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Tax Peculiarities Mean Facebook Paid No Net Taxes For 2012 307

Posted by timothy
from the take-avoidance-is-prudent dept.
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.)
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Tax Peculiarities Mean Facebook Paid No Net Taxes For 2012

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  • Re:Peculiarities? (Score:5, Insightful)

    by Lord Byron II (671689) on Sunday February 17, 2013 @08:03AM (#42926975)

    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? (Score:4, Insightful)

    by LordLucless (582312) on Sunday February 17, 2013 @08:12AM (#42927013)

    Huh? The rich people (i.e. the people cashing out the stock options) did get taxed. Facebook, the corporate entity, didn't get taxed. Or rather, it did, it's deductions just out-weighed it's tax burden, plus it carried forward accumulated deductions from previous years.

  • Re:Peculiarities? (Score:4, Insightful)

    by Anonymous Coward on Sunday February 17, 2013 @08:12AM (#42927015)

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

  • Re:Peculiarities? (Score:5, Insightful)

    by Mitreya (579078) <mitreyaNO@SPAMgmail.com> on Sunday February 17, 2013 @08:27AM (#42927085)

    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:Lazy journalism (Score:2, Insightful)

    by drinkypoo (153816) <martin.espinoza@gmail.com> on Sunday February 17, 2013 @08:42AM (#42927151) Homepage Journal

    No, lazy is not soliciting comment, or not updating the article if facebook responds to the request.

  • Wrong question (Score:5, Insightful)

    by ebonum (830686) on Sunday February 17, 2013 @08:45AM (#42927161)

    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.

  • by bhmit1 (2270) on Sunday February 17, 2013 @08:51AM (#42927183) Homepage

    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.

  • Re:Peculiarities? (Score:5, Insightful)

    by polar red (215081) on Sunday February 17, 2013 @08:58AM (#42927201)

    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:Wrong question (Score:5, Insightful)

    by nine-times (778537) <nine.times@gmail.com> on Sunday February 17, 2013 @09:07AM (#42927223) Homepage
    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.
  • Re:Peculiarities? (Score:2, Insightful)

    by Anonymous Coward on Sunday February 17, 2013 @09:12AM (#42927239)

    When you exercise your options, you (the individual) get taxed for the difference between what you paid for your newly acquired stock and the market price. For example, if the option price (what you paid) is $50, and the market price at that time is $75, the difference ($25) is taxed as if it is ordinary income, at whatever marginal tax rate applies depending on your overall income. That's at the Federal level. There is typically also state income tax on that $25 as well. That's all if you exercise the options and just sit on the stock.

    Now, if you sell the stock immediately (no capital gains or losses), your taxes are just on that $25, considered ordinary income. If you hold the stock and its market price goes up from $75 to, say, $90, you pay an additional capital gains tax on the incremental $15 ($90-$75). If you hold the shares less than a year, it's considered short term capital gains, and you pay the same rate as if it were ordinary income. If you hold the shares more than a year, that $15 is considered long term capital gains, and you pay a lower rate (15% I believe). This lower rate on long term capital gains is to encourage thoughtful investment in companies with long term potential, and to discourage viewing the stock market as a gambling parlor.

    The tax code in the US is *designed* to distort the market by influencing people's behavior. "Loopholes" is a pejorative term commonly applied to incentives consciously put in the tax code specifically to encourage or discourage certain behaviors. If people have issues with those incentives, then they should contact their representatives in government and request that those loopholes be removed. However, over the years, tax incentives have been layered on one after another until the code is overly complex and it is practically impossible to understand all the unintended consequences of even simple changes. Which is why I am a proponent of a flat tax on fungible income at the individual level. (And if you think that's not "progressive" enough, just remember that people who make twice as much, or 5 times or 1000 times, would pay that many more times as much in tax dollars, typically for no more and usually less government services. I view that as plenty "progressive".)

  • Re:Peculiarities? (Score:5, Insightful)

    by Dcnjoe60 (682885) on Sunday February 17, 2013 @10:00AM (#42927439)

    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? (Score:4, Insightful)

    by Rockoon (1252108) on Sunday February 17, 2013 @10:37AM (#42927589)
    ..and this is why corporations should get to act as a "person" with regards to many laws. Thats over $100 billion in paid taxes right there for just those 12 corporations, equivalent to about ~$900 per household.

    Of course they get to donate to political campaigns.. so do unions, for pretty much the same reason. Remember that this country was started specifically because of taxation without representation.
  • Re:Peculiarities? (Score:5, Insightful)

    by Anonymous Coward on Sunday February 17, 2013 @11:47AM (#42928091)

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

  • Re:Peculiarities? (Score:5, Insightful)

    by GameboyRMH (1153867) <gameboyrmh@[ ]il.com ['gma' in gap]> on Sunday February 17, 2013 @01:22PM (#42928835) Journal

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

  • Re:Peculiarities? (Score:-1, Insightful)

    by roman_mir (125474) on Sunday February 17, 2013 @05:06PM (#42930521) Homepage Journal

    Good work.

    I hope you are diversified out of USD denominated assets though, you should actually have foreign assets (you already have a Cayman Island corp., it's possible for you to open a bearer corporation in UK and use it as a holding company to set up an offshore that disconnects your holdings from you personally, so this way you can actually own foreign assets without the IRS being able to pick on you and this allows you to have foreign bank accounts). A foreign bank account for a US citizen or even a resident who is not a citizen is problematic. It's better to have another citizenship of-course, but even a foreign passport holder who is US residents will have problems opening a foreign bank account, so instead a corporation can do it. St. Vincent no longer allows bearer certificates for corporations though, but UK does.

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