How Apple avoids paying taxes in CA(en.wikipedia.org)
en.wikipedia.org
How Apple avoids paying taxes in CA
http://en.wikipedia.org/wiki/Braeburn_Capital
121 comments
Judge Learned Hand: "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."
That may be true, but the simple fact is that it's a lot easier for a large corporation to minimize its taxes than it is for a small business or individual. For example, a company like apple can afford to pay 10 people full time to move around money and assets in order to minimize taxes. Those people will save Apple far more than it costs to employ them. A 5 person company not only can't match that effort, but if they tried they would find that the necessary expertise cost more than the actual tax savings would bring. That gives large corporations a pretty significant advantage in the marketplace.
Your example is just an economy of scale. The same could be said of engineering support infrastructure.
The difference being the tax situation is created by laws, and engineering is governed by reality.
The laws shouldn't create a situation where big, slow-moving corporations get huge built-in advantages over smaller, more innovative companies (I know apple is more innovative than many big companies but stay with me here). Particularly, they shouldn't be getting those advantages by paying a bunch of blood-sucking lawyers and accountants to move money around and create nothing. The law should, if anything, be providing support for smaller businesses.
The laws shouldn't create a situation where big, slow-moving corporations get huge built-in advantages over smaller, more innovative companies (I know apple is more innovative than many big companies but stay with me here). Particularly, they shouldn't be getting those advantages by paying a bunch of blood-sucking lawyers and accountants to move money around and create nothing. The law should, if anything, be providing support for smaller businesses.
You mean smaller businesses that create fewer jobs?
No, I mean the small businesses that have created almost all of the new jobs over the last 20 years. A few here and a few there. Some of them got really big.
Go check out bls.gov.
Go check out bls.gov.
Can you give a more specific link to the bureau of labor statistics?
Assuming you're using the typical "500 employees" definition of small business, US census data doesn't seem to bear you out. For the period 1988 to 2003, see table 2c here: http://www.census.gov/epcd/www/smallbus.html
The percentage of paid employees employed by organizations with 500+ employees increased in the period 1988 to 2004, to 49.1% - as the total number of employees has increased by 30%.
Are we looking at different things?
Assuming you're using the typical "500 employees" definition of small business, US census data doesn't seem to bear you out. For the period 1988 to 2003, see table 2c here: http://www.census.gov/epcd/www/smallbus.html
The percentage of paid employees employed by organizations with 500+ employees increased in the period 1988 to 2004, to 49.1% - as the total number of employees has increased by 30%.
Are we looking at different things?
Everybody says it all the time. Maybe they're all wrong, but probably you are. I don't mean to be rude but I'm not writing a book report here and am not going to spend my morning looking for charts.
Consider that Google's now a very large employer but were a very small business 10 years ago. The way you view that and similar cases probably influences the outcome quite a bit. Small companies get big, they get bought out, or they fail. Either way they created jobs for a little bit, and all 3 of those cases wouldn't be captured by the single year snapshot of data you linked to (why 2002?).
Consider that Google's now a very large employer but were a very small business 10 years ago. The way you view that and similar cases probably influences the outcome quite a bit. Small companies get big, they get bought out, or they fail. Either way they created jobs for a little bit, and all 3 of those cases wouldn't be captured by the single year snapshot of data you linked to (why 2002?).
I'm now speculating, but I'd guess that a very small percentage of small businesses ever become big businesses, though it's almost surely true that all big businesses were at some point small businesses.
Your original argument seems to have been that the government should encourage innovative businesses, and I strongly agree with you there. I don't think business size is particularly relevant to that.
Success in business is highly complex. I'd guess that your assertion that small businesses get big, bought out, or fail is incorrect. Many small businesses remain small businesses for many years - think your corner dry cleaner or grocery.
The chart I pointed to looked at the years 1988-2004, not just 2002.
Of course, this post is no longer based in facts, just guesses. (If you're not interested in finding out the truth, I wont waste my time with real data any further.)
Your original argument seems to have been that the government should encourage innovative businesses, and I strongly agree with you there. I don't think business size is particularly relevant to that.
Success in business is highly complex. I'd guess that your assertion that small businesses get big, bought out, or fail is incorrect. Many small businesses remain small businesses for many years - think your corner dry cleaner or grocery.
The chart I pointed to looked at the years 1988-2004, not just 2002.
Of course, this post is no longer based in facts, just guesses. (If you're not interested in finding out the truth, I wont waste my time with real data any further.)
I assume Google created more jobs in the rise from 501 to >20,000 employees than they did in the 2-500 period.
I have heard statistics that a lot of the creation of jobs occurs with small business. Also, that a lot of the job losses occur at small businesses. The net jobs created are reflected in the bls statistics that show increase in employment among different kinds of businesses.
I have heard statistics that a lot of the creation of jobs occurs with small business. Also, that a lot of the job losses occur at small businesses. The net jobs created are reflected in the bls statistics that show increase in employment among different kinds of businesses.
I think the point he is trying to make is that the current tax laws favor big businesses because, let's face it, the government is run by those businesses.
While I'm not arguing the system is perfectly fair - those large corporations also create jobs, and pay a huge amount of tax in raw numbers. People look at the percentages and say "Ohh look how they cheat...." - but look at the raw figures, and see where the tax dollars are really coming from.
Joe average 9-5 worker doesn't create jobs, or employ hundreds or thousands of people, and he does get tax breaks for certain things in his everyday life (dependants, mortgage payments, whatever) - a large corporation occupies a completely different place in the economy, and can indeed take advantage of different things.
(joe average 9-5 worker, even if a staff of 10 tax wizards helpded him out, wouldn't be able to save much on his income tax legally - because his financial situation is simple)
Joe average 9-5 worker doesn't create jobs, or employ hundreds or thousands of people, and he does get tax breaks for certain things in his everyday life (dependants, mortgage payments, whatever) - a large corporation occupies a completely different place in the economy, and can indeed take advantage of different things.
