Why is the World's Richest Company Such a Tax Cheat?

[I AM NOT THAT GUY 5,715]

RENO, Nev. — Apple, the world’s most profitable technology company, doesn’t design iPhones here. It doesn’t run AppleCare customer service from this city. And it doesn’t manufacture MacBooks or iPads anywhere nearby.

Yet, with a handful of employees in a small office here in Reno, Apple has done something central to its corporate strategy: it has avoided millions of dollars in taxes in California and 20 other states.

Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains.

California’s corporate tax rate is 8.84 percent. Nevada’s? Zero.

Setting up an office in Reno is just one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars each year. As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world.

Almost every major corporation tries to minimize its taxes, of course. For Apple, the savings are especially alluring because the company’s profits are so high. Wall Street analysts predict Apple could earn up to $45.6 billion in its current fiscal year — which would be a record for any American business.

Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy. Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work. Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers. A downloaded application, unlike a car, can be sold from anywhere.

The growing digital economy presents a conundrum for lawmakers overseeing corporate taxation: although technology is now one of the nation’s largest and most valued industries, many tech companies are among the least taxed, according to government and corporate data. Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S.& P. companies’. (Cash taxes may include payments for multiple years.)

Even among tech companies, Apple’s rates are low. And while the company has remade industries, ignited economic growth and delighted customers, it has also devised corporate strategies that take advantage of gaps in the tax code, according to former executives who helped create those strategies.

Apple, for instance, was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.

Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan. As it stands, the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent. (Apple does not disclose what portion of those payments was in the United States, or what portion is assigned to previous or future years.)

By comparison, Wal-Mart last year paid worldwide cash taxes of $5.9 billion on its booked profits of $24.4 billion, a tax rate of 24 percent, which is about average for non-tech companies.

Apple’s accountants have found legal ways to allocate about 70 percent of its profits overseas, where tax rates are often much lower, according to corporate filings.

http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?pagewanted=all

Related:

Orders for the iPhone 5 topped 2 million in their first 24 hours, more than double the amount of its predecessor over the same period.

The Cupertino, Calif. company's stock added 1.2 percent, or $8.50, to close at $699.78 on Monday.

http://investing.businessweek.com/research/stocks/news/article.asp?docKey=600-201209170853APDIGITLFINANCE__US_Apple_iPhone_5-1&params=timestamp%7C%7C09/17/2012%208:53%20AM%20ET%7C%7Cheadline%7C%7CApple%3A%20iPhone%205%20preorders%20topped%202M%20in%2024%20hours%7C%7CdocSource%7C%7CAP%20Digital%7C%7Cprovider%7C%7CACQUIREMEDIA%7C%7Cbridgesymbol%7C%7CUS;AAPL&ticker=AAPL

[I AM NOT THAT GUY 5,715]

Top Candidate Recipients, 2011-2012

Barack Obama (D) $130,850

Ron Paul (R-TX) $16,004

Mitt Romney ® $10,000

BILL MOST FREQUENTLY LOBBIED ON IN THE 112TH CONGRESS: H.R.1834 (Freedom to Invest Act of 2011)

http://www.opensecrets.org/orgs/summary.php?id=D000021754

[I AM NOT THAT GUY 5,715]

Specific Issues Reports for H.R.1834 by Apple Inc, 112th Congress

Report Content of Specific Issue field

H.R. 1834-Freedom to Invest Act of 2011, Repatriation Legislation

Matters dealing with International Taxation, Expiring Tax Provisions, and Tax Reform. - Administration's Fiscal Year 2012 Revenue Proposals - Repatriation of Controlled Foreign Corporation Earnings - H.R. 1834, Freedom to Invest Act of 2011

HR 942: American Research and Competitiveness Act S 971 Digital Goods and Services Fairness Act HR 1860 Digital Goods & Services Tax Fairness Act HR 1036 Job Creation & Innovation Act HR 1834 American Research & Competitiveness Act R&D Tax Credit, Corporate Tax Reform, Repatriation

Matters dealing with International Taxation, Expiring Tax Provisions, and Tax Reform. - Administration's Fiscal Year 2012 Revenue Proposals - Repatriation of Controlled Foreign Corporation Earnings - H.R. 1834, Freedom to Invest Act of 2011 - S.1671, Foreign Earnings Reinvestment Act

