Delaware lauds, boosts taxes on its 'golden goose'

CSC Network CEO Rodman Ward III at his company’s new headquarters outside Wilmington, Delaware. With 900 employees in two buildings here, and 2,600 worldwide, CSC is the largest of scores of firms in an unusual state industry that services the major corporate affiliates, investment partnerships, tax and legal shelters attracted to Delaware by the state’s business-friendly courts and low intellectual-property taxes.

Among Delaware’s distinctive industries, chemicals, credit cards, and chickens have shrunk or consolidated. But its corporations business is busy as ever.

“If there’s a golden goose in Delaware, it’s our corporations franchise,” Gov. John Carney told the two-story crowd that filled the atrium entrance at the new 40-acre suburban Wilmington headquarters campus of one of the little state’s biggest businesses, CSC, on Tuesday. The 118-year-old, family-owned company specializes in an arcane legal, accounting, and compliance business — the formation and care of business entities in key legal and tax-shelter centers. CSC employs 900 locally, a total of 2,600 worldwide, and claims a close working relationship with the government of what Ralph Nader once called the Company State.

Delaware has more corporations, partnerships, subsidiaries, and other business entities (more than a million) than people (it’s about as populous as Montgomery County or Northeast Philadelphia). Most are “foreign” corporations — companies actually based in other states, or countries. They incorporate under Delaware law so they can send finance and ownership disputes to its business-friendly, precedent-setting Court of Chancery, to take advantage of its intellectual-property income-tax exemptions, and to use other pro-corporate laws routinely updated by a business-friendly legislature, even under the currently dominant Democrats.

So, as Carney and the General Assembly at Dover have been trying to plug a $400 million budget hole, lure back heavy industry by easing the Coastal Zone Act to encourage redevelopment of the former Claymont Steel, DuPont Edge Moor, and other blasted Delaware River sites as gasworks or export factories, and trim social programs beloved of Carney’s predecessor Jack Markell, the state’s leaders took a break to celebrate the corporations business. They joined CSC chief Rodman Ward III to thank him for his company’s recent rapid growth, to applause from his assembled staff.

“When CSC is successful, Delaware is successful,” Carney told the crowd. Corporate fees from companies that use Delaware as their legal home “make up 25 to 30 percent of our tax base,” making it possible for Delaware to avoid imposing a retail sales tax — unlike Pennsylvania, New Jersey, or Maryland. (Delaware, like Philadelphia, does impose a gross-receipts tax on retailers — a sales tax consumers don’t see when they patronize stores in “the Home of Tax-Free Shopping.”) Most of the state also lacks municipal government, and school districts are regional, not town-based, which helps keep property taxes a fraction of what owners pay in suburban Pennsylvania and New Jersey.

The governor didn’t point out that Delaware lawmakers lately agreed to increase the state’s corporate franchise tax, boosting rates for the biggest companies to as much as $250,000 a year, from $180,000. It’s the second hike in three years: in 2014, the General Assembly voted to boost the minimum yearly fee to $175, from $75. Still a bargain, compared with state income tax rates elsewhere, boosters insist.

Delaware used to tax local businesses more aggressively. But it agreed last year to extensive tax breaks for successors to the once locally dominant DuPont Co., which has been spinning off business units for years, and plans to break in three after merging with Dow Chemical Co. later this year. In exchange for what amounts to tens of millions in annual tax reductions, Dow and DuPont agreed to site two of their three proposed successor firms in Delaware — though the larger of the two, a proposed pesticide company, plans only a streamlined central office, with its research, development, and sales efforts largely in the Midwest and foreign farm centers.

Delaware has also been working to attract start-ups. In June, Carney popped in at NextFab Wilmington, the latest iteration of Evan Malone’s growing Philadelphia-based chain of “maker spaces” where 3-D printers and other cool computer-controlled tools are available to dues-paying firm founders, hobbyists, grad students, and tinkerers. The state granted Malone’s project, which is for-profit, $350,000 to help it get started, in a former furniture warehouse on the ragged eastern edge of the city’s downtown.

(The original version of this column incorrectly used an older form of CSC’s name.)