(joe average 9-5 worker, even if a staff of 10 tax wizards helpded him out, wouldn't be able to save much on his income tax legally - because his financial situation is simple)
>>>Joe average 9-5 worker doesn't create jobs, or employ hundreds or thousands of people
And where would all the companies be that sell to Joe Average if Joe Average was out of work? How many of those jobs would vanish for all those other Joe Averages?
Joe Average also doesn't create books or movies or music -- but we depend on him to spend his money so those who do can keep doing so.
Spit on Joe Average and you are cutting your own throat.
And where would all the companies be that sell to Joe Average if Joe Average was out of work? How many of those jobs would vanish for all those other Joe Averages?
Joe Average also doesn't create books or movies or music -- but we depend on him to spend his money so those who do can keep doing so.
Spit on Joe Average and you are cutting your own throat.
Big companies can employ tax specialists, attorneys and accountants, certainly, to do all these things - it's definitely an expense that a small company can't afford.
But small companies have advantages too - being nimble and able to innovate much quicker than big companies, to name just two. It's important to recognise these advantages and exploit them as well as possible.
Also it's worth bearing in mind that Apple was once a small company in a garage too. They had to grow big and become profitable before they could hire people to minimise their tax bill.
But small companies have advantages too - being nimble and able to innovate much quicker than big companies, to name just two. It's important to recognise these advantages and exploit them as well as possible.
Also it's worth bearing in mind that Apple was once a small company in a garage too. They had to grow big and become profitable before they could hire people to minimise their tax bill.
Couldn't the differential tax rates for big corporations vs. individuals account for this?
An example with invented numbers: if the US Govt wants to tax corporations at 30% and individuals at 25%, but corporations are 10% better at avoiding taxes, than the actual corporate tax would be 33.33%.
An example with invented numbers: if the US Govt wants to tax corporations at 30% and individuals at 25%, but corporations are 10% better at avoiding taxes, than the actual corporate tax would be 33.33%.
But big companies also receive more scrutiny from regulators. The small business can take advantage of tax loopholes and is much less likely to be audited. There are always gray areas when it comes to taxes and small business don't have to spend as much energy/time defending themselves.
On the other hand a lot of very small business can often operate by 'cash in hand' which bypasses most taxation.
They are only avoiding some california taxes as well, at least according to the wiki page.
This is nowhere near as bad as IKEA, which is the largest charitable organisation in the world, pulling in billions of dollars a year, and paying out a million to help design new furniture.
This is nowhere near as bad as IKEA, which is the largest charitable organisation in the world, pulling in billions of dollars a year, and paying out a million to help design new furniture.
Ikea is so good at not paying taxes that I would say the whole company is a tax evasion hack. The number of subsidiaries in random countries and crazy charities that make up the company is astounding.
See: http://en.wikipedia.org/wiki/IKEA#Corporate_structure
See: http://en.wikipedia.org/wiki/IKEA#Corporate_structure
Sounds like a money-laundering setup, honestly.
That's interesting. I know little of US tax laws but in my country if an arrangement has no legitimate purpose other than to minimize tax then it can be seen as tax evasion and the tax department can choose to tax under an alternative regime that they decide matches its "true" nature. Similar to how if you claim to be a contractor but you do all your work for one company they can decide to treat you as an employee. Of course, it is fairly easy to work around, so this does not have a lot of teeth, but it still weeds out the most egregious tax avoidance schemes.
That's generally true in the USA, but the catch here is that the states are sovereign entities. Different states have different tax structures, in part to attract residents, business and investment.
Yes, but in practice, this means that the middle classes pay most of the tax, since the poor don't earn enough, while the rich are able to afford different wealth structures that e.g. fall under capital appreciation, or are structured around shares of ownership and operated in a different state or country for tax reasons, etc.
In other words, the burden of funding of the state - the security, infrastructure and social consensus which is the foundation of all citizens' wealth - proportionately falls least on those that benefit from it most.
In other words, the burden of funding of the state - the security, infrastructure and social consensus which is the foundation of all citizens' wealth - proportionately falls least on those that benefit from it most.
Not true, the top 5% of earners in the US pay more than 50% of the taxes, and the top 10% pay almost 3/4ths of the taxes.
http://en.wikipedia.org/wiki/Taxation_in_the_United_States#T...
http://en.wikipedia.org/wiki/Taxation_in_the_United_States#T...
Yeah, but they make more than 50% and more than 3/4 of the income, respectively.
Richer people pay lower taxes as a percentage of their income than the middle class. Much lower. It'd be lower even if they did it all by the book and didn't hire expensive accountants and use offshore accounts, tax havens and all of that. Once you add that stuff in it's significantly lower.
It's a bug, not a feature. Meanwhile, presumably you're not a multi-millionaire, and you're actually cheering for them to pay less off their income in taxes than you do. Pretty funny stuff.
Richer people pay lower taxes as a percentage of their income than the middle class. Much lower. It'd be lower even if they did it all by the book and didn't hire expensive accountants and use offshore accounts, tax havens and all of that. Once you add that stuff in it's significantly lower.
It's a bug, not a feature. Meanwhile, presumably you're not a multi-millionaire, and you're actually cheering for them to pay less off their income in taxes than you do. Pretty funny stuff.
First, how do you know that I'm cheering for anything? I stated a simple fact. It doesn't mean that I approve of it. And my post was in response to this claim: Yes, but in practice, this means that the middle classes pay most of the tax
While "the rich" might pay a lower percentage of their income in taxes, it's just flat-out false that the middle class pay "most of the taxes." Whether this should or shouldn't be the case is a discussion for another day.
