Tax Peculiarities Mean Facebook Paid No Net Taxes For 2012

Frosty Piss writes "Despite earning more than $1 billion in profits last year, social media juggernaut Facebook paid zilch when it came to federal and state taxes in 2012. In fact, the website will actually be getting a refund totaling $429 million thanks to a tax reduction for executive stock options. In the coming years, Facebook will continue to get monster tax breaks, totaling about $3 billion. 'The employees cash in stock options, and at that point there is tax deduction for the company,' Robert McIntyre, of watchdog group Citizens for Tax Justice, said. 'Because even though it doesn't cost Facebook a nickel, the government treats it as wages and they get a deduction for it.'" (That's not to say that Facebook employees' salaries didn't get taxed.)

Comments

Peculiarities?

[biodata]

This is normal - the rich don't pay tax.

Re:Peculiarities?

[Lord Byron II]

This is normal in that generally, in the US tax code, you can defer paying taxes by paying employees more, by making investments, etc. Only if that dollar you collect becomes profit do you generally pay taxes on it.

It's not a rich vs poor thing either. Poor people get tax benefits in the form of the EIC and the personal deduction. Middle income earners get to deduct health care expenses and certain job expenses (uniforms, union dues, sometimes use of a vehicle).

The point is that everyone gets tax breaks and the reason why is that our tax code is crazy complicated. Facebook will pay their share eventually, but it's just not going to be on their 2012 return.

Re:Peculiarities?

[Anonymous Coward]

LOL. Seriously, LOL.
Try doing what the rich do to pay zero tax and you end up in jail.

Re:Peculiarities?

[Mitreya]

in the US tax code, you can defer paying taxes by paying employees more, by making investments, etc. Only if that dollar you collect becomes profit do you generally pay taxes on it.

I believe Facebook and other companies eliminate their profits by paying "licensing" fees to a shell subsidiary. This not an investment in any way, just rerouting the profits somewhere else to avoid taxes.

The point is that everyone gets tax breaks and the reason why is that our tax code is crazy complicated

In practice, it turns out that you get better tax breaks when you have a dedicated team of lawyers who can route your profits across international borders. I suspect I'd get higher tax breaks if I had headquarters in Dublin and a couple of subsidiaries in Cayman Islands.

Just like the equality in politics. Everyone can lobby the politicians -- but lobbyists get paid to do it full time and the rest of us have to take time off from our job. The amount of resources behind you make a big difference in practice, even if "everyone can do it"

Re:Peculiarities?

[meustrus]

The point is that everyone gets tax breaks and the reason why is that our tax code is crazy complicated.

This is the definite truth. I can personally vouch for the fact that the federal government just loves giving huge tax credits to incomes between $6000 and about $40,000 a year. Middle class people can generally find enough deductions to drop their tax burden and they also have most of the same "loopholes" available to them that rich people do.

The real problem with the tax code is that it's so complicated that a person has to be able to pay good money to shield their money from taxes, mostly by paying an expert to deal with the labyrinthine tax code. It just doesn't become economical to do so until that person has some serious assets.

Of course, corporate tax code is completely from individual tax code. I personally clicked into this article to see if anyone who knows more than I do had yet addressed the claim that offering stock options doesn't cost Facebook anything. No matter how much all of us - myself included - would like to see corporations pay more taxes, the fact is that most of the ways they avoid paying up (but certainly not all) involve giving the money to their employees or charities instead. And no matter what anyone else on Slashdot seems to think, anyone cashing out stock options for Facebook is (now) a rich person paying taxes on that income.

Re:Peculiarities?

[polar red]

And this is problematic how, exactly?

Or are you one of those who believes we should destroy the ability for people to retire, because "only rich people have capital gains"?

No, if we raise taxes on monetary income, we can lower the taxes on normal labor.
my point : it should be taxed on the same rate it's called fairness

Re:Peculiarities?

[Runaway1956]

This is normal - the tax code is broken.

The tax system should have deductions available to small and/or struggling businesses. But, the system is broken, and obviously so, when the most successful businesses routinely pay zero taxes.

The system is so very broken, that I'm willing to see all deductions killed off, and every person, every business in the United States charged a flat rate on income. No more special rates for stocks, bonds, etc. Income is income, no matter the source. Tax it all, with no deduction, no deferrals, nothing.

