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Core Team Taxes (Part 2 of 3: September)


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Dash Core Group September 1st Funding Proposals
DCG is submitting 3 funding proposals for the September 1st budget cycle:
1) DCG Compensation: $600,000 (https://www.dash.org/forum/threads/core-team-compensation-september.39897)
2) DCG Taxes: $210,000 (current proposal)
3) DCG Legal: $125,000 (https://www.dash.org/forum/threads/core-team-legal-september.39899/)

This is $140,000 less than we initially communicated (https://www.dash.org/forum/threads/...q3-2018-cross-posted-to-allow-comments.39820/) due to two factors:
1) A recent IRS rule change. This rule change allows for the Q1 payment for fiscal year ending 6/30/2019 to be paid on October 15th, 2018. As a result, the Q1 tax payment will be requested in the budget cycle paying out on October 2nd to lessen the impact on the current budget cycle. Thank you Dash community for encouraging us to further explore how we can delay some of our tax related payments to minimize impact on the Dash network’s monthly budgets.

2) The estimated tax liability has been reduced by $50,000 as finance and the tax accounting firm review our methodology to calculate the tax payment and identify mechanisms to reduce our tax liabilities. We will continue evaluating additional measures that may reduce taxes further.

This Proposal
This proposal is cross-posted at https://www.dashcentral.org/p/CORETEAMTAXES0918

This is part 2 of 3 of our tax funding proposal for fiscal year 2018. The total amount requested for the second part of the proposal is $210,000, compared to the $350,000 we expected to post that was referenced in last month’s taxes proposal. https://www.dash.org/forum/threads/core-team-taxes-part-1-of-2-august.39422/

As covered in part one of our tax proposal, Dash Core Group, Inc. is a U.S. company incorporated in Delaware and headquartered in Arizona. As such, it needs to pay federal as well as state taxes. Over the long term the Dash Core Group tax rate should approach low levels relative to our funding (tax liability will be in the low single digits as a percentage of funding).

Over the past few months Dash Core Group pursued a strategy of hedging our exposure to cryptocurrency and managing our tax liability by: 1) spending more Dash than we brought in by conscientiously avoiding funding from the Dash network unless absolutely necessary and 2) liquidating Dash for fiat to ensure sufficient balances for future obligations. We now have significant fiat buffers in the Business Development, Marketing, and Research budget lines, so that we can operate over the next 3 months without having to go back to the Dash network for funding. Another benefit of building this fiat buffer is that we avoided hundreds of thousands of dollars in taxable income by realizing tax losses.

What does this proposal fund?
During the fiscal year ending June 2018, we had income (Dash distributed to us from the superblocks) and we incurred expenses (compensation, invoices, etc.). At the end of June 30, 2018 our balance sheet, at cost, was approximately $1.2 million. Our preliminary tax liability is estimated to be ~$380,000 for fiscal year 2018 and approximately ~$90,000 for July through September 2018. The $380,000 is due on September 15th, 2018 and the $90,000 is due October 15, 2018. We previously decided that in order to minimize the disruption to the budget, we would split the tax related proposals unequally between the August 2nd and September 1st budget. We are now further splitting out the September 1st tax proposal into 2 proposals. Specifically we requested and were funded ~$170,000 in the August 2nd budget cycle. For the September 1st budget cycle we are requesting $210,000. Finally, for the October 2nd budget cycle we will request a final $90,000.

Taxes are not a discretionary expense. If funding is not approved, Dash Core Group will need to divert funding from another account to meet our tax liability.

Many in the community have asked why Dash Core Group is structured as a corporation versus a foundation or non-profit. When we initially evaluated what corporate structure Dash Core Group should be organized around, a non-profit seemed to make the most sense. However, in exchange for being tax exempt, those types of organizations have a lot of operational limitations. Our legal team advised us of 2 significant Dash-specific obstacles to this type of structure: 1) the source of all donations or contributions to the foundation would have to be disclosed (we would need to identify masternode owners) and 2) we couldn't pay developers to exclusively work only on the Dash network (we would be prohibited from promoting one specific solution). Both of those factors were show-stoppers and we decided to structure Dash as a corporation. For more detail regarding this topic and the overall Dash Core Group legal structure please refer to the illuminating post Ryan Taylor provided on 7/31/2018 at https://www.dash.org/forum/threads/dash-core-group-legal-structure-details.39848/#post-193885

Although Dash Core Group is structured as a corporation, it is not expected to generate much taxable income (i.e., we only draw funding from the network required to fund liabilities and expenses). In the fiscal year ending June 30th, 2018, we were funded $7.5mm and our tax liability represents only 5.5% of that amount. Over the long term the Dash Core Group tax rate should approach even lower levels relative to our funding (tax liability will be in the low single digits as a percentage of revenue). This stems from the fact that all Dash in our accounts will eventually be an expense when those funds are spent on specific initiatives. However, in the short-term there is a necessity to hold a certain amount of Dash permanently in each account since we need a buffer to account for expense timing and currency fluctuation risk, as well as hold funds meant to pay future liabilities. It is the growth of this buffer that will drive our tax liability going forward.

If you have any questions, please direct them to @glennaustin in the Dash Forum post to ensure we are notified of your request.

Requested funding is as follows for the September 1st budget cycle:
· 1,008.00 Dash for tax expenses ($210,000 @ $208.325 per Dash)
· 5.00 Dash proposal reimbursement
Total: 1,013.00 Dash

Note: Should any funding remain, we will apply it toward future legal or tax expenses. We have decided to commingle our legal and tax funds for increased flexibility in spending. If there is either a shortfall or excess in funding due to fluctuation in the price of Dash related to taxes we will respectively draw upon or fund our legal budget.

Manually vote YES on this proposal:
dash-cli gobject vote-many ad5cf3071fd53ff09c6577286457c159f0745ce4df6ea08f502333c98dbd0203 funding yes
OR from the qt console:
gobject vote-many ad5cf3071fd53ff09c6577286457c159f0745ce4df6ea08f502333c98dbd0203 funding yes

Manually vote NO on this proposal:
dash-cli gobject vote-many ad5cf3071fd53ff09c6577286457c159f0745ce4df6ea08f502333c98dbd0203 funding no
OR from the qt console:
gobject vote-many ad5cf3071fd53ff09c6577286457c159f0745ce4df6ea08f502333c98dbd0203 funding no
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Why not move HQ to a low-tax jurisdiction with a lower cost of living, that is also closer to Latin America? Maybe even dissolve DCG, default on the unpaid taxes, and make a new one with no debt in another country.:D

I suggest Puerto Rico, Panama, Costa Rica, and/or Uruguay. Those are the most stable and highly-educated states close to where the action is happening in Venezuela/Brazil/Colombia/Argentina AFAIK.

IMO there is no comparative advantage to staying in Phoenix, Arizona, USA (expensive, high-tax, high-regulation, and the well-banked locals have little need for Bitcoin, much less Dash).

I'll write a pre-proposal if anyone else is interested.

I completely agree, though there are other jurisdictions that are lower / zero-tax rate that may offer more benefits. However I'd also state all of this tax planning should have been done well in advance of these proposals coming forward - it should have been factored into the individual proposals. Though I imagine some tax is due to the leftover Dash / fiat reserves.