While "the rich" might pay a lower percentage of their income in taxes, it's just flat-out false that the middle class pay "most of the taxes." Whether this should or shouldn't be the case is a discussion for another day.
Sorry for implying that, and you were correct on the semantics. The fuller explanation would have been more helpful, though.
Yeah, but they make more than 50% and more than 3/4 of the income, respectively.
No, the linked Wikipedia page says:
the top 5% with gross income of $137,056 or more pay 57.1% (earning 33.4%)
No, the linked Wikipedia page says:
the top 5% with gross income of $137,056 or more pay 57.1% (earning 33.4%)
Well, the wikipedia cites the WSJ, which is behind a paywall. I suspect that they're either wrong or creatively fudging things.
After 100k your FICA payments taper off to nothing. That's money off the top, right into your pocket. Additionally, the capital gains taxes are only 15% compared to much higher for income. This means that the wealthy have a hugely advantageous tax situation.
Although, I thought that the bottom of the top 5% was higher than 137k. Another wiki here: http://en.wikipedia.org/wiki/Household_income_in_the_United_... puts it at 157k, which is probably high enough to tilt the math towards what I was saying. Certainly over 150-200k your tax burden as a % of income starts going down, due to the decreased FICA contribution and potentially a share of income from capital gains.
After 100k your FICA payments taper off to nothing. That's money off the top, right into your pocket. Additionally, the capital gains taxes are only 15% compared to much higher for income. This means that the wealthy have a hugely advantageous tax situation.
Although, I thought that the bottom of the top 5% was higher than 137k. Another wiki here: http://en.wikipedia.org/wiki/Household_income_in_the_United_... puts it at 157k, which is probably high enough to tilt the math towards what I was saying. Certainly over 150-200k your tax burden as a % of income starts going down, due to the decreased FICA contribution and potentially a share of income from capital gains.
> After 100k your FICA payments taper off to nothing. That's money off the top, right into your pocket.
Since your SS benefits are also capped, it's unclear why you think that capping the taxes is wrong.
The folks who set up SS thought that the tax and payout cap was a good thing beause it kept rich people from caring about SS. If you uncap both taxes and payout, you end up paying Ross Perot $400k/year in retirement. If you uncap taxes but cap payout, rich people start caring about SS.
What is your alternative to capped payout and taxes?
FWIW, SS payouts are progressive - the less you contribute, the better your return.
Since your SS benefits are also capped, it's unclear why you think that capping the taxes is wrong.
The folks who set up SS thought that the tax and payout cap was a good thing beause it kept rich people from caring about SS. If you uncap both taxes and payout, you end up paying Ross Perot $400k/year in retirement. If you uncap taxes but cap payout, rich people start caring about SS.
What is your alternative to capped payout and taxes?
FWIW, SS payouts are progressive - the less you contribute, the better your return.
If your income comes from capital gains or creative accounting, yes.
But if you're a salaried worker earning over 150-200k, the percentage of your income going to federal income tax is greater as your income increases - more of your income falls into a higher bracket. (Also, FICA doesn't drop to nothing, it drops to 1.45% from 7.65%, saving you 6.2%.) See e.g. http://en.wikipedia.org/wiki/File:US_income_tax_2008.svg
You are assuming that as income rises above 150-200k, it takes forms that are taxed at a lower rate, not just "potentially".
But if you're a salaried worker earning over 150-200k, the percentage of your income going to federal income tax is greater as your income increases - more of your income falls into a higher bracket. (Also, FICA doesn't drop to nothing, it drops to 1.45% from 7.65%, saving you 6.2%.) See e.g. http://en.wikipedia.org/wiki/File:US_income_tax_2008.svg
You are assuming that as income rises above 150-200k, it takes forms that are taxed at a lower rate, not just "potentially".
Hm, you actually may be right, assuming no accounting and no income from capital gains, high-paid salaried workers do pay more in taxes. And they're probably earning their pay. So I was wrong on that part of the math.
Meanwhile, people who are supremely highly paid (in the > 500k -> millions range) usually get a big chunk of it in options. That's fine as a payment plan, I even agree with it, but they should pay the going rate on their income. And that's not even getting into my real beef, which is the culture of "tax avoidance is honorable" that's pervasive in higher-end business - it diverts labor into parlor tricks and disadvantages actual innovation.
Meanwhile, people who are supremely highly paid (in the > 500k -> millions range) usually get a big chunk of it in options. That's fine as a payment plan, I even agree with it, but they should pay the going rate on their income. And that's not even getting into my real beef, which is the culture of "tax avoidance is honorable" that's pervasive in higher-end business - it diverts labor into parlor tricks and disadvantages actual innovation.
Option grants are taxed as income too, the advantage to options is that any increase in stock price can be taxed as capital gains if you exercise the option immediately and hold the stock for more than 1 year.
Direct stock grants are also taxed as income, with the same caveat that stock value appreciation can be taxed at the lower capital gains rate.
It sounds like your beef is with the capital gains tax rate, not income tax itself. :)
I can't speak to the culture of "tax avoidance is honorable", but if the federal government is trying to incentivize people to behave in a certain way (say, to invest in stocks in the long-term) by giving folks who do that a tax break...then your beef is really with the government wanting people to invest long-term in stocks. That seems like a more difficult argument to make.
Direct stock grants are also taxed as income, with the same caveat that stock value appreciation can be taxed at the lower capital gains rate.
It sounds like your beef is with the capital gains tax rate, not income tax itself. :)
I can't speak to the culture of "tax avoidance is honorable", but if the federal government is trying to incentivize people to behave in a certain way (say, to invest in stocks in the long-term) by giving folks who do that a tax break...then your beef is really with the government wanting people to invest long-term in stocks. That seems like a more difficult argument to make.
