08.16.2013
Apple Faces Scrutiny Over Taxes
original article written by Net Advisor™
WASHINGTON, DC. We seem to get the recycled argument that corporations aren’t paying their “fair share” of taxes. Corporations, like individuals seek to minimize their tax liability as they legally can. If you get to be a successful company because consumers want your product and accidentally make too much money, you’re probably going to be subject to a hearing in Washington, DC one day.
[1] Apple Under-fire by the Senate
Apple, Inc. was subject to a Senate Hearing on May 21, 2013 defending itself for using offshore tax structures to minimize its taxes.
What some left out of the hearing was that in 2012 Apple, Inc. paid $14 Billion in U.S. Taxes, is the #3 largest taxpayer in America (graphic above), and employs nearly 600,000 people just in the United States (Source: Apple, Inc.)
One other note that was left out of the hearing is this: If you run a business and sell products outside U.S. jurisdiction (i.e. sell to people in foreign counties) you are not subject to U.S tax because the product was not sold in the USA.
[2] “Off Shore” is Less of a Devious Word Than One Might Think
Anything sold or that exists OUTSIDE the United States is considered “off shore.” If Proctor & Gamble sold toilet paper in say, Ireland, and deposited the sales into a (let’s say) a Citibank account in Ireland, that’s an off-shore transaction. This is perfectly fine, and this happens by all international companies selling products and services every day.
If one went on a vacation to any country outside the USA, and went into a bank to withdrawal money from an U.S. bank subsidiary overseas, you can tell your friends you engaged in some “offshore banking”.
So keep in mind, “offshore” is not a bad word. It just means business that took place outside the USA.
[3] Senate Democrats Try to Bite Apple
Apple was accused of getting “government subsidies” at taxpayer expense. What the Democrats had argued was false. A government subsidy is when the government loans or grants money to an individual or entity. The U.S. government doesn’t loan or grant Apple anything, so their argument was a false assumption.
What would be a correct argument is that a company can expense certain items such as plant and equipment costs in a host country as a “tax deduction.” This is where the business made money, took some of that money to invest back into the business, and was legally able to write off or depreciate (some or all) those expenses from their tax bill. The government did not subsidize this; it was never the government’s money to begin with.
The Democratic controlled Senate was unable to find any wrong doing, nor any violation of tax or other law against Apple.
[4] Big Oil is also a Big Taxpayer
We have been told that “big oil” also gets government subsidies. Again, legal tax deductions for plants and equipment are not subsidies unless the government loaned or gave the money to the business to buy those things.
These same tax deductions are what any business or individual can legally take on their tax return. Exxon-Mobil paid some $31 Billion in U.S. taxes in 2012 – the single largest taxpayer in the USA. Despite what political progressives like to believe, the U.S. isn’t handing oil companies money either.
In 2012, President Obama was under the impression that “big oil” companies got special tax incentives. What he meant was that they got tax deductions just like every other business and consumer can legally take. Mr. Obama wanted to remove these tax deductions as he suggested it was somehow costing taxpayers twice.
“Think about that. It’s like hitting the American people twice,” Obama said in a Rose Garden press conference…“They can either vote to spend billions of dollars more in oil subsidies that keep us trapped in the past. Or they can vote to end these taxpayer subsidies that aren’t needed to boost oil production so that we can invest in the future…It’s that simple.”
ABC News reported that in less than an hour after the president’s speech, enough Senate Democrats and Republicans came to their senses and realized that this move to cut tax deductions on oil companies would actually INCREASE gas prices on consumers.
A side note, if that measure passed, it would also be discriminatory. The government would be deciding what kind of businesses may take a tax deduction, and what kind of business cannot take the same tax deduction.
[5] Business Deductions
Without such deductions, the costs to businesses would be higher, and consumers would end up paying more for the things they buy such as food, energy, cars, and yes, Apple products.
[6] Consumer Deductions
Consumers can take advantage of legal tax deductions if they itemize their deductions or they can take a standard deduction which could be $12,200 in 2013 for married couples and $6,100 for single tax filers. Without these deductions, consumers would also pay more in taxes.
[7] Foreign Companies Get U.S. Tax Exemption
What is not well discussed is that foreign companies that do not have a physical presence in the United States pay ZERO taxes for items they sell in the United States. If China manufactures a product in their country or any country outside the USA and ships it to the U.S. they pay no income taxes on that to the U.S. Treasury. They may pay some import-related taxes or the end buyer may pay some import taxes, but that cost will just be passed on to the U.S. consumer in the form of higher prices or smaller sized products.
The bottom line is when government taxes business, it increases their cost and that cost is passed on to consumers, thus consumers ultimately pay for business taxes. To change this, Congress would have to change the tax code to reduce or eliminate taxes on business or come up with a better tax code.
[8] Punish Success?
Instead of praising companies for massive job creation, it seems that some in government want to punish success which private sector jobs create tax income for the U.S. Treasury, rewards shareholders (the owners of the business) who also pay taxes on their profits, so what’s the problem again?
Graphics Credit: CNBC
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