HR 942: American Research and Competitiveness Act S 971: Digital Goods and Services Fairness Act HR 1860: Digital Goods & Services Tax Fairness Act HR 1036: Job Creation & Innovation Act HR 1834: American Research & Competitiveness Act R&D Tax Credit, Corporate Tax Reform, Repatriation

H.R. 1834- Freedom to Invest Act of 2011, S. 1671-Foreign Earnings Reinvestment Act, Repatriation Legislation

HR 1834, Freedom to Invest Act; S 1671, Foreign Earnings Reinvestment Act

HR 942: American Research and Competitiveness Act S 971: Digital Goods and Services Fairness Act HR 1860: Digital Goods & Services Tax Fairness Act HR 1036: Job Creation & Innovation Act HR 1834: American Research & Competitiveness Act R&D Tax Credit, Corporate Tax Reform, Repatriation

HR 1834, Freedom to Invest Act; S 1671, Foreign Earnings Reinvestment Act

HR 1834 Freedom to Invest Act; S 1671 Foreign Earnings Reinvestment Act; corporate tax reform

Matters dealing with International Taxation, Expiring Tax Provisions, and Tax Reform. - Administration's Fiscal Year 2012 Revenue Proposals - Repatriation of Controlled Foreign Corporation Earnings - H.R. 1834, Freedom to Invest Act of 2011

[Mr. Big Dog 10,747]

Yet, with a handful of employees in a small office here in Reno, Apple has done something central to its corporate strategy: it has avoided millions of dollars in taxes in California and 20 other states.

California’s corporate tax rate is 8.84 percent. Nevada’s? Zero.

What are we saying here? That low corporate taxes do not actually drive job creation? Apple has thousands of jobs in locations where it pays corporate taxes and only a handful of jobs in a location with a zero corporate tax rate. That can't be right for we are told time and again that we only need to lower corporate taxes and jobs will come. Where are the Nevada jobs?

[SMR 368]

Legally evading taxes by moving profits around is a subject that comes up a lot, but this article shares the same shortcomings as most articles I have read on the subject. It describes what is wrong with a healthy dose of

"outrage" but doesn't really provide any meaningful suggestions on what can be done about it. The problem is that someone will always be the "Cayman Islands," and the harder you squeeze the more people will want to go there. The sensible thing to do is to not tax "profits" (whose definition is a somewhat subjective bit of accounting) and tax sales. You sell something to somebody in the US, you pay a percentage of the sale in taxes. It doesn't matter where you claim your headquarters are, where you route the money through, or where your server is based. Then you eliminate corporate income tax. Businesses will want to be based in the US. Money that is made from overseas sales will be not taxed in the US. Foreign companies that sell things in the US will pay the sales tax.

The taxes will be passed onto the consumer but that would happen anyways.

[I AM NOT THAT GUY 5,715]

What are we saying here? That low corporate taxes do not actually drive job creation? Apple has thousands of jobs in locations where it pays corporate taxes and only a handful of jobs in a location with a zero corporate tax rate. That can't be right for we are told time and again that we only need to lower corporate taxes and jobs will come. Where are the Nevada jobs?

Or, just tighten the rules so that corporations can't avoid paying corporate taxes, or eliminate corporate taxes altogether, and find a different mechanism to collect those revenues.

[Mr. Big Dog 10,747]

Or, just tighten the rules so that corporations can't avoid paying corporate taxes, or eliminate corporate taxes altogether, and find a different mechanism to collect those revenues.

I like the idea of charging corporate taxes based on sales in the US. Levels the playing field and makes corporate tax avoidance pretty impossible. You sell it here, you pay taxes here no matter where the mailbox is located that serves as your corporate headquarter.

But I find the other aspect of this report much more interesting. It debunks pretty clearly the myth that lower corporate taxes result in job creation. Nevada slashes corporate taxes down to nothing and yet, the jobs are not coming to Nevada. Apple put a handful of jobs into the state while employing thousands of people in states where corporate taxes are higher.

[Usui Takumi 1,562]

Wait. I thought Apple was a non profit religious organization?

[Love's JAA 100]

What are we saying here? That low corporate taxes do not actually drive job creation? Apple has thousands of jobs in locations where it pays corporate taxes and only a handful of jobs in a location with a zero corporate tax rate. That can't be right for we are told time and again that we only need to lower corporate taxes and jobs will come. Where are the Nevada jobs?