My beef is precisely with the culture of tax avoidance and the loopholes that you're so neatly sidestepping in this conversation. Ok, maybe it's not quite so bad as I'm making it out until you consider the loopholes and everything. In reality, the overwhelming majority of people earning > $1 million are probably paying a lower % of their income in taxes than I am, after deductions, spending a significant chunk of my yearly salary on accountants, the whole mess. That's ridiculous.
[deleted]
Taking a wealthy friend as an example, and watching how many jobs he's created, how many charities he's created, and how many lives he's changed - plus the sheer raw numbers of dollars he paid in taxes on top of all that - I don't really care if the percentage is less than mine. I didn't create 500 jobs or donate hundreds of thousands of dollars to real-life charities every year.
EDIT: That doesn't mean I think the system is perfect or that people don't cheat, or that the wealthy are somehow innocent - money is power, and those with more money will exert more influence on how to keep more of it - that's natural.
EDIT: That doesn't mean I think the system is perfect or that people don't cheat, or that the wealthy are somehow innocent - money is power, and those with more money will exert more influence on how to keep more of it - that's natural.
Yeah, and he did all of that because we have a society that enabled him to do it.
Good for him. Seriously. But if he doesn't feel obligated to pay back towards that society then he's either missing something inside or fell victim to a convienent ideology that told him it's good to be selfish.
Whatever happened to noblesse oblige?
Not to mention, of the millionaires I've met, most aren't entrepreneurs and didn't create any jobs, they just worked in finance.
EDIT: To add: If your friend has those millions and likes the society he earned it in, it's probably worth him paying back into it purely as an investment. If we actually funded infrastructure and education in this country, we might see better returns from them.
Good for him. Seriously. But if he doesn't feel obligated to pay back towards that society then he's either missing something inside or fell victim to a convienent ideology that told him it's good to be selfish.
Whatever happened to noblesse oblige?
Not to mention, of the millionaires I've met, most aren't entrepreneurs and didn't create any jobs, they just worked in finance.
EDIT: To add: If your friend has those millions and likes the society he earned it in, it's probably worth him paying back into it purely as an investment. If we actually funded infrastructure and education in this country, we might see better returns from them.
Are you donating all the extra money you have to the IRS? Are you skipping all deductions, even if you're eligible for them? Why not?
Your argument is essentially that we have a duty to pay as much tax as possible. But this is predicated on the belief that paying taxes is the best way to benefit society with your resources. Obviously, this is a long-standing debate that we won't solve here, but I would argue that the government is a terrible, terrible steward of resources, and I'd much rather have the money in the hands of "the rich", who seem far more likely to invest it and create jobs and institutions that better society. And yes, enrich themselves along the way. I'm fine with that. A rising tide floats all boats.
Again, I find it humorous that people who get all worked up over someone minimizing their tax liability through tax avoidance (completely legal) seem really interested in raising tax revenue, as long as it's someone else's money. None of them are sending donation checks to the IRS, which seems the height of hypocrisy. You have shit you don't need and someone else needs shit you have, so why not donate the money and let the IRS help those poor folks out? If you truly believe the government is the best way to allocate limited resources, why wouldn't you do this?
Your argument is essentially that we have a duty to pay as much tax as possible. But this is predicated on the belief that paying taxes is the best way to benefit society with your resources. Obviously, this is a long-standing debate that we won't solve here, but I would argue that the government is a terrible, terrible steward of resources, and I'd much rather have the money in the hands of "the rich", who seem far more likely to invest it and create jobs and institutions that better society. And yes, enrich themselves along the way. I'm fine with that. A rising tide floats all boats.
Again, I find it humorous that people who get all worked up over someone minimizing their tax liability through tax avoidance (completely legal) seem really interested in raising tax revenue, as long as it's someone else's money. None of them are sending donation checks to the IRS, which seems the height of hypocrisy. You have shit you don't need and someone else needs shit you have, so why not donate the money and let the IRS help those poor folks out? If you truly believe the government is the best way to allocate limited resources, why wouldn't you do this?
I'm in the band of income that pays the absolute highest taxes as a % of income. I just want rich people to pay the same % as I do, or a tiny bit higher since they'll miss it less. I don't complain about paying my taxes, I see them as membership fees to live in a society with laws and running water and OSHA.
It's not about "small govt" or "big govt", those are just buzzwords. The government's hugely in the red either way. Who convinced you that this was ideological, rather than a matter of simply paying their fair share?
It's not about "small govt" or "big govt", those are just buzzwords. The government's hugely in the red either way. Who convinced you that this was ideological, rather than a matter of simply paying their fair share?
While we might be able to justify one person paying orders of magnitude more taxes than another, based on the overall benefit to society as a whole, let's not pervert language by describing that system as 'fair'. In fair systems, people get the same service for the same price.
Yeah, and in an anarchic system, power and money flow upwards until it's unsustainable and it collapses.
We're not living in caves, definitions of fair should include upward mobility.
And who says they're not getting the same service? Wealthy corporations and individuals get a ton of services from the US gov't, from subsidies to infrastructure to direct benefit from the State Dept and military.
We're not living in caves, definitions of fair should include upward mobility.
And who says they're not getting the same service? Wealthy corporations and individuals get a ton of services from the US gov't, from subsidies to infrastructure to direct benefit from the State Dept and military.
We're not living in caves, definitions of fair should include upward mobility.
Are we talking absolute upward mobility, or relative upward mobility? If absolute, then we already have that. If relative, that's impossible...not everyone can be simultaneously relatively upwardly mobile :)
Are we talking absolute upward mobility, or relative upward mobility? If absolute, then we already have that. If relative, that's impossible...not everyone can be simultaneously relatively upwardly mobile :)
I don't know about other people, but I don't go out of my way to avoid taxes. I certainly don't create new companies or change how I do business in order to avoid taxes. If there's an actual deduction box on a form that I'm eligible for, sure, I'll check it. But I don't really spend days thinking up ways to hide my income. Any time I would've spent on that could be much more productively spent by just making more income.
