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Shell games: A cautious crackdown in Nevada

LAS VEGAS (Reuters) - Early this month, Nevada Secretary of State Ross Miller’s office shut down a Las Vegas registered agent called Power Point Management and revoked the corporate status of its 427 active clients.

It was an example of how his office will “aggressively enforce our statutes and regulations,” Miller said, warning that his state’s ‘business friendly’ ethos “should not be interpreted to mean ‘haven for bad actors.’”

Power Point is part of Nevada’s booming industry of business incorporators and registered agents, more than 700 firms in all, whose key service is to receive on behalf of the companies they’ve registered any notices of litigation, tax documents and other records required by the state. Like most, it’s a small operation. It has offices at the end of a winding interior hallway in a faded, stucco, two-story office park on Las Vegas’ Flamingo Road. The building’s rental manager, Laba Singh, says the firm sends in its “$200-something” rent check by mail each month, but he has never seen the tenant.

The issue that got Power Point in trouble seems minor: It claimed that it, and every one of its clients, was a home-based business making under $27,000 a year. Such businesses don’t have to pay Nevada’s $200 annual licensing fee. If all 427 of Power Point’s clients falsely claimed the $200 exemption, then Nevada lost out annually on $85,400 in total.

An analysis by Miller’s office, however, points to a bigger problem. The number of such business exemptions claimed each quarter has nearly tripled since 2009. Miller has sent letters to 60,000 businesses claiming the exemption, one in five state registrants, asking for proof they fit the home office exemption. Any that fail to comply will lose their corporate status, he says. In the office’s investigation of a limited number of these businesses, there was not one instance of a proper claim.

An audit by the Nevada Executive Branch predicted the state will lose nearly $11 million due to a sharp increase in companies falsely claiming to be exempt from licensing fees.

“We realized either we had a lot of businesses ripping the state off, or we had out-of-state companies not doing legitimate business in Nevada,” Miller told Reuters in a telephone interview from his office in Carson City.

Miller’s office discovered that few of Power Point’s clients have any clear connection to Nevada. Most seem to be based in Taiwan, some with mainland Chinese operations.

Power Point executives reached in Taipei declined comment. The firm’s website highlights Nevada as one of several offshore locations offering “tax benefits, limited liability, profit deferral without deadline and the possibility of an IPO.” But people with knowledge of the situation said Power Point’s clients had been interested in setting up Nevada businesses as a stepping stone to building their brands in the U.S.. That proved difficult, these people said. Attempts by Reuters to contact many clients directly were unsuccessful.

Miller says the state is getting tough, but Power Point is just one of 700-plus registered agents operating in the state, and he wants to act before federal legislation proposed in August by Senator Carl Levin of Michigan, or other “burdensome” federal attempts to weed out bad actors, gets momentum. “It’s clear that we have to clean up our own house before Congress tries to do it for us,” Miller says.

Nanette Byrnes reported from Chapel Hill; Cynthia Johnston reported from Las Vegas; editing by Claudia Parsons and Michael Williams