How Game Makers Like EA Mine for Tax Breaks

Sometimes it seems like the U.S. government's relationship to commercial video games is mostly adversarial, as when public officials vilify or move to censor games (even when the results are mixed). An anonymous reader writes with a reminder that the business side of the games business has a much cozier government link, as reflected in this excerpt from the New York Times: "Because video game makers straddle the lines between software development, the entertainment industry and online retailing, they can combine tax breaks in ways that companies like Netflix and Adobe cannot. Video game developers receive such a rich assortment of incentives that even oil companies have questioned why the government should subsidize such a mature and profitable industry whose main contribution is to create amusing and sometimes antisocial entertainment." Since filling out even a simple return can be rather game-like, maybe they're just doing what they do best.

Comments

Why the government should subsidize?

[Anonymous Coward]

"why the government should subsidize such a mature and profitable industry whose main contribution is to create amusing and sometimes antisocial entertainment"

Gotta have circuses with your bread.

Re:Why the government should subsidize?

[mabhatter654]

but remember, all those programmers with an education burn out and go work for insurance companies writing boring accounting programs when they're done with games. But they wouldn't have gotten the education without the carrot of making video games. Most game companies start as small businesses, it's one of the last industries where you can start a business by yourself and grow it into multi-millions of dollars in a reasonable time. So many game houses get small-business credits for years until they get bought by the big farm companies. As games get more advanced they require more real acting talent for voice overs, motion capture, and other art needs. How many graphic arts and budget acting majors are they hiring now? Lastly, gaming is one of the big EXPORTS of the USA. Just like states tax smokes but the feds turn around and subsidize growing tobacco because it's a huge export... that means PROFITS come back to US companies.

So game companies provide jobs for beginning techies and artists, they provide startup investments for budding businessmen, they provide a huge source of export income... all for VERY low startup costs to get the ball rolling. Lots of reasons the government would have credits for them.

Re:Why the government should subsidize?

[Wildclaw]

The tax should be a fix percentage, like 25%

A fixed percentage could only ever be ideal if it was a wealth/capital tax and not an income or sales tax.

Fixed percentage income (and sales) taxes lead to positive feedback loops in wealth concentration, which at the very best hamper the economy severely and at worst causes a total economic collapse.

Re:Why the government should subsidize?

[Wildclaw]

The better question is, "why do corporations pay tax at all?"

To encourage corporations to actually invest back into their products instead of stockpiling money that then is used to buy up competition.

it's simply built into the price you pay. So it's just effectively a VAT in different clothing.

Corporate taxes are on net profits, not turnover.

Re:Why the government should subsidize?

[hairyfeet]

Then why are they not all in Somalia? No taxes at all there. Because from the stats I've seen higher taxes on the wealthy lead to lower unemployement and greater economic growth yet all we hear from the right is "Give teh rich more MONIES! nom nom nom". If this strategy worked, why didn't Raygun sit on top of unprecedented growth? Oh right, we had a nice little recession after he cut the hell out of taxes on the rich.

Its actually quite simple, the rich hoard, the poor and middle class spend. All that money being hoarded? is dead money, its gone, poof! If they invest it it sure ain't here. No in the past 30 years we've had trickle upon, voodoo economics, the "hey lets have trade agreements with those with NO workers rights or environmental laws, that'll work!", two wars while CUTTING taxes, the first time in the entire history of the USA that's happened BTW, and "bailout baby bailout".

If the right were correct in their theory, why we should be having a hell of a economy, with jobs everywhere....oh wait, they used their tax breaks to close 21,000 factories in this decade alone. Why? Because in China they can poison the workers, the air, the water, and it costs them NOTHING. No OSHA, no clean air act, no workman's comp, they can give every worker cancer and all they'll get is fired.

Is that REALLY the America you want? Where your kids play outside wearing gas masks so they don't get sick, and where your ass better have enough money for purified water or you will suck down so many toxins you might as well drink gasoline? Personally I like having clean air, water, and not working in sweatshops, thanks. of course that must make me an evil socialist since I don't support everything that can be done to maximize profits, which in the end is all the right gives a fuck about.

econ 101 for slashdot

[BigHungryJoe]

But EA is a "job creator", so those tax breaks "trickle down" to the hoi polloi in the form of jobs.

Re:econ 101 for slashdot

[FooAtWFU]

I think it works more like this.

1. Have somewhat obnoxious business taxes.
2. Hand out tax breaks to select businesses.
3. Power!!!

Oh please

[Dyinobal]

I find it amusing that other corporations would be bitching. Just about every corporation out there uses some form of voodoo accounting to show a loss regardless of their actual profits. This article doesn't show what's wrong with the video game industry in terms of tax breaks and federal funding it shows what's wrong with our country and tax system as a whole.

Show losses get yourself lower taxes and some pork and who cares what sort of sleazy accounting methods you use.

