Apple's tax avoidance: Sour grapes

Christof Stache

(MoneyWatch) COMMENTARY By now, everyone knows how Apple legally avoids paying billions of dollars in taxes by having offices and subsidiaries in low-tax places like Nevada and Ireland.

The New York Times article that broke the news received more than 1,340 comments, last time I looked. I guess that means everyone's had a chance to vent. Good. Now it's my turn.

Did it rub me the wrong way when I read the story? Sure. Did it get my blood pressure up? Absolutely. The real question is why?

I already knew that Apple pays a far lower tax rate than oh, say Exxon Mobil and Chevron. You know, the big bad oil companies that everyone's been demonizing lately. Together the two companies paid over $50 billion in taxes last year. Apple, the most valuable company in the world, paid $8 billion.

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The double standard is annoying, but that's not what got me upset. What really got my stomach churning was a classic case of sour grapes. I may be the only one who's willing to admit this, but it's the truth, so here it is. What really bothers me about Apple avoiding California taxes by setting up shop in Nevada is that they did it and I didn't. And that's because the rules make it far easier for a corporation to do that than an individual.

You see, 15 years ago I lived and worked in Texas and commuted back to California on the weekends, so I'm familiar with all the tax rules governing that sort of thing. In any case, that situation only existed for a few years. Otherwise, I've always paid California state tax on my earnings, a combined tax rate of between 40 percent and 50 percent, depending on the year.

Not only that, but even after retiring from the corporate world, instead of living in Lake Tahoe and taking up residence in Nevada, I stayed here in California where long term capital gains balloon from the federal rate of 15 percent or 20 percent to a combined federal and state rate of 25 percent or 30 percent. For an individual or a family that depends to some extent on investment income, that's significant.

The catch, of course, is that individuals have to pay tax in the state of their primary residence. The same isn't true of companies or Apple wouldn't be able to pull off the Nevada thing when it's based in Cupertino, Calif.

Now, if Apple's tax avoidance tactics were illegal, that would be a different story. I'd be mad, but I wouldn't take it personally. But because a company can game the system by funneling revenue through one state or country rather than another, that's something I take personally because I should be able to do that too, just as easily as a company can. And so should you.

You know, when I worked for that company in Texas, a quarterback turned politician named Jack Kemp sat on our board of directors. That's when I became acquainted with the concept of a flat tax system, something that made complete sense to me. Needless to say, I'm still waiting for that to happen.

In the mean time, I'm heading to the pharmacy to get some Tums and Pepcid for my upset stomach. Want me to pick some up for you too?

[TimotiSt]

I don't live in the US, but I assume you can game the system the same way: take up residence in one state, and live in another.

[stobak2]

Not legally, no, at least in every state I'm familiar with. For example, you must pay California state tax if you're a domicile of the state, meaning that it's your primary and permanent home, more or less, or if you're a non-resident but your income is from CA businesses. An individual who wants to legally avoid paying one state's tax has to pretty much live AND work in a different state.

[hypnotoad72]

Ireland is "low-tax"?!

Ask Bono about that claim...

Corporations want everything for nothing. They are given special treatment to move in and then they move out the moment their free ride ends. Zero morals, ethics, or scruples. How is it "free market" when they get a free ride at our expense? That's "socialism".

I've posted plenty of articles of companies getting free rides in the past, including a couple where said company absconds afterward, so don't tell me to cite proof. You can find plenty of examples via quick web searching anyhow.

[jeffksr]

Another reason the gutless, spineless, bought and paid for scum in Washington will never pass any real tax reform. They can't do anything to the source of their campaign warchests.

[Rafterman11]

You miss the point. We aren't (or at least I'm not) mad at Apple. Or Warren Buffet or anyone else who can do this magic mirror stuff and pay lower taxes. More power to them. We are mad at Congress for refusing to fix these obvious flaws in the tax code. Congress's sole purpose seems to be to make it easier for the rich to do everything. That's what the 99 percent are mad about. That aren't mad at the 1 percent, they are mad at our politicians, who line their own pockets by letting these inequities continue.

[lesserof2evil]

Let's clarify it's the Republicon House who refuses to close the gigantic loop holes.

[venusvegasvada]

+1

[bsimpsen]

Did it churn your stomach at all that NYT cited 2010 taxes paid as a percent of 2011 profits? If they had reported accurately, Apple's tax rate would be twice as big.

Where is the hue and cry over the loss of the "informed electorate" as good journalism is rolled over into the ditch?

[stobak2]

Good journalism is alive and well -- here. Defend the NY Times? You're kidding, right? ;-)

In case you're interested, last year's actual tax rates for companies listed in THIS article are:

Apple: 23%
Exxon Mobil: 42%
Chevron: 42%

[theveggiedude]

Can someone explain a recent San Francisco Chronicle article that said Apple paid 31% federal taxes over the last three year period. By comparison, HP paid 3.7%.


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[Osprey4]

Excellent points, Steve. Perhaps the "flat tax" idea is going nowhere, but certainly a move toward tax simplification and transparency would be a move in the right direction. Let's say corporations are paying a marginal rate of 38% (I think that's right), and an effective rate of 23%. What would be wrong with eliminating all deductions, credits and other gimmicks, and lowering the statutory rate to 23%? You made $100, so you pay $23 in taxes.

Well, we can always dream.

[stobak2]

Works for me!