Omri Marian, Jurisdiction to Tax Corporations, 54 B.C. L. Rev. 1613 (2013).

Imagine a 19 year old college student in Texas stumbles upon a new business idea to sell built-to-order computers shipped directly to customers out of his dorm room.  The idea proves revolutionary, and the student is inundated with orders.  To grow the business the student forms a corporation, naturally in Texas.  Eventually the corporation grows into the largest personal computer maker in the world, with over 90% of its sales outside the United States.

Absent some significant tax planning, however, the company would pay US tax on all of its worldwide income, including the income from foreign sales.  This is because the United States taxes the worldwide income of all U.S. taxpayers regardless of the source of the income. On the other hand, an identical “foreign” company with identical sales would only be subject to U.S. tax on the income from sales made inside the United States..  The reason for this disparity is that, under U.S. law, a corporation is treated as a U.S. taxpayer if it is legally organized under the laws of the United States, any State thereof or the District of Columbia and foreign if it is not, regardless of business model or source of income. Continue reading "Once a U.S. Corporation, Always a U.S. Corporation…"

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