How Apple avoids paying taxes in CA

http://en.wikipedia.org/wiki/Braeburn_Capital

by dot • 16 years ago

110 118 16 years ago

en.wikipedia.org

towndrunk2• 16 years ago

Seems like a smart business move to me. Are we suppose to be upset about this?

dot2• 16 years ago

well, the state is bankrupt. partly because companies that embody its dreams are not chipping in with the bills.

jrockway• 16 years ago

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.)

towndrunk2• 16 years ago

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.

jsz0• 16 years ago

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.

nradov• 16 years ago

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.

anamax2• 16 years ago

> 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.

kelnos• 16 years ago

The state is bankrupt because it mismanages money and spends more than it takes in. It's certainly not Apple's problem to solve.

dumber• 16 years ago

You prefer VAT increase of Apple paying CA taxes ? Moron...

mkramlich• 16 years ago

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.

eston• 16 years ago

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.

wallflower• 16 years ago

They seem to take pride in U.S. provenance:

"Designed by Apple in California

Assembled in China"

zach• 16 years ago

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.

nitrogen• 16 years ago

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.

technomancy• 16 years ago

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

harshpotatoes2• 16 years ago

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.

jbooth19• 16 years ago

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.

tzs• 16 years ago

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?

jcl• 16 years ago

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.

riferguson• 16 years ago

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."

sumeetjain• 16 years ago

Doesn't this just beg the question of letter vs. spirit of the law?

megablast• 16 years ago

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.

dcurtis• 16 years ago

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

btmorex• 16 years ago

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.

jack7890• 16 years ago

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%.

JabavuAdams• 16 years ago

Your example is just an economy of scale. The same could be said of engineering support infrastructure.

dejb• 16 years ago

On the other hand a lot of very small business can often operate by 'cash in hand' which bypasses most taxation.

dedward4• 16 years ago

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)

cjy• 16 years ago

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.

patrickk• 16 years ago

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.

mturmon2• 16 years ago

http://en.wikipedia.org/wiki/Race_to_the_bottom

mturmon2• 16 years ago

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.

adolph• 16 years ago

I suppose that if they are working hard at arranging it, that's better than avoiding taxes and then blaming things on TurboTax.

barrkel2• 16 years ago

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.

ryanwaggoner4• 16 years ago

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...

zmmmmm• 16 years ago

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.

URSpider94• 16 years ago

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.

hackinthebochs• 16 years ago

Isn't it so easy to outsource your moral thinking to others. You can justify almost anything that way!

smackfu• 16 years ago

Designed in California. Made in China. Taxes avoided in Nevada.

sant0sk1• 16 years ago

Nitpick: "Assembled in China"

I guess nobody "makes" Apple products...

dot2• 16 years ago

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.

zacharyvoase• 16 years ago

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.

patrickgzill• 16 years ago

Note that the employees are still stuck with the full tax load.

hop3• 16 years ago

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...

andrewf• 16 years ago

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.

_delirium7• 16 years ago

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.

invisible• 16 years ago

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).

hop3• 16 years ago

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...

neilc2• 16 years ago

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...

DaniFong• 16 years ago

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.

yardie• 16 years ago

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."

Scott_MacGregor• 16 years ago

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.

_delirium7• 16 years ago

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.

aero142• 16 years ago

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.

dooshydoo• 16 years ago

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.

stretchwithme• 16 years ago

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.

digispaghetti• 16 years ago

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.

How Apple avoids paying taxes in CA

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