"Any time I would've spent on that could be much more productively spent by just making more income."
Which is actually a good reason to make taxes lower and less burdensome, so the most productive members of our society (as measured by income) will spend their time producing, instead of defending the fruits of their labor from the tax man.
Which is actually a good reason to make taxes lower and less burdensome, so the most productive members of our society (as measured by income) will spend their time producing, instead of defending the fruits of their labor from the tax man.
In my experience, the kinds of people who spend the most time on minimizing taxes are precisely the opposite of productive members of society: heirs and heiresses with large assets and passive incomes, but not much real capacity for earning income through their own labors. You generally see complex tax-avoidance trust structures in these "old-money" families much more than you see them in new-money families. For them, it's a rational decision, because the opportunity cost of spending a bunch of time/effort on tax avoidance is low: they aren't wasting time that they would otherwise have put to more productive uses.
Well, it's certainly a reason to make them simpler.
But those same big companies with the same high priced lawyers, accountants and lobbyists never tend to actually advocate for making them simpler. Oh, they might say that in public and at your Ayn Rand book club, but it's not what they say when they're speaking to the congressmen.
EDIT: Hey guys, I wasn't dissing Ayn Rand, don't get so defensive. Just, you know.. who's got a really big interest in making sure people believe all this stuff? Might be worth thinking about.
Big corporations don't actually have an interest in a simple tax code -- more complicated means their accountants give them a competitive advantage.
But those same big companies with the same high priced lawyers, accountants and lobbyists never tend to actually advocate for making them simpler. Oh, they might say that in public and at your Ayn Rand book club, but it's not what they say when they're speaking to the congressmen.
EDIT: Hey guys, I wasn't dissing Ayn Rand, don't get so defensive. Just, you know.. who's got a really big interest in making sure people believe all this stuff? Might be worth thinking about.
Big corporations don't actually have an interest in a simple tax code -- more complicated means their accountants give them a competitive advantage.
I think the point here is that he "paid back toward society" by creating jobs and charities, not by forking over his money to the government for it to waste on inefficient pork-barrel projects and other ill-chosen boondoggles. Why do you apparently think we can only help society by giving money to the IRS?
Anecdotes don't prove anything. Plenty of rich people don't create any jobs (directly anyway) and if they are giving to charities it's usually for tax reasons and/or PR. If you had the money your rich friend has you almost certainly would have donated a similar amount to charity.
I'm aware of this, and is actually the reason I included "proportionately" in my post, but I didn't have time to explain what I meant.
I would consider the vast majority of the top 10% to be middle class, however.
I would consider the vast majority of the top 10% to be middle class, however.
I suppose that if they are working hard at arranging it, that's better than avoiding taxes and then blaming things on TurboTax.
Isn't it so easy to outsource your moral thinking to others. You can justify almost anything that way!
Why the downvotes? The linked page points to the judicial concept of the "Race to the Bottom" in which countries/states/counties competitively weaken their laws to attract investment.
Doesn't this just beg the question of letter vs. spirit of the law?
Article title is misleading, they only minimize some capital gains tax on their cash and investments with the nevada entity. And they certainly have a duty to shareholders to do so.
They pay hundreds of millions in income tax on their profit in California, plus everything else - property tax, payroll tax, sales tax on purchases in CA...
They pay hundreds of millions in income tax on their profit in California, plus everything else - property tax, payroll tax, sales tax on purchases in CA...
I don't think there is actually a "duty to shareholders" to reduce taxation by jurisdiction-shopping. At least, having done some research, I'm unable to come up with a single case where a shareholder lawsuit against a company that declined to do so succeeded.
The board of directors and officers have a fiduciary duty to do what is in the best interest of the company and shareholders. If the choice is to invest our extra cash thru a CA based corp, pay more tax, have a lower return and ultimately less $ to reinvest in the company, or, to set up in the neighboring state so don't lose money, and its perfectly legal, the choice is easy.
I think a better question is why have CA voters voted in so much spending and extra taxes, putting them at disadvantage to other states. Nevada actively encourages companies and individuals to come set up shop there.
Capital gains tax by state - http://www.thereibrain.com/realestate-blog/2007/10/capital-g...
I think a better question is why have CA voters voted in so much spending and extra taxes, putting them at disadvantage to other states. Nevada actively encourages companies and individuals to come set up shop there.
Capital gains tax by state - http://www.thereibrain.com/realestate-blog/2007/10/capital-g...
You assert the opposite of my claim, but do you have any evidence? "Fiduciary duty" is an actual legal term; there are some actions or non-actions which violate a corporate officer's fiduciary duty, and some which don't. Failure to set up a tax shelter, even when it would be possible to do so and it would save the company money, is not a breach of fiduciary duty. I'd welcome any evidence otherwise, but I suspect you'll have trouble finding any, because I did research this at one point, and as far as I know, no corporate officer in U.S. history has ever been found to be in breach of fiduciary duty for not setting up tax-sheltering subsidiaries.
I can imagine a scenario where something like that might happen, but I think it would have to be fairly egregious, probably more something like deliberately setting up a new tax structure to increase a company's taxes (maybe because you know the mayor and want to help him out with his budget or something).
I can imagine a scenario where something like that might happen, but I think it would have to be fairly egregious, probably more something like deliberately setting up a new tax structure to increase a company's taxes (maybe because you know the mayor and want to help him out with his budget or something).
