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Feb 20 2013

Facebook Paid No Taxes Last Year

ThinkProgress cites a new report from Citizens for Tax Justice that shows that not only did Facebook not pay any state or federal income taxes last year, it actually got almost half a billion dollars back from the federal government by using a tax loophole while paying their executives huge amounts of money.

Earlier this month, the Facebook Inc. released its first “10-K” annual financial report since going public last year. Hidden in the report’s footnotes is an amazing admission: despite $1.1 billion in U.S. profits in 2012, Facebook did not pay even a dime in federal and state income taxes.

Instead, Facebook says it will receive net tax refunds totaling $429 million.

Facebook’s income tax refunds stem from the company’s use of a single tax break, the tax deductibility of executive stock options. That tax break reduced Facebook’s federal and state income taxes by $1,033 million in 2012, including refunds of earlier years’ taxes of $451 million.

And it will be able to keep doing this for another $3 billion in tax deductions in in future years. A billion in profit and taxpayers are giving them money back instead of collecting taxes. Welcome to the oligarchy.

14 comments

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  1. 1
    Gregory in Seattle

    The fact is, the 1% have found social media to be an excellent propaganda tool. For them, this is money very well spent.

  2. 2
    MadMax

    Something doesn’t add up right.

    “$1.1 billion in U.S. profits in 2012″
    “tax break reduced Facebook’s … [2012] taxes by $1,033 million”

    One thousand million is a billion, so apparently Facebook is taxed at a base rate of 100%?

  3. 3
    Mr Ed

    I’m fine with this as long as it is paid for buy cutting health care for grandma, head start children and food for families getting back on their feet. Corporations are producers while grandma, kids and poor people are just moochers.

  4. 4
    shouldbeworking

    Corporations are people too! If Mrs. Romney can get a tax break for looking after a poor horse, Facebook should get a tax break for keeping the peasants in line!

  5. 5
    dingojack

    MaxMax – I suspect it means Facebook went from a modest profit of $67M to a much more shareholder friendly $1.1B thanks to a huge $1.033B tax break, nice ‘work’ if you can get it.
    I’m hoping the local Tax Dept. will give me an equivalent amount*, wish me luck!
    Dingo
    ——–
    * $194,248.36 p.a.

  6. 6
    dingojack

    shouldbeworking – she should have sold it in Europe as frozen lasagna. She could have tripled her investment!
    Dingo

  7. 7
    dingojack

    Whoops – sorry about that Mr Ed, I’m sure Wilbur’s architecture business is rock solid (gulp!)
    Dingo

  8. 8
    unbound

    I see the Republicans have done their job very well. Will the oligarchy give them a raise or just keep the profits? (If you work for a large corporation, you already know this answer)

  9. 9
    Adrian W.

    I had to laugh at the pop-up on the main article that asks me to “like” Think Progress on Facebook.

  10. 10
    Howard Bannister

    US pretax profit $ 1,062
    Total federal & state income taxes $ –429
    Addendum:
    Tax savings from stock options
    utilized in 2012 $ –1,033
    Stock option tax breaks carried
    forward for future use –2,170

    –that last number, 1,033, isn’t ‘total taxes saved,’ it’s total tax BREAK.

    That’s how they end up getting back 439–their actual taxes would have been, apparently, around 600 million. (60% of profit? State and federal tax?

    That does sound high until you consider that with breaks, their effective tax rate is -40%. MINUS.

    (note too the stock option tax breaks carried forward–even if they stop doing the scheme, or the government stops offering it, they’ve already got the next two years all set)

  11. 11
    tbp1

    I don’t really have a problem with the fact that the guys who invented Facebook are very, very rich, or that they pay their execs well. They invented a product that millions of people use, and use on a completely voluntary basis, as far as I can tell. I feel pretty much the same way about movie stars or pop music stars. Even if I personally don’t get the appeal, no one forces anyone else to go to the movies, buy CDs or downloads, etc. So more power to them.

    But, that doesn’t make them gods, or mean that they do not have the same obligations as citizens that the rest of us have. (Well, actually, apparently it does, but it shouldn’t.)

  12. 12
    tommykey

    It’s all about Freedom!

  13. 13
    Nihilismus

    I’m not sure it’s fair to call this a tax “loophole”. Corporations, as “legal persons” can have income tax obligations, separate from the corporations’ owners (stockholders) and employees (including executive officers). As a separate legal person, a corporation is taxed on its net income before distributing dividends to stockholders, who as separate legal persons themselves, will then pay tax on their income from the dividends (unfortunately at 15%, which I admit is too low to be fair). What a corporation pays to its employees, though, is considered an expense, which lowers the net income on which the corporation will be taxed.

    A stock option is a form of compensation to employees. A corporation’s stock has value, and, when issued for the market price, there is neither a gain nor loss to the corporation. If the corporation offers a stock option to its employees, it is giving those employees the right to buy stock later in time at the market price of the stock when the option was offered. If, when the employees exercise their options, the later market price is greater than the earlier market price, the company would then be issuing stock for less than what it is worth – meaning the corporation would be losing value – thus, the corporation is allowed to recognize the loss by taking a deduction. The effect is the same as if the corporation had simply compensated the employee with cash, in which case the corporation could treat the compensation as an expense. To treat it any other way would amount to taxing the corporation on more than its net income. Facebook did not really have high net profits once you factor in what it paid in compensation.

    Buried in this story is the fact that the executives who exercised their options will have to pay taxes on their compensation (the market value when the options were exercised minus what they actually paid for the stock) , so taxes will still be paid by the wealthy owners. This taxable gain, by the way, is equal to the deduction taken by the corporation. Any gain from options exercised by Zuckerberg last year in order to decrease Facebook’s taxable income was taxed at 35%. The only issue here is that if he continues to hold on to the stock for over a year after he exercised the options, he will only be taxed at 15% on any additional long term capital gain, which I again admit is too low to be fair.

  14. 14
    democommie

    Is Zuckerberg the guy who renounced his citizenship to beat having to pay those taxes on personal income?

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