A crooked game in Nevada

TALES OF CALIFORNIA BUSINESSES fleeing to Nevada, or Arizona or Utah for that matter, are legion in this state, especially during business downturns like in the early 1990s or after the dot-com crash. Media reports are loaded with anecdotal evidence: An exasperated businessman declares in television interviews that he has had it with California’s crushing business taxes and is moving east. Public officials scramble to offer incentives for businesses to stay. In the end, there are inevitably studies showing that the exodus of California businesses was grossly overstated and that the average tax burden in California is just about the nation’s median.

Today, there’s another rush to Nevada in hopes of escaping California taxes. But this time it’s not about moving the business there -- just the incorporation papers. Radio ads invite Californians to create corporations in Nevada as a means of cutting or eliminating their California taxes. These hustlers will do it for a simple $395 credit card payment, The Times’ Evan Halper reported recently. For a little more, the California company can have a Nevada telephone number and bank account.

That’s good tax planning, the Nevada promoters claim. California authorities call it tax fraud, and they are actively running down the businesses that fall for this scam. Money earned in California is subject to state taxes, no matter where it’s stashed. State tax officials should get whatever resources they need to put a stop to this shell-company game.

The problem is compounded by Nevada corporate secrecy laws that make it difficult or impossible to trace money once it is shifted to the Silver State. Incredibly, an official pamphlet from the Nevada secretary of state’s office declares, “Stockholders, directors and officers need not live or hold meetings in Nevada, or even be U.S. citizens.”

Nevada officials deny the state is a haven for cheats, arguing that businesses are able to escape some taxes legally by incorporating there. Perhaps there are legitimate reasons for California firms to set up shop in Nevada. But officials in Carson City should be concerned about the reputation the state is earning as a shady tax haven, a la the Cayman Islands. These scams do little if anything to benefit Nevada’s own treasury, which annually bulges with the gambling taxes earned from millions of Californians.

And California business people who may be tempted by those radio ads should be forewarned that the $395 credit card charge could get them into a heap of trouble with the California tax sleuths. The Franchise Tax Board could update the old auto mechanic television ad with a message for the would-be tax evader: “You can pay me now or pay me later.”