The ONLY concession I'm willing to make, is to tax net profit, rather than gross profit. But, I want a damned strict accounting of those gross and net profits. Very damned strict. To hell with those licensing schemes mentioned in other posts. And, no, we will not allow any foreign taxes paid to be deducted from taxes due in the US. If you have an office in Ireland, or wherever, you pay your taxes there - and you ALSO pay your taxes here. The offices in Ireland suddenly seem to be cost-ineffective? That's your problem - get rid of the office. That's up to you, though. We have no objections if you continue to piss your money away on some office that never served any purpose other than to cheat us out of taxes.

Re:Peculiarities?

[SJHillman]

Forbes did an article last April about what some companies pay in taxes. Here's a few of the more recognizable companies.

Exxon Mobil - 42% ($27.3 billion paid on $41 billion in net income)
Chevron - 43.3% ($17.4 billion paid on $26.9 billion in net income)
JP Morgan Chase - 29.1% ($8.2 billion paid on $19 billion in net income)
WalMart - 32.6% ($5.9 billion paid on $15.7 billion in net income)
Microsoft - 15.9% ($5.3 billion on $23.5 billion)
Wells Fargo - 31.5% ($4.9 billion on $15.9 billion)
IBM - 24.5% ($4.2 bil on $15.9 bil)
Apple - 24.6% ($4 bil on $33 bil)
Intel - 27.2% ($3.3 bil on $12.9 bil)
Oracle - 23.6% ($2.93 bil on $9.7 bil)
Walt Disney - 33.8% ($2.3 bil on $5 bil)
McDonald's - 31.3% ($2.1 bil on $5.5 bil)

Source: http://www.forbes.com/sites/christopherhelman/2012/04/16/which-megacorps-pay-megataxes/

Re:Peculiarities?

[NicBenjamin]

The reason they get this tax break is that only profits are taxed.

A few years back companies were literally printing money with their stock options. They could give any employee seven figures in stock without affecting their bottom line. So they did. In 2006 this was changed because it was unfair to all the other shareholders, who lost value in the company for each new share that was printed.

But if options are a business expense you can reduce your taxable profit by giving out lots of options.

Re:Peculiarities?

[Let's All Be Chinese]

Apparently companies don't pay taxes (ref) in the sense that anything they do pay someone else gets to pay -- the employees, the customers, the shareholders, you name it.

Even without that caveat I'd be strongly in favour of a simple tax code, one that simply isn't complicated enough to have much in the way of loopholes. Perhaps a flat-fee on income, or a VAT if that really is a cheaper* tax overall to levy, tied to the yearly budget in a straight-forward way so that politician stupidity gives fairly direct feedback in your wallet, and then hopefully influences your voting.

Assuming that indeed, companies would shove off any taxes paid anyway, well, let them not pay taxes, let the people who receive income from the company do. The upside of that is that since more tax is coming from employees, it's now harder to hide taxables on other sides of borders.

The problem with that sort of thing, though, is that simplicity is a two-edged sword: The politicians no longer can hide their shenanigans either. Look at the debt rate. Eventually that's going to have to be paid back from taxes. And suddenly you're keenly aware of that fact.

* Where "cheaper" means less inefficiencies due to collecting and side effects.

Re:Peculiarities?

[Dcnjoe60]

This is normal in that generally, in the US tax code, you can defer paying taxes by paying employees more, by making investments, etc. Only if that dollar you collect becomes profit do you generally pay taxes on it.

It's not a rich vs poor thing either. Poor people get tax benefits in the form of the EIC and the personal deduction. Middle income earners get to deduct health care expenses and certain job expenses (uniforms, union dues, sometimes use of a vehicle).

The point is that everyone gets tax breaks and the reason why is that our tax code is crazy complicated. Facebook will pay their share eventually, but it's just not going to be on their 2012 return.

If Facebook eventually pays "their share" then their accountants and lawyers shoudl be fired. Most corporations in the US do not pay income tax because the system is created that way. That is why when the Obama Administration talked about raising the corporate tax rate, nobody cared. OTOH, when he talked about closing loopholes, everybody had a panic attack and the stock market dropped.

