Facebook Paid A Negative 40.4 Percent Tax Rate In 2012: Analysis ..Huffington Post

[Stuart G]

http://www.huffingtonpost.com/2013/04/11/facebook-tax-rate_n_3060562.html

Huffington Post:

Here’s something to “Like" if you're Facebook: getting a tax rebate despite pulling in billions in profits. The social media giant paid a negative 40.4 percent tax rate in 2012, according to a report released Thursday by the Center for Tax Justice, a left-leaning research group. That’s way less than the estimated $1 billion tax bill of the company’s own CEO and founder Mark Zuckerberg. How did Facebook manage to get $429 million back from the government on its more than $1 billion in profits? By writing off the value of the stock options the company gave Zuckerberg as part of his compensation, according to CTJ.

As Businessweek explains, this practice is perfectly legal. For tax purposes, corporations are allowed to treat executive stock options the same way they would treat regular compensation -- as an expense that cuts their profits. Facebook relied on just this break to reduce its tax burden in 2012, according to CTJ, and the company is able to do so because so much of its executive pay comes in the form of stock options.

A Facebook spokeswoman said in an emailed statement to The Huffington Post that in its early years, the company offered potential employees stock options as part of their compensation "in lieu of the cash it did not yet have," which the company says helps explain the company's broader tax situation.

"Facebook paid billions of dollars in federal and state taxes after its IPO on behalf of the employees who exercised stock options and as a result of RSUs vesting," the spokeswoman wrote. "Billions of dollars went to the US Treasury and the California state treasury, as well it should have. The way these taxes are collected changes over time, and that is likely to be the case with Facebook. It's a mistake to look at only the corporate tax revenue while ignoring the billions of taxes paid from initial shareholders."

Still, that doesn’t make the practice uncontroversial. Senator Carl Levin (D-MI.) has urged lawmakers to close this specific loophole loophole for years. His office estimated that Facebook got a $16 billion tax deduction as a result of the stock options loophole when the company went public in May of last year