NY Times Apple Tax Article Flawed

bonch writes "Forbes contributer Tim Worstall points out that the NY Times article claiming Apple pays less than 10 percent of its profit in taxes was based on a flawed assumption of the corporate tax system. The 9.8% figure came from Greenlining Institute, who compared Apple's 2011 profits to taxes calculated according to 2010 profits. In the corporate tax system, estimated quarterly tax payments are made based on the previous year's profits until actual profits are calculated at the end of the trading year, when the balance is then paid to the IRS."

Re:So what?

[mehtajr]

According to their 10K filing with the SEC: "The Company’s effective tax rates were approximately 24.2%, 24.4% and 31.8% for 2011, 2010 and 2009, respectively."

Found it

[SirGarlon]

OK, so if you follow a link in TFA and manage not to balk at an even more inflammatory headline, you get to Mr. Worstall's claim that http://www.forbes.com/sites/timworstall/2012/04/18/apples-9-8-tax-rate-entirely-mind-gargling-nonsense/ [forbes.com]">Apple paid approximately 24.2%, 24.4% and 31.8% for 2011, 2010 and 2009, respectively -- which doesn't really answer the question of what they paid in 2012 but does explain why a figure of 9.8% sounds unreasonable.

Re:So what?

[Overly Critical Guy]

Saying NYT made an incorrect calculation and explaining why is fine. But what was Apple's tax rate, then?

We won't know until the actual profits are calculated at the end of the trading year, when Apple pays the remaining balance.

If you can't answer that, then you can't say the figure itself is incorrect, only the means used to arrive at it.

What?! Yes, you can. Because it was derived from 2010's, it doesn't reflect what Apple's actual tax rate will be for its 2011 profits, which were much higher than 2010's. Therefore, the figure is totally useless.

Re:So what?

[alexander_686]

Apple's 2011 fiscal year end is September 2012. And I am sure they file extensions. So, no, we would not have the data yet.

Re:Tax on Profit vs Revenue

[Quiet_Desperation]

Oh, you! With your silly facts and rational economic concepts. This is Slashdot. You must drink from the Derp-Aide, and call for ALL the taxes to be 100%!

Forbes Article is Wrong

[jbrower]

Tax Accountant Here - Whoever wrote the Forbes article is patently wrong. Large corporations like Apple cannot base all of their current year's estimated tax payments on their prior-year's tax liability (See Section 6655(d)(2) of the Internal Revenue Code), only their first quarter's estimated payment. Apple's 2011 Form 10-K shows that their current tax expense (the amount of cash taxes paid or payable on 2011 profits) was $5,415,000,000. They also have a deferred tax expense (taxes that have economically accrued on 2011 earnings but that aren't due until certain events occur in the future) of $2,868,000,000. Their total tax expense for 2011 was $8,283,000,000 on pre-tax profits of $34,205,000,000, an effective tax rate of 24.2%. They were able to "save" about $3.9 billion in taxes by keeping profits generated in foreign countries parked outside of the USA. Other tax savings came from utilization of the Research & Development tax credit ($167 Million) and the Domestic Production Activities Deduction ($168 Million).

Re:Found it

[KhabaLox]

You don't understand what Effective Tax Rate is. It is the tax rate they paid on income, after taking into account the tiered nature of taxes you described (which is how it works for individuals - I'm not sure about corporations but I'll take you're word for it). Their highest marginal rate therefore would have been higher than the 24% (and their lowest would have been lower).

Re:So what?

[chrb]

24.2% is the reported global effective tax rate, but Apple has allegedly "bulked up" that figure by including "potential future U.S. tax" on foreign earnings invested outside the United States - earnings that, in reality, will never be taxed in the U.S. It is speculated that Apple may have done this so that it can defer those profits and hence still report bumper profits during future leaner years, or that it is just better PR to appear to be paying more tax than they really are. See this report [typepad.com] which estimates Apple's effective global tax rate at 12.8% - not as low as the 9.8% estimate, but not far off:

Apple reports a worldwide effective tax rate of 24.2 percent. A lower effective tax rate increases a company’s reported book profits. Apple would have a lower reported effective tax rate and higher profits if it recorded its tax expense the way most other companies do. Under generally accepted accounting principles, U.S. companies do not have to book tax expense on foreign profits if the company deems them to be permanently invested overseas. To lower their reported effective tax rates and boost their reported after-tax profits, most companies assume all of their unrepatriated foreign profits are permanently reinvested offshore. If Apple asserted that all of its foreign earnings were permanently invested outside the United States, it would have booked an estimated $3.6 billion less in tax expense, and its effective tax rate would be 12.8 percent. (See the table.) When assessing Apple’s tax situation relative to that of most other companies, this adjusted rate is probably more relevant than the reported 24.2 percent rate.

Why doesn’t Apple maximize reported profit like most other companies? We can only speculate. Perhaps because it is breaking all records for profitability now, it is saving some profits for less fortunate times in the future. As the Joint Committee on Taxation recently wrote: ‘‘If the company accrues the tax expense in the year the profits are earned, it may later decide that those funds will not be repatriated after all. At that later time it may then reverse the tax expense and shift financial statement income from the prior period into the current period.’’ (See ‘‘Present Law and Background Relating to the Interaction of Federal Income Tax Rules and Financial Accounting Rules,’’ JCX-13-12, Feb. 7, 2012, Doc 2012-2443 or 2012 TNT 26-15.)

An alternative explanation is that perhaps Apple — with its young, socioeconomically elite customer base — does not want the negative publicity that a low effective tax rate could generate with groups like Citizens for Tax Justice and US Uncut.