They're in Silicon Valley, not Silicone Alley.

[Mr. Big Dog 10,747]

They're in Silicon Valley, not Silicone Alley.

Right, the jobs are in the high tax location. So much for corporate tax cuts bringing in the jobs. Doesn't seem to work for Nevada.

[Gary and Alla 3,694]

It means that their products are cheaper, their investors earn more and their employees get better pay and benefits. What is wrong with this?

The problem is that we try to "tax" businesses. You cannot. The business will first avoid as much as possible (their paid politicians wrote exemptions in the law for them and their paid lobbyists made sure of it) and what they cannot avoid they will pass on to others. Business does not pay tax, it collects tax.

The FAIR TAX would simply eliminate all this nonsense, eliminate incoem tax, payroll tax, capital gains tax and free business to employ people who will eanr money and pay tax when they spend it. It would collect tax from everyone, not just 53% of the people, it would collect tax from people who avoid it now, it would create jobs by giving the US an unbeatably low tax rate for busines, -0-, and bring back the billions...trillions in offshore holdings to be invested here.

It would also get the politicians out of taxing, eliminate articles like this, and make it impossible for politicians to claim they will give you everything and tax someoe else. THAT is why we do not have it already.

[Mr. Big Dog 10,747]

It means that their products are cheaper, their investors earn more and their employees get better pay and benefits. What is wrong with this?

The problem is that we try to "tax" businesses. You cannot. The business will first avoid as much as possible (their paid politicians wrote exemptions in the law for them and their paid lobbyists made sure of it) and what they cannot avoid they will pass on to others. Business does not pay tax, it collects tax.

The FAIR TAX would simply eliminate all this nonsense, eliminate incoem tax, payroll tax, capital gains tax and free business to employ people who will eanr money and pay tax when they spend it. It would collect tax from everyone, not just 53% of the people, it would collect tax from people who avoid it now, it would create jobs by giving the US an unbeatably low tax rate for busines, -0-, and bring back the billions...trillions in offshore holdings to be invested here.

It would also get the politicians out of taxing, eliminate articles like this, and make it impossible for politicians to claim they will give you everything and tax someoe else. THAT is why we do not have it already.

Low or non-existent corporate taxes do not move jobs to the low tax location. If taxes would move jobs, Nevada would be hurting for workers. Nevada has a zero corporate tax rate and yet Nevada also happens to have the highest unemployment rate. Higher than California, higher than Massachusetts, higher than New York and New Jersey. That's impossible if lower corporate taxes translates into more jobs.

[Gary and Alla 3,694]

Right, the jobs are in the high tax location. So much for corporate tax cuts bringing in the jobs. Doesn't seem to work for Nevada.

Nevada does not have the logistics in its favor, which is why they had to create a business base with a business no one else wanted (at the time)...gambling.

Nevada lacks water, transportation, utilities, population (for employees) That is not going to be overcome by a tax cut. That does not make a tax cut or tax elimination on business a bad thing, it is just not the ONLY thing. Las Veags works because what they need (people to gamble) can be easily ferried in on airplanes. What it needs for business/manufacturing in general is a network of highways, water access, preferably to the ocean...oops, ain't happenin' here, lots of water and a huge capacity for electricity. They do have plenty of solar energy.

If we had the FAIR TAX and NO tax on any business...Nevada is still going to be a bad place for business, because it is generally a bad place for anything except a man made mecca of gambling and even that cachet has been lost to two-bit gambling boats. Nevada never was anything before gambling and will not be after gambling, taxes or no taxes.

Basically the state could GIVE business the land, build their facility for them and the business would still lose money.

[Gary and Alla 3,694]

Low or non-existent corporate taxes do not move jobs to the low tax location. If taxes would move jobs, Nevada would be hurting for workers. Nevada has a zero corporate tax rate and yet Nevada also happens to have the highest unemployment rate. Higher than California, higher than Massachusetts, higher than New York and New Jersey. That's impossible if lower corporate taxes translates into more jobs.

See above. Consider the logistics of those other states vs. Nevada. Pack it, Big Dog. I will be the first to admit, even with the FAIR TAX, Nevada will still suck as a place to do business. How's that?

[Mr. Big Dog 10,747]

See above. Consider the logistics of those other states vs. Nevada.

Okay, so we agree. Low taxes do not create jobs. Thank you.