A thought occurs about the Fair Tax Mark and their complaint that big tech isn’t paying enough in tax.
Recall how they do their calculation. Here’s the reported tax for the period. Here’s the reported tax paid in that period. Obviously that’s already going to be wrong because of timing issues. But it’s also wildly wrong for a different reason.
The tech companies pay their staff in shares and stock. And they’ve not adjusted for the tax implications of that. Here, again, is the basis of their calculation:
Our analysis of the long-run effective tax rate of the
Silicon Six over the decade to date has found that
there is a significant difference between the cash taxes
paid and both the expected headline rate of tax and,
more significantly, the reported current tax charges (as
summarised in Figures 1 (opp.) and 2 (p. 17)).
I’ll not attempt to give the correct names for all of this, just a pencil sketch.
The effect of paying the staff in stock comes after the declared profits and before the profit number that produces the tax bill.
So, if you pay the workers in cash then that’s something that comes off revenues before you delcare your profit. If you pay the workers in shares, turning them into mini-capitalists, that isn’t so. Instead, the profit is declared without the effect of that stock issuance (or options, restricted stock grants, whatever).
But, clearly, paying the staff is a cost of doing business before we declare the profit that is to be taxed. So, that cost of that stock comes off the declared profits to give us the number which is the profits to be taxed.
So, if you compare the reported profits to the taxes paid you’re entirely missing this deduction that needs to be made for the payment to the workers in the form of stock.
Note, tax paid is calculated on profits after stock awards, headline profits are before the stock awards. This does indeed make a difference:
According to Twitter’s most recent annual filing, the company racked up $682 million in stock-based compensation last year. By comparison, the company’s adjusted earnings before interest, taxes, depreciation and amortization — which also excludes stock-based compensation — for the year was $557.8 million.
So, congratulations to the Fair Tax Mark, entirely missing the basic taxation issues they claim to be revealing to us all.