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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.)
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.
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"
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.
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.
"Windows is like the faint smell of piss in a subway: it's there, and there's nothing you can do about it." - Charlie Br
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/
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.
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.
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.
Selling "services" between fictional corporations to justify not paying a fair share to society. You are a true patriot my friend.