Re:Oh please

[Anonymous Coward]

From TFA, EA conforms to generally accepted account principles, or GAAP as we call it in the biz. So hop off me jet pack and don't assume because a company shows a loss they are sleazy, chadwhick. I find it quite amusing that the common folk just assumes every corporation has some evil voodoo master accountant, probably wearing a green visor with a bean counter too, sitting in the back room scheming how to make the common tax payer subsidize his/her (to be pc) business. The amount of rigamarole that a corporation such as a EA has to go through to even file its taxes costs more than what most of us make in the past 4 years combined. Yeah, the tax code has all these fancy dancy write offs, deductions and what not, but it also has something called phase outs. Yeah, phase outs. That means the nice little deduction that congress gave you, gets phased out over certain income levels. Take the article with a grain of salt. Its a complicated subject that takes years to master and it was written by somebody with a liberal arts degree who asked 2 questions to 2 people.

Re:Oh please

[tomhudson]

Now if you'll excuse me Ive got some politicians to take to dinner.

Constructive Cannibalism +1.

Just don't do it too often - they tend to be high in fat.

Re:Oh please

[St.Creed]

I guess most people have learnt from Enron and Arthur Anderson Accountants that even the accountants can't be trusted once they get the benefits from closing their eyes. So while you are in all likelihood correct, the damage that has been done to the reputation of accountants the world over is pretty hard to repair.

Re:Oh please

[mabhatter654]

Well the problem is that when we here record profits what they REALLY mean is record EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) which is a fancy way of saying we made sales, and cut costs.. before then the accountants will start their magic JuJu to whittle the taxable portion down as far as they can so they don't have to pay dividends to shareholders. That's where executive salaries come in because companies would rather pay for ridiculous properties in New York City, multi-million dollar salaries, hoard huge sums of lucre, and racing teams than pay out the dividends or taxes. When the CEO wants X million dollars that's where it comes from... In normal business accounting you WANT to be paid out of the non-EBTDA money... because that's what investors and efficiency guys don't question.

Oil companies complaining

[Mike Mentalist]

Anyone else find the bit about oil companies complaining slightly amusing? I guess the industry must be mature if it gets even their attention.

Obvious fix:

[Anonymous Coward]

Simplify the US tax code, so that it does not manipulate the market by rewarding/penalizing different industries, based on what legislator wants to curry favor with a particular company.

Of course, that leaves a lot less opportunity for graft and corruption, so the odds of it getting done in DC are slim to none.

Making jobs (in crime)

[Spodi]

People should be happy. Tax breaks are almost always justified with "to create more jobs because jobs == good". Well, finding loopholes in taxes and cheating the system sure creates a hell of a lot of jobs! If we fixed all these issues, think of all the precious lawyers and shifty accountants we would lose! :(

Even in Canada they do it

[MagikSlinger]

I worked at a video game company here in Vancouver, and I remember tax time being interviewed by a consultant about my "R&D" innovations. Anything, I mean ANYTHING, even remotely like R&D. "Uh, you mean even the work I spent optimizing the code?" "Yes."

I was told at one point in the company's history, our biggest source of income were tax credits from the Government of Canada.

Re:Even in Canada they do it

[tfigment]

While I did not work in video games, I had similar experiences while working in Canada. Those tax breaks were huge for our company even though I would not call what we did R&D.

One coworker got headhunted into a much better position just due to the fact that he had hands on experience in getting these tax breaks for our company and a sizable bonus based on a percentage of the money he could get for the new company.

Accountant and lawyers are misunderstood gamers...

[SebZero]

...they are crap with a controller, but give them a calculator, paper on which to write and a system to exploit and BAM - high score everytime!

Re:Tax breaks = Subsidize?

[Zironic]

What is the difference exactly between giving you $100 and lowering your tax by $100? Of course they're the same and that's why the governments favourite way to partially subsidize projects is tax breaks.

Even the politicians are honest about it, when they lower the tax on say food or books they actually say they're subsidising food or books.

Re:Accountant and lawyers are misunderstood gamers

[xhrit]

For real! I play oldschool tabletop wargames with a group that includes several accountants and lawyers. The accountants play with a calculator in one hand and a pencil in the other, and will never move any of their units unless the math first shows the outcome is statistically in their favor. The lawyers bring a pile of rulebooks filled with stickynotes, paragraphs highlighted in various colors and underlined in pen.... well let's just say they give new meaning to the phrase "rules lawyers".

Funnily enough, as a computer programmer I only do well if first devise an intricate battleplan detailing the precise actions of all of my units for the entire duration of the battle, including flow charts with contingency matrices. Then I rigidly adhere to my premade decisions, tracking unit locations and performance statistics during the battle, along with taking notes for the next revision...

Is it up to the pres?

[sgt scrub]

Wow. I didn't see the connection at first. Dawning my tinfoil hat:

Pres Clinton
Chicken ranchers.

Pres W
Mohair ranchers (Mohair is vital to the economy of the Texas Hill Country) Mohair Production
NASCAR Track owners
Oil Companies
Hedge fund managers

Pres Obama
Automakers