Yes, you're very right. I more accurately should have said acting in the shareholders interest, which it certainly is in this type of non-shady way to lessen tax liability. If a director, maybe al gore, was against the idea for the pious sake of giving more money to support the govt, that would violate fudiciary duty.
A board of directors has significant discretion in deciding what course of action truly maximizes the long-term value of a company; see the business judgement rule, for instance ( http://en.wikipedia.org/wiki/Business_judgment_rule ).
The flippant view that a board is obligated to maximize profit (especially short-term profit) is pretty simple-minded. See also http://crookedtimber.org/2008/07/24/fiduciary-obligation-vs-... and http://crookedtimber.org/2008/07/25/what-obligation-maximise...
The flippant view that a board is obligated to maximize profit (especially short-term profit) is pretty simple-minded. See also http://crookedtimber.org/2008/07/24/fiduciary-obligation-vs-... and http://crookedtimber.org/2008/07/25/what-obligation-maximise...
I think the "right thing to do" for shareholders is probably a better way to describe the situation. Duty so much as to reduce their costs (with taxation being a cost).
Yeah, but that's a crappy thing to do. Lots of unethical practices are legal but we don't encourage companies to do them. Why this?
We don't encourage them to do this. The shareholders elected the board that is currently minimizing the taxes.
If you don't like that, you can become an activist shareholder (or just an activist) and campaign for changing this company policy.
This is no question of company ethics. It might be a question of the ethics of shareholding.
If you don't like that, you can become an activist shareholder (or just an activist) and campaign for changing this company policy.
This is no question of company ethics. It might be a question of the ethics of shareholding.
Having been elected to a position does not absolve you of moral responsibility for the actions you take while holding that position.
Indeed. But the shareholders will find somebody to do their bidding.
Also you could argue that doing what you were elected to do, within the legal limits, is fine.
I'd say tax minimization is a patriotic duty.
Also you could argue that doing what you were elected to do, within the legal limits, is fine.
I'd say tax minimization is a patriotic duty.
This thread is full of people who presumably aren't even significant apple shareholders clamoring for tax avoidance on principle, like it's some sort of honorable thing to do, sticking it to the man or something, and you hear the same in the real world as well. We do encourage them.
And why not. I am all for using loopholes while they exist, too.
Just make sure you also campaign for closing loopholes.
Just make sure you also campaign for closing loopholes.
If there isn't actually a legal duty to the shareholders, though, then you're basically in a territory of normal ethics, with subjective tradeoffs and competing interests, aren't you? There might be some ethical concerns about being "fair" to your shareholders, even beyond what the law requires, but there's also concerns about paying a "fair" amount of taxes to the state you reside in, and all sorts of other things to balance.
How does having a legal duty put you outside the realm of ethics? If you have a legal duty to do something unethical, you're still doing something unethical.
It means we're arguing different points. A duty to shareholders is one thing, which probably has a reasonably objective answer (though laws can be fuzzy). My argument is that there is no "duty to shareholders" to jurisdiction-shop in order to minimize taxes. (I might be wrong on that, but I don't think I am.)
The "right thing to do" is a much fuzzier question, which can include a lot of possible concerns. Perhaps there is an "ethical duty to shareholders to jurisdiction-shop", but certainly you'd have to analyze more than just obligations to shareholders, since there are potentially conflicting ethical obligations to all sorts of other people as well. In the other direction, there might be an ethical obligation not to jurisdiction-shop, depending on your ethical precepts.
The "right thing to do" is a much fuzzier question, which can include a lot of possible concerns. Perhaps there is an "ethical duty to shareholders to jurisdiction-shop", but certainly you'd have to analyze more than just obligations to shareholders, since there are potentially conflicting ethical obligations to all sorts of other people as well. In the other direction, there might be an ethical obligation not to jurisdiction-shop, depending on your ethical precepts.
[deleted]
Why does selling shares to the public produce a duty to do anything possible to make a profit?
A share in something could be a share in any social contract. A share in a nation, for example, accords one vote and a host of other rights and duties. A share in Whole Foods implies a share in some of the profits going towards nonprofit activities. A share in Google implies only a 1/10th control over their direction -- they come along for the ride.
A share in something could be a share in any social contract. A share in a nation, for example, accords one vote and a host of other rights and duties. A share in Whole Foods implies a share in some of the profits going towards nonprofit activities. A share in Google implies only a 1/10th control over their direction -- they come along for the ride.
It actually came from a quote taken out of context by Sumner Redstone 30 years ago. Wall Street took it to heart over the next few decades leading up to the financial clusterfuck we have now. When asked about that quote, he said, "it is the stupidest thing I've ever said."
Does anyone know what percentage of Apple Inc's shares are held by California residents?
I'm guessing that if Apple returned its nest egg to shareholders as a dividend, rather than investing it, California wouldn't see much out of it.
I'm guessing that if Apple returned its nest egg to shareholders as a dividend, rather than investing it, California wouldn't see much out of it.
It's a wonder that Apple is still a primarily American corporation at all. Really big companies like Accenture are multinational corporations, generally incorporated in a tax haven with decent legal standing and running its HQ in the US as a domestic subsidiary.
Apple isn't even a Delaware corporation, as maybe 99% of publicly-traded companies are, but is still a California corporation after all these years.
Maybe the "California corporation" ethos is a part of their brand image. Some people may associate the "Deleware corporation" designation with scheming and untrustworthy businesses.
They seem to take pride in U.S. provenance:
"Designed by Apple in California
Assembled in China"
"Designed by Apple in California
Assembled in China"
I have to side with the late, great Kerry Packer on this one: “I am not evading tax in any way, shape or form. Now of course I am minimizing my tax, and if anybody in this country doesn’t minimize their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra.”
EDIT: Granted, he was talking about Australia, but the same applies to every government.
EDIT: Granted, he was talking about Australia, but the same applies to every government.
