The Truth About Apple’s Taxes

The Truth About Apple’s Taxes

Apple's taxes due and tax rate for 2011 don't match reported numbers

Earlier in this day, we reported on a New York Times piece in which the paper claimed that Apple was using a variety of measure to avoid paying U.S. income tax. It turns out that the Times based key pieces of its information on a study that had been discredited two weeks prior.

The data used by the Times included a report by the Greenlining Institute, which made errors in computing Apple’s supposed tax rate at 9.8% for the 2011. The data used by the report effectively compared Apple’s 2011 profit with taxes paid by the company for profits in 2010 and drew unfounded conclusions as a result.

The accounting error had to do with how corporations are required to pay estimated income taxes on a quarterly basis. As Forbes explained when it initially discredited the Greenlining report and again this morning, the IRS tells corporations to make those estimated payments based on either the current year’s expected profit or last year’s actual profit – whichever is lower.

Because Apple has seen tremendous growth over the past two years (much of it a result the iPad), the 2010 actual profits were the lower of the two by a pretty significant margin. That means that any estimated payments made during 2011 were being made based on Apple’s tax bill for 2010. At the end of the tax year, the company paid the difference between its estimated payments and the actual taxes owed.

What’s surprising is that the Times went ahead with numbers from Greenlining without double-checking them. Even something as simple as checking Apple’s 10K statement (PDF link) shows Apple’s estimate of its tax rate, which was 24.2% for 2011 (and 24.4% for 2010). That’s a good deal more than 9.8% – a discrepancy should have led to further investigative work and/or independent number crunching.

Of course, this means that the math and some basic data about Apple’s taxes was wrong, but it doesn’t overturn the primary assertion made by the Times – that Apple is stashing a sizable portion of its profits abroad. As I said earlier today, that’s an issue that goes beyond Apple as many multinational companies do the same thing – and, like Apple, are allowed to do so under U.S. laws.

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  • Jdsonice

    I am very confide by Times picking only on Apple. Yes Apple has one of the largest profit margins but it is not the only large company in the US.

    The tactics employed by Apple to reduce its tax bill are no different than any other company. It is not illegal to use the law to reduce your tax bill – we all look for deductions and take them. So what is the big deal here.

    Every major American company has stashed funds abroad to avoid the 25% tax penalty – so why pick on Apple alone? If the government wants companies to bring that money back, well deal with the tax issue.

    This was a case of Times picking on Apple and screwing up. Bad Reporting.

  • lwdesign1

    Remember that this is an election year, and many articles you read in newspapers, magazine and online will have huge, sometimes subtle, political spins to them. If the publication supports the Democratic/Socialist/Liberal agenda, articles will be slanted towards how businesses are greedy steamrollers who operate above the law and don’t pay enough taxes for government social programs. If the publication supports the Republican/Constitutionist/Conservative agenda, articles will come out in support of businesses and against high taxes, big government and increasing the national debt. Decide for yourself which ticket the NY Times supports.

    In actuality, there is no law that says Apple must bring the funds it makes in other countries back to the U.S. To do so means Apple pays a HUGE amount of taxes on money it’s already been taxed on by the countries in which it sold the products (sales and corporate tax). So, like the Mike Daisey Foxconn brouhaha which was found to be based primarily on lies and things that never happened, so too the NY Times has based its article on incorrect data, causing upset where no problem or situation actually exists.

  • Cole Shores

    News Corp the parent company of the New York Times does the exact same thing.

    http://www.thedailybeast.com/galleries/2011/03/27/15-tax-escape-artists.html#slide12

    Hypocrites.

  • ButchMiller55

    News Corp the parent company of the New York Times does the exact same thing.

    http://www.thedailybeast.com/galleries/2011/03/27/15-tax-escape-artists.html#slide12

    Hypocrites.

    I think you will find that News Corp is the parent company of the New York Post, not the New York Times.