Bringing the poor and middle class into the mix is a red-herring. The poor don't have any substantial income to tax in the first place and what little is taxed via sales tax and social security is a larger percentage of their total income than what other groups pay. As for middle class tax deductions, well, yes, they can deduct some of those expenses, but businesses can deducted, not just some of them, but all of them, which is why the wealthy so often form their own corporations to deduct everything and draw a small salary, but have the corporation pay for everything. That way, the corporation doesn't pay tax, the wealthy person doesn't pay tax and everybody is happy (Actually, they do pay taxes but at substantially lower percentages than the minions who work for them).

It very much is a rich versus poor thing. Only the rich are blind to this.

Re:Peculiarities?

[ShanghaiBill]

Try doing what the rich do to pay zero tax and you end up in jail.

Not true. If you work for a paycheck, and receive a W-2, you are screwed. But if you run your own business, or work as a contractor, most taxes are avoidable even for a "little guy."

I pay very little tax. My income is above the median, but I don't think many people would consider me rich. I own three domestic corporations (a Delaware C-corp, a California S-corp, and a Nevada S-corp), and an overseas Cayman Islands corporation. These cost just a few hundred bucks each to set up. Any middle class person could afford to do the same. I can report income through whichever jurisdiction and type of corp offers the best deductions for that particular type of income. I can move income between corps by selling "services" or paying license fees. I avoid paying personal taxes by living off non-taxable loans, rather than taxable income, from the corporations.

All of this is perfectly legal. I was audited by the IRS once, and had to pay a fine of $420 for a bookkeeping error, but otherwise they said everything was fine.

Of course these loopholes were set up for the rich, but there is nothing to stop the rest of us from using them too. If you think about it, we have a good system: people that don't mind paying taxes pay them, and those of us that prefer not to, don't.

Re:Peculiarities?

[Anonymous Coward]

Selling "services" between fictional corporations to justify not paying a fair share to society. You are a true patriot my friend.

Re:Peculiarities?

[GameboyRMH]

Nice work not supporting the society you live in, the world needs more people who are part of the problem!

Re:Peculiarities?

[vux984]

It was put there on purpose, to encourage business and spur employment.

And it is working brilliantly too! He has 4 businesses -- so clearly the "encourage business" part is working. And he works for all of them, thus he has 4 jobs!! That just has to look good on employment figures!

Wrong question

[ebonum]

The article should be: "Clueless lawmakers who have never done and honest day's work and are clueless as to how businesses actually operate wrote laws so bad and full of holes that Facebook posts billions in profits and payed zero taxes."

Please. Quit blaming the companies. They do exactly what they are supposed to do. It is 100% the fault of the lawmakers.

When you see wind farm tax breaks, do you get upset about wind power generation companies taking advantage of tax laws? All companies try to take advantage of all tax breaks. That is the way the world works. It is a fundamental truth. The tax code is somewhere in the neighborhood of 70,000+ pages. Larger companies have larger budgets for tax planning and have a greater ability to take advantage of tax breaks.

Simplify the tax code. Life for everyone will become easier. You'll put 100,000 tax consultants out of work. Perhaps they will go off and build something instead of making lots of money helping companies minimize taxes.

Re:Wrong question

[nine-times]

The big problem with your argument is that the lawmakers aren't clueless. This isn't an accident. These laws are crafted specifically to allow rich people to avoid paying taxes. The problem isn't clueless lawmakers who are getting hoodwinked, but more greedy lawmakers taking kick-backs. But even that isn't the real problem. The *real* problem is a set of beliefs, including that rich people are better than everyone else, that giving more and more money to rich people will help the economy grow, and that money is the only effective motivator of human behavior.

There's no pleasing an angry mob

[bhmit1]

When corporations keep record profits internally and pay their people minimum wage, we scream that it's not fair and they need to pay their employees more. When they pay no taxes because they paid their employees with large stock options, they aren't paying their fair share, even though the marginal rate for employees is typically higher than the tax rate of a corporation. And contrary to the implications of the article, stock options do cost the company something, they cost the company the future ability to use those shares of the company to raise investor funds.

This all said, I do agree there's an inherent unfairness to small businesses who can't easily utilize international laws to move profits to a location where corporate income isn't taxed. But unless you're trying to move more business out of the US, I don't agree that the right answer is to force companies to pay taxes on foreign income. Rather, we should be doing more to eliminate red tape and other barriers to entry faced by people that want to start a company and hire people.