Seems like a smart business move to me. Are we suppose to be upset about this?
well, the state is bankrupt. partly because companies that embody its dreams are not chipping in with the bills.
The state just needs to pass a better law. Apple is obligated by its contract to its shareholders to avoid taxes as much as possible; they are just avoiding a lawsuit. (I don't like this, but I understand it. The law just needs to catch up with the market, then everyone will be paying their fair share again.)
Apple is obligated by its contract to its shareholders to avoid taxes as much as possible; they are just avoiding a lawsuit.
To which contract/obligation are you referring?
Per http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1013744 :
"Among non-experts, conventional wisdom holds that corporate law requires boards of directors to maximize shareholder wealth. This common but mistaken belief is almost invariably supported by reference to the Michigan Supreme Court's 1919 opinion in Dodge v. Ford Motor Co ... U.S. corporate law does not and never has imposed a legal obligation on directors to maximize shareholder wealth."
To which contract/obligation are you referring?
Per http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1013744 :
"Among non-experts, conventional wisdom holds that corporate law requires boards of directors to maximize shareholder wealth. This common but mistaken belief is almost invariably supported by reference to the Michigan Supreme Court's 1919 opinion in Dodge v. Ford Motor Co ... U.S. corporate law does not and never has imposed a legal obligation on directors to maximize shareholder wealth."
Sure, but whenever anyone proposes that, 40% of the country, suckers that actually pay their taxes, stand up and beat their chests and wail about the inequities of making a corporation pay taxes.
Last I heard, Exxon-Mobil, the most profitable corporation in the entire world, doesn't pay a dime in US taxes. Meanwhile, I pay every other week. This is BS.
Last I heard, Exxon-Mobil, the most profitable corporation in the entire world, doesn't pay a dime in US taxes. Meanwhile, I pay every other week. This is BS.
Last I heard, Exxon-Mobil, the most profitable corporation in the entire world, doesn't pay a dime in US taxes.
You heard wrong: http://blogs.forbes.com/energysource/2010/04/07/exxon-says-i...
You heard wrong: http://blogs.forbes.com/energysource/2010/04/07/exxon-says-i...
Thanks.
So at least there's that. Meanwhile, google for "exxon subsidies us" brings up a 3 billion subsidy last year and who knows how much over the last 10. But at least we're probably not in the red. Although I'd say Exxon is getting a better-than-fair deal with all that the State Dept and US Military do for them.
So at least there's that. Meanwhile, google for "exxon subsidies us" brings up a 3 billion subsidy last year and who knows how much over the last 10. But at least we're probably not in the red. Although I'd say Exxon is getting a better-than-fair deal with all that the State Dept and US Military do for them.
Although I'd say Exxon is getting a better-than-fair deal with all that the State Dept and US Military do for them.
No doubt. I'm always amused by claims that nuclear power or alternative energy is "too expensive", when they ignore the huge explicit and implicit subsidies that oil gets.
No doubt. I'm always amused by claims that nuclear power or alternative energy is "too expensive", when they ignore the huge explicit and implicit subsidies that oil gets.
I hardly think the states issues with money are Apples problem to solve. The state is bankrupt because its congress spends more than it takes in.
Yeah, might be eBay's problem soon though.
Congress? That doesn't really explain why the state is bankrupt. Don't you think Sacramento deserves just a wee bit of blame? That and California's ridiculous constitution that has voters deciding on complex matters of state finance instead of legislators.
> partly because companies that embody its dreams are not chipping in with the bills.
Nope. CA has a spending problem.
CA is taking in about what it spent in 2008. Unless you think that 2008 was a disaster, spending that amount now should be perfectly acceptable.
CA has a deficit because it is spending far more than it spent in 2008.
As to my "spending plan", it's rewind the spending until the budget is balanced. If the legislature and governor want to keep any specific new spending, they get to cut an equivalent amount of old spending.
Nope. CA has a spending problem.
CA is taking in about what it spent in 2008. Unless you think that 2008 was a disaster, spending that amount now should be perfectly acceptable.
CA has a deficit because it is spending far more than it spent in 2008.
As to my "spending plan", it's rewind the spending until the budget is balanced. If the legislature and governor want to keep any specific new spending, they get to cut an equivalent amount of old spending.
The state is "bankrupt" because it cranked up spending during the boom years, giving ridiculous pay and benefits to public employees instead of saving for a rainy day. Fighting the war on (some) drugs and passing out free services to illegal aliens hasn't helped much either.
Of course there is currently no legal way for the state government to file for bankruptcy. But I except that within the next 10 years it will default on its sovereign debt.
Of course there is currently no legal way for the state government to file for bankruptcy. But I except that within the next 10 years it will default on its sovereign debt.
I can see both sides of it. These companies do provide jobs (income taxes) to people who can then buy homes (property taxes) and consume local goods & services (sales taxes, creation of more jobs, etc) but it's really unfortunate the tax system seems to be setup to put the biggest burden on individuals and small businesses that can't find creative ways out of paying taxes. There should probably be some sort of minimum tax for these companies posting billions in profits even if it only exists to break even and take some of the tax burden off small businesses. It certainly doesn't help that the state has been cooking the books for years. If the state can't even be honest with the people about budgets there's no hope of having a fair tax system.
Where do you draw the line? The bigger businesses create more jobs and do more for the economy, and even with the lower percentage they leverage in return for this, they are responsible for the majority of actual tax dollars taken in.
If individual income tax were eliminated, while it sounds good, it would be one less thing for people to get riled up about and take an interest in politics.
If individual income tax were eliminated, while it sounds good, it would be one less thing for people to get riled up about and take an interest in politics.
