young.  This order of magnitude alone should interest most corporations regardless of their business structure.

The various modes of taxation applied to business by states and cities also varies widely.  Out of the $640 billion collected, about $245 billion is applied to property taxes.  Nearly $130 billion is collected from sales taxes applied on business purchases.  State applied taxes on corporate income amounts to $46 billion.  This leaves other various taxes collected at $223 billion.

As businesses are forced to flee from high tax regimes in favor of lower tax regimes, it seems equally important to me that state and local governments concern themselves with how their business climate appears from a standpoint of a taxing nexus.  This is true for all industries of business, not just sales & use tax conflicts with Amazon.com.

Chris Edwards also tabulated the actual growth in total state & local government spending.  In 2000, it was estimated at $1.41 trillion among the fifty states.  In 2012, it has grown to $2.31 trillion.  Despite much rhetoric of cutbacks in state & local spending, annual increases as a whole have remained steady.

As our federal government struggles to find new ways to diet, it will remain important for U.S. businesses to pay equal attention to what is happening within and across the states.