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Apple's 9.8% Tax Rate: New York Times Ignorance Again

This article is more than 10 years old.

We've been told by the New York Times, you know, the newswpaper of record, that Apple only paid a 9.8% tax rate last year.

As it stands, the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent.

This really is the most gargantuan ignorance on their part.

The $3.3 billion has nothing, nothing at all, to do with the $34.2 billion: something which any accountant at all could have told them.

For a full explanation of what is going on see this piece from two weeks ago.

To put it simply, a pressure group, the Greenlining Institute, released a report that included that calculation that led to that 9.8% tax rate. Their calculation (and as I say, all the details are in that earlier post) was based on simple ignorance of how the US corporate taxation system works. At least I assume it was ignorance, not mendacity.

Here is the important point that they missed or ignored:

Corporation
If you are filing a tax return for a corporation, you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

When to Pay
Due dates for estimated taxes are based on when income was received:

For income received for the period January 1 through March 31, the due date is April 15.

For income received for the period April 1 through May 31, the due date is June 15.
For income received for the period June 1 through August 31, the due date is September 15.
For income received for the period September 1 through December 31, the due date is January 15 of the next year.

How Much to Pay
The IRS general rule is that you must pay the smaller of:

90% of your total expected tax for this year, or
100% of the total tax shown on your last year's return. Your last year tax return must cover all 12 months.

So, over the 12 months of financial year 2011 Apple had to make cash payments of taxes four times, two weeks after the end of each quarter. Note that Greenlining and the NYT are using actual cash paid in the financial year, not what will or might be due as a result of the financial year.

The first of those four payments will be the last payment from the 2010 tax year: obviously this refers to the profits made in 2010, not in 2011. The second payment, made two weeks after the end of the first quarter, is similarly based upon 2010 profits. Because the company is told that its estimated payments should be based on the lower of this year's expected or last year's actual profits. Similarly with the third and fourth payments in the actual fiscal year.

It is only after the trading year has finished, after the actual profits have been calculated, that Apple then pays the balancing sum to the IRS for the actual profits made in 2011.

So, what the NYT/Greenlining calculation has done is compared the profits in 2011 not with the taxes paid on profits from 2011. It has compared profits in 2011 with the taxes calculated on the basis of 2010's profits.

Which is obviously clear and present nonsense, entire argle bargle of which at least the newspaper should be ashamed.

Has Apple been doing other things with its tax bill? Oh yes, most assuredly it has been. But this specific calculation, this tax rate, is nothing at all to do with that. Any company that grows its profits quickly will have an apparently low tax rate with this method used. Because taxes paid actually in this year are always calculated from profits made last year.

So what the NYT has really reported is that Apple's profits have been growing quickly: something which I think we already knew.

The thing the story really shows is something entirely different. Appalling, ignorant, calculation cobbled together by small time think tank. Two weeks later it is stated as simple fact in the newspaper of record. So why not issue press releases stating anything at all that you want to believe? Who knows, maybe the New York Times will find it a "convenient" fact and will endorse it for you? Although you might want to note that your "fact" had better be politically acceptable to said newspaper otherwise they won't endorse it.