

How Apple avoids paying taxes in CA - dot
http://en.wikipedia.org/wiki/Braeburn_Capital

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riferguson
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."

~~~
btmorex
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.

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

~~~
jbooth
The difference being the tax situation is created by laws, and engineering is
governed by reality.

The laws shouldn't create a situation where big, slow-moving corporations get
huge built-in advantages over smaller, more innovative companies (I know apple
is more innovative than many big companies but stay with me here).
Particularly, they shouldn't be getting those advantages by paying a bunch of
blood-sucking lawyers and accountants to move money around and create nothing.
The law should, if anything, be providing support for smaller businesses.

~~~
dedward
You mean smaller businesses that create fewer jobs?

~~~
jbooth
No, I mean the small businesses that have created almost all of the new jobs
over the last 20 years. A few here and a few there. Some of them got really
big.

Go check out bls.gov.

~~~
zamfi
Can you give a more specific link to the bureau of labor statistics?

Assuming you're using the typical "500 employees" definition of small
business, US census data doesn't seem to bear you out. For the period 1988 to
2003, see table 2c here: <http://www.census.gov/epcd/www/smallbus.html>

The percentage of paid employees employed by organizations with 500+ employees
_increased_ in the period 1988 to 2004, to 49.1% - as the total number of
employees has increased by 30%.

Are we looking at different things?

~~~
jbooth
Everybody says it all the time. Maybe they're all wrong, but probably you are.
I don't mean to be rude but I'm not writing a book report here and am not
going to spend my morning looking for charts.

Consider that Google's now a very large employer but were a very small
business 10 years ago. The way you view that and similar cases probably
influences the outcome quite a bit. Small companies get big, they get bought
out, or they fail. Either way they created jobs for a little bit, and all 3 of
those cases wouldn't be captured by the single year snapshot of data you
linked to (why 2002?).

~~~
zamfi
I'm now speculating, but I'd guess that a very small percentage of small
businesses ever become big businesses, though it's almost surely true that all
big businesses were at some point small businesses.

Your original argument seems to have been that the government should encourage
innovative businesses, and I strongly agree with you there. I don't think
business size is particularly relevant to that.

Success in business is highly complex. I'd guess that your assertion that
small businesses get big, bought out, or fail is incorrect. Many small
businesses remain small businesses for many years - think your corner dry
cleaner or grocery.

The chart I pointed to looked at the years 1988-2004, not just 2002.

Of course, this post is no longer based in facts, just guesses. (If you're not
interested in finding out the truth, I wont waste my time with real data any
further.)

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hop
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...

~~~
_delirium
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
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).

~~~
_delirium
If there isn't actually a _legal_ duty to the shareholders, though, then
you're basically in a territory of normal ethics, with subjective tradeoffs
and competing interests, aren't you? There might be some ethical concerns
about being "fair" to your shareholders, even beyond what the law requires,
but there's also concerns about paying a "fair" amount of taxes to the state
you reside in, and all sorts of other things to balance.

~~~
Eliezer
How does having a legal duty put you _outside_ the realm of ethics? If you
have a legal duty to do something unethical, you're still doing something
unethical.

~~~
_delirium
It means we're arguing different points. A duty to shareholders is one thing,
which probably has a reasonably objective answer (though laws can be fuzzy).
My argument is that there is no "duty to shareholders" to jurisdiction-shop in
order to minimize taxes. (I might be wrong on that, but I don't think I am.)

The "right thing to do" is a much fuzzier question, which can include a _lot_
of possible concerns. Perhaps there is an "ethical duty to shareholders to
jurisdiction-shop", but certainly you'd have to analyze more than just
obligations to shareholders, since there are potentially conflicting ethical
obligations to all sorts of other people as well. In the other direction,
there might be an ethical obligation _not_ to jurisdiction-shop, depending on
your ethical precepts.

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eston
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.

~~~
zach
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
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.

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zacharyvoase
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.

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

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

~~~
jrockway
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.)

~~~
starkfist
Has there ever been a lawsuit where the shareholders sued a company for not
evading taxes?

~~~
jsolson
It's not tax evasion, it's tax avoidance.

Tax evasion is illegal. Tax avoidance is not.

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

~~~
sant0sk1
Nitpick: "Assembled in China"

I guess nobody "makes" Apple products...

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dooshydoo
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.

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dot
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.

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stretchwithme
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.

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Scott_MacGregor
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.

~~~
_delirium
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.

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technomancy
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>

~~~
harshpotatoes
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.

~~~
jbooth
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.

~~~
harshpotatoes
At least in Washington, there is no state income tax, the only thing removed
from a workers paycheck is federal tax and social security. The taxes come a
bit more indirectly, in the form of spending from employees. With a 9% sales
tax, and at least 50,000 employees each for Microsoft and Boeing, Washington
still gets money. Additionally, both Microsoft and Boeing more directly
support the state economy in other ways (many donations, and support of public
works, etc etc). Obviously, these tax breaks do lose the state some money, but
there are some benefits to keeping these huge employers happy.

~~~
smokinn
You made me hit some major cognitive dissonance here:

 _Additionally, both Microsoft and Boeing more directly support the state
economy in other ways (many donations, and support of public works, etc etc).
Obviously, these tax breaks do lose the state some money_

Are they supporting the state economy or not? I doubt they can support the
state economy by making the state lose money.

(Honest question, I'm not American and don't live in the state of Washington
so I have no clue)

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

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digispaghetti
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.

