Middle Atlantic Focus - State Government Delaware: An Attractive, Reliable And Pro-Business Location

Sunday, May 1, 2005 - 01:00

The Editor interviews Judy McKinney-Cherry , Director of the Delaware Economic Development Office (DEDO).

Editor: Why is Delaware an attractive locale for industry and commerce?

McKinney-Cherry:Delaware is world-renowned for its unparalleled legal system. For more than 200 years, the Court of Chancery has remained the pre-eminent forum for resolving corporate disputes in the nation. From Disney to Oracle to Hewlett Packard, the Court of Chancery has ensured that an efficient and fair system of justice is available to today's major companies.

Delaware is innovative when it comes to creating new laws and initiatives that solidifies our position as the corporate capital. Executive leadership, legislative leadership and the Cabinet officials approach government much like a business. We look for every opportunity to bring new legislative programs to Delaware that are suggested by the private sector as a means to diversify or differentiate our state from others.

Delaware's new technology court complements the Court of Chancery's role as a venue for corporate litigation by bringing together technology development and expert dispute resolution. Most importantly, it provides for a means of arbitration reducing legal expenses and when appropriate, moving companies quickly through the resolution process.

The one-year old Headquarters Management Corporation legislation provides corporations with incentives and tax policies that solidify a holding company's presence in Delaware. This economic development tool provides an extremely attractive tax reduction for those firms who take advantage of this alternative structure and hire a minimum of 5 employees in headquarters management functions in Delaware. Delaware understands the importance of intellectual capital and asset optimization and has created this vehicle to provide value to some otherwise overlooked or underutilized corporate assets.

The new Headquarters Management Corporation legislation, the Court of Chancery and Delaware's Technology Court reaffirm Delaware's strong position as the corporate leader and the ideal place for business.

The First State's legal system continues to be ranked the best in the nation, according to an annual survey released by the U.S. Chamber of Commerce. Delaware received the #1 ranking for the fourth year in a row, scoring first in 9 out of 10 categories - from timeliness to judges' competence - in a poll of more than 1,400 senior corporate attorneys.

More than 600,000 business entities have their legal home in Delaware, including more than 50 percent of all U.S. publicly traded companies and 58 percent of Fortune 500 businesses. Companies choose Delaware because it provides a complete package of business and incorporation services, including modern and flexible corporate laws, a highly respected judiciary, and a business-friendly state government.

In today's ever challenging global economy, companies need the constant reassurance that they are in a predictable, reliable and pro-business location. Government regulations are kept at a minimum and Delaware's support of economic freedom is one of the best in the U.S. According to the Pacific Research Institute Survey of Economic Freedom, Delaware ranked 8th in the country. Variables measured include state's business regulations and welfare policies.

Delaware's reputation as a pro-business state is consistently reaffirmed by Wall Street, as Delaware is one of only seven states who are granted the AAA Bond Rating.

Delaware has a predictable tax structure and a pool of talented workers. In addition, Delaware's small size allows businesses to attain easy access to government officials from the Governor to the town clerk at City Hall.

The quality of the companies that are headquartered in Delaware is truly stellar. Delaware is the home of DuPont, W.L. Gore, Ciba Specialty Chemicals and AstraZeneca. These companies obviously have a strong global presence, and they clearly saw the many benefits of locating their headquarters here in Delaware.

AAA Mid-Atlantic announced that the company would relocate its corporate headquarters from Philadelphia to the Wilmington Riverfront after spending nearly a century in Pennsylvania.

Last June, Invista, formerly DuPont Textiles, selected Delaware to locate two global headquarters, including its performance fiber and apparel business. Invista considered sites in four countries and five other states for these headquarter operations, before deciding Delaware was the smart choice.

Last year, EVC Films, a division of European Vinyls Corporation (EVC) announced that the company will open its North American Headquarters in Delaware, including its first manufacturing facility in the U.S.

Just this year, HSBC announced its plans to add 300 new jobs to Delaware's workforce by consolidating its banking operations under a single national charter, which will have its main offices in New Castle. HSBC USA Inc. is one of the nation's top 10 bank holding companies by assets.

It is no mistake why so many bright businesses know that it just makes good business sense to choose Delaware. Delaware offers an overall low cost of doing business compared to many neighboring states. According to a recently released CNN report on the nation's most tax friendly states, Delaware ranked third, primarily for its lack of a sales tax, its low income taxes the top rate is 5.95 percent and the relatively light burden imposed on residents resulting from the state's corporate tax.

And, Delaware is filled with smart people. Delaware has the second highest concentration per capita of Ph.D.s in the nation. We rank second in scientists and engineers, third in industry investment R&D, and second in the number of patents issued.

Editor: How have Homeland Security issues impacted the state?

McKinney-Cherry: As a result of September 11, all states, cities and regions have increased their awareness when it comes to homeland security issues. Because Delaware is often considered a "safe" and "secure" location by companies, Delaware has continued to be selected as an ideal location to locate sensitive business operations. For example, Bank One chose Delaware to invest $300 million to build two state-of-the-art data centers with the latest high-speed communications, data storage and retrieval technology.

In addition, Delaware has a very responsive multi-agency team ready. When the avian flu outbreak occurred last year in the region, Delaware acted quickly and quarantined potentially impacted poultry facilities, which in turn saved the U.S. and the Delmarva Peninsula a major economic crisis.

As soon as the avian flu outbreak hit, Delaware banned all sales of live poultry in the state, prohibited the spread of poultry, contacted backyard flock owners and independent growers to assist them in reporting any disease or suspicion of disease, and cancelled all farmer and grower meetings.

The Delmarva Peninsula is the home of 1,900 commercial poultry growers. The poultry industry is a $1.5 billion business for the Delmarva Peninsula.

Editor: Please tell our readers about recent initiatives to attract business to the state.

McKinney-Cherry: Under the masterful, careful leadership of Governor Ruth Ann Minner, the New Economy Initiative was created, which is a $60 million economic stimulus package leveraging state, federal and private dollars. Some key components of this initiative include: Delaware Competitiveness Fund, which is a $12.5 million initiative created to induce capital investment in research & development and in production facilities through the application of new technology to assist in preserving jobs at existing Delaware manufacturing companies thus ensuring a viable site warranting future investment to increase their competitive edge in the global economy; Technology Based Small Seed Funds, which is a $1.5 million fund that will be used to provide equity in high technology start-up businesses in Delaware; and the Clean Energy Center Partnership, which provides research grants in the field of clean energy in areas such as solar cells, hydrogen generation, fuel cells, tidal energy, biofuels and wind energy.

Editor: How is Delaware's legal community supporting such initiatives?

McKinney-Cherry: The legal community is a key partner in several elements of the New Economy Initiative. For example, funding for the Technology Based Small Seed Funds can be used for incorporation and patent assistance.

Corporate and Legal Services is a designated economic cluster in the state of Delaware that provides a significant economic benefit to the state. Members of the bar are tapped for ideas, used to try out a new concept and are often asked to assist in taking the pulse of the economic fabric.

DEDO works with all law firms in the state on appropriate issues, such as those discussed above. For example, Delaware law firms and particularly patent attorneys are helping develop a plan for the Emerging Technology Center, a new economic development initiative being launched in the state. In addition, attorneys' expertise is being tapped to assist small business start-up companies.

Last June, Governor Minner signed into law the Headquarters Management Corporation legislation. HMCs were created by the Delaware Legislature through a recent amendment to Delaware's Corporate tax laws. HMCs provide companies the continued ability to structure intangible asset business without the penalty of significantly higher taxation currently authorized through a Delaware holding company (DHC).

An HMC may gain structural advantages by providing headquarters services, which may include data processing, human resources, legal, payroll, corporate finance, and accounting and asset management services to itself or members of its affiliated group. Unlike a DHC, an HMC is subject to corporate income tax for the income it generates within Delaware, but can receive tax credits through job creation that dramatically reduce the tax burden.

In November, the legal community and the state partnered to support and market this legislation during a conference that attracted more than 250 attendees from across the nation. The legal community and the state will continue to work together to market this important legislation.

[Editor's Note: To learn more about HMCs, read ourPolicy Alert! in the November 2004 issue of The Metropolitan Corporate Counsel, entitled, "What's Behind Delaware's New Headquarters Management Corporation Bill," by Andrew T. Panaccione, CPA, President of Entity Services Group, LLC, by visiting www.metrocorpcounsel.com and put "Headquarters Management" in the search box.]