    That said … Any US Federal Income Taxpayer, either individual or business, who does not take advantage of EVERY legal possible deduction, law, rule, loophole that would reduce their tax burden is a fool. It’s your money, not the government’s money. Our fiscal problems are not the result of under taxation of any entity. It is the result of our elected officials, of both parties, never met a dollar they couldn’t tax, borrow, print and spend … Apple, or any other company who is working within the legal rules is not the villain here … those we send to Washington to represent us are to blame …

    Apple has $100B in the bank … that would barely be enough to operate the federal government for one month … it’s all about finger pointing …

  • Cole Shores

    *removed*

  • Cole Shores
    News Corp the parent company of the New York Times does the exact same thing.

    http://www.thedailybeast.com/galleries/2011/03/27/15-tax-escape-artists.html#slide12

    Hypocrites.

    I think you will find that News Corp is the parent company of the New York Post, not the New York Times.

    That said … Any US Federal Income Taxpayer, either individual or business, who does not take advantage of EVERY legal possible deduction, law, rule, loophole that would reduce their tax burden is a fool. It’s your money, not the government’s money. Our fiscal problems are not the result of under taxation of any entity. It is the result of our elected officials, of both parties, never met a dollar they couldn’t tax, borrow, print and spend … Apple, or any other company who is working within the legal rules is not the villain here … those we send to Washington to represent us are to blame …

    Apple has $100B in the bank … that would barely be enough to operate the federal government for one month … it’s all about finger pointing …

    Oh wow your right(checked wikipedia). I stand corrected then.

  • Cole Shores

    what Jacob answered I’m amazed that some people able to profit $8971 in a few weeks on the computer. have you read this link (Click on menu Home more information) http://goo.gl/vWRlg

    No shit! Ill be right on that opportunity Jerome!

  • sonofsci

    Holy shit this is a boring topic.
    I’m sure they pay enough taxes, collected world-wide to create an equipped aircraft carrier each year. Let’s make things more interesting and discuss plans for the USS Apple!

  • Matthew Gonzales Landry

    Remember that this is an election year, and many articles you read in newspapers, magazine and online will have huge, sometimes subtle, political spins to them. If the publication supports the Democratic/Socialist/Liberal agenda, articles will be slanted towards how businesses are greedy steamrollers who operate above the law and don’t pay enough taxes for government social programs. If the publication supports the Republican/Constitutionist/Conservative agenda, articles will come out in support of businesses and against high taxes, big government and increasing the national debt. Decide for yourself which ticket the NY Times supports.

    There is a huge problem with the way companies do business. Do you seriously believe that it’s okay for Apple to take advantage of lower manufacturing wages in poor countries but neglect to show that advantage in their prices? $700+ for a baseline iPhone: Are you f*****g kidding me? I own an iPhone 4S, the new iPad, an iMac, and a Mac Pro (the 12-core model), and you know what? Apple makes enough money to be paying more taxes. They, like other companies, are greedy. Anyone who says otherwise is completely confused. Apple’s success isn’t your success, buddy.

  • Matthew Gonzales Landry
    News Corp the parent company of the New York Times does the exact same thing.

    http://www.thedailybeast.com/galleries/2011/03/27/15-tax-escape-artists.html#slide12

    Hypocrites.

    I think you will find that News Corp is the parent company of the New York Post, not the New York Times.

    That said … Any US Federal Income Taxpayer, either individual or business, who does not take advantage of EVERY legal possible deduction, law, rule, loophole that would reduce their tax burden is a fool. It’s your money, not the government’s money. Our fiscal problems are not the result of under taxation of any entity. It is the result of our elected officials, of both parties, never met a dollar they couldn’t tax, borrow, print and spend … Apple, or any other company who is working within the legal rules is not the villain here … those we send to Washington to represent us are to blame …

    Apple has $100B in the bank … that would barely be enough to operate the federal government for one month … it’s all about finger pointing …

    That’s just stupid. An individual who works 1 or more jobs just to stay afloat deserves to try to retain as much money as possible. An individual who’s had a rough young life growing up in a lower income neighborhood deserves to retain as much money as possible. Middle-class families holding out for their raise to improve their quality of life deserve to retain as much money as possible.

    Companies that take advantage of poor people in poorer countries DO NOT deserve to retain more money. Companies that stash the bulk of their cash outside of their home nation to avoid taxes DO NOT deserve to retain more money. Companies that set high profit margins on their products DO NOT deserve to retain more money. The taxpayers don’t get the opportunities that big business gets, so don’t even start comparing the two on a even scale.

    It’s not about taking from the rich, jackass, it’s about what is FAIR. Everybody, including companies, should be doing their fair share. But no, as long as the poor keep having more babies and the rich turn other poor groups against the poor who have babies and take advantage of government programs, it’s a good day. Apple is a multibillion dollar company: They hardly need a peon like you to speak on their behalf. I guarantee you the executives that run Apple know they’re fucking with the systems. Good thing those republicans like it that way. They just keep riding that filibuster-choo-choo-train.

  • Cole Shores
    News Corp the parent company of the New York Times does the exact same thing.

    http://www.thedailybeast.com/galleries/2011/03/27/15-tax-escape-artists.html#slide12

    Hypocrites.

    I think you will find that News Corp is the parent company of the New York Post, not the New York Times.

    That said … Any US Federal Income Taxpayer, either individual or business, who does not take advantage of EVERY legal possible deduction, law, rule, loophole that would reduce their tax burden is a fool. It’s your money, not the government’s money. Our fiscal problems are not the result of under taxation of any entity. It is the result of our elected officials, of both parties, never met a dollar they couldn’t tax, borrow, print and spend … Apple, or any other company who is working within the legal rules is not the villain here … those we send to Washington to represent us are to blame …

    Apple has $100B in the bank … that would barely be enough to operate the federal government for one month … it’s all about finger pointing …

    That’s just stupid. An individual who works 1 or more jobs just to stay afloat deserves to try to retain as much money as possible. An individual who’s had a rough young life growing up in a lower income neighborhood deserves to retain as much money as possible. Middle-class families holding out for their raise to improve their quality of life deserve to retain as much money as possible.

    Companies that take advantage of poor people in poorer countries DO NOT deserve to retain more money. Companies that stash the bulk of their cash outside of their home nation to avoid taxes DO NOT deserve to retain more money. Companies that set high profit margins on their products DO NOT deserve to retain more money. The taxpayers don’t get the opportunities that big business gets, so don’t even start comparing the two on a even scale.

    It’s not about taking from the rich, jackass, it’s about what is FAIR. Everybody, including companies, should be doing their fair share. But no, as long as the poor keep having more babies and the rich turn other poor groups against the poor who have babies and take advantage of government programs, it’s a good day. Apple is a multibillion dollar company: They hardly need a peon like you to speak on their behalf. I guarantee you the executives that run Apple know they’re fucking with the systems. Good thing those republicans like it that way. They just keep riding that filibuster-choo-choo-train.

    Wrong, it is Apples responsibility to its shareholders to maximize profits. It is very irrellevent what their profit margins are or where their manufacturing plants are so long as they are operating within the law; and they are.

  • ButchMiller55

    Yes, indeed … Matthew, where do you think earnings for 401k retirement investments come from? Corporate profits spur stock prices so investors can earn money from their investments for their retirement contributions in 401k plans … for every so-called RICH person investing in the stock market, there are over 10,000 average workers participating in stock investments … if we tax these companies more, they show less in profit, which will also reduce stock prices, which will in turn reduce investment gains earned for retirement … in which case we ALL lose regardless of income bracket. Punishing corporations for being successful, will only hurt the average guy in the end, as the RICH folks will move their investments elsewhere … or worse, just sit on it.

    This is only about fairness because of the amount of money involved, if Apple was losing billions of dollars each year, this wouldn’t even be discussed … what