The state is bankrupt because it mismanages money and spends more than it takes in. It's certainly not Apple's problem to solve.
many would consider it unethical
many would say that just because one is involved in a business activity does not exempt one from being ethical. regardless of what some piece of paper says.
many would say that just because one is involved in a business activity does not exempt one from being ethical. regardless of what some piece of paper says.
You prefer VAT increase of Apple paying CA taxes ? Moron...
I think most rational people have a schizophrenic response to bits like this. It’s glib and cliché for the player to beg forgiveness because the game itself is corrupt. In a different time I naively thought that if the contest is crooked, don’t play. However, you get older and realize nobility is shortsighted, and that one of the trade-offs we willingly accept, to live amongst endless possibility, is the reservation of veto power for those prepared to pay for the protection of their self-interests.
So I remain realistically optimistic. After a hem and haw, I’ve settled on believing that business with a capital B-for-billion is a much different animal with greater responsibility. But only in that their duty is to succeed for their shareholders, for their employees, and for their customers; in that order.
Taxes suck, life is short, and none of us ever feel that our share is spent wisely. Seeing a company do their homework to pay less shouldn’t feel any more like salt in a wound than meeting an octogenarian. If you knew that was your future, you’d play a similar game.
So I remain realistically optimistic. After a hem and haw, I’ve settled on believing that business with a capital B-for-billion is a much different animal with greater responsibility. But only in that their duty is to succeed for their shareholders, for their employees, and for their customers; in that order.
Taxes suck, life is short, and none of us ever feel that our share is spent wisely. Seeing a company do their homework to pay less shouldn’t feel any more like salt in a wound than meeting an octogenarian. If you knew that was your future, you’d play a similar game.
Funny fact via http://www.storiesofapple.net/braeburn-capital.html:
Like the McIntosh, the Braeburn is a type of apple, known for a unique combination of sweet and tart flavour and its ability to store well.
Like the McIntosh, the Braeburn is a type of apple, known for a unique combination of sweet and tart flavour and its ability to store well.
Apple is well with in its rights to do this and I do think there is a duty to shareholders to not overpay for things, including government. That said, Apple pays a lot more taxes than most corporations, simply because they are successful and they should be commended for producing so high a return on capital.
Some will be ripping their hair out over such a comment. Apple is successful and therefore worthy of punishment, they will tell you. I respectfully disagree.
Some will be ripping their hair out over such a comment. Apple is successful and therefore worthy of punishment, they will tell you. I respectfully disagree.
It would be nice if California became the most business friendly state in the nation. One of the reasons we chose Austin over California for our startup is the high California taxes and loads of red tape to operate.
Texas seemed a lot more business friendly to us, the only downside we can see is the humid climate.
Texas seemed a lot more business friendly to us, the only downside we can see is the humid climate.
For a company founded in the 70s like Apple, Texas has much higher property taxes. Prop 13 means that Apple's grandfathered in with extremely low property valuations in California, while Texas has both present-day valuations (no equivalent of Prop 13) and one of the highest property-tax rates in the nation.
It sounds like you are new to the area. It has been unusually wet recently, but give it time. It will be back to hot and dry soon enough.
MS does the same, though they have to buy off statesmen to get away with it: http://boingboing.net/2010/04/23/microsoft-wins-its-1.html
MS brings in far more money for the state then these tax right offs, which is why the state is so nice to its largest employers. Wa would much prefer to keep MS headquarters here, then pocket a few hundred grand in taxes and lose MS. The state is equally kind to Boeing, who regularly makes threats to move their headquarters elsewhere, and very recently Boeing did just that. So i think in the immediate future WA will continue to bend over backwards for MS.
Yeah, taxes come out of worker paychecks, so it doesn't matter that the big corporate entity with billions in the bank doesn't have to pay any. We can just hit up the workers with their mortgages and families.
Personally, I'd prefer a little more honest accounting, and maybe some more money going the workers' way, a little less going investors' way.
Personally, I'd prefer a little more honest accounting, and maybe some more money going the workers' way, a little less going investors' way.
At least in Washington, there is no state income tax, the only thing removed from a workers paycheck is federal tax and social security. The taxes come a bit more indirectly, in the form of spending from employees. With a 9% sales tax, and at least 50,000 employees each for Microsoft and Boeing, Washington still gets money. Additionally, both Microsoft and Boeing more directly support the state economy in other ways (many donations, and support of public works, etc etc). Obviously, these tax breaks do lose the state some money, but there are some benefits to keeping these huge employers happy.
You made me hit some major cognitive dissonance here:
Additionally, both Microsoft and Boeing more directly support the state economy in other ways (many donations, and support of public works, etc etc). Obviously, these tax breaks do lose the state some money
Are they supporting the state economy or not? I doubt they can support the state economy by making the state lose money.
(Honest question, I'm not American and don't live in the state of Washington so I have no clue)
Additionally, both Microsoft and Boeing more directly support the state economy in other ways (many donations, and support of public works, etc etc). Obviously, these tax breaks do lose the state some money
Are they supporting the state economy or not? I doubt they can support the state economy by making the state lose money.
(Honest question, I'm not American and don't live in the state of Washington so I have no clue)
Thanks
Quote from the article you link to: "Asked if his son was on board with the tax initiative, Gates Sr. said, improbably, they hadn't discussed it".
Why does Doctorow think its improbable that Gates Sr hasn't discussed this with his son?
Why does Doctorow think its improbable that Gates Sr hasn't discussed this with his son?
FWIW, Doctorow attributes the entire quoted paragraph to "Jeff", who apparently runs the microsofttaxdodge.com blog; Jeff has incentive to think Microsoft is behind Gates Sr.'s tax proposal, as it helps his site's argument.
Note that the employees are still stuck with the full tax load.
Apple should just change their official status from a company to a religion and be done with all this. They certainly have enough of a fanatical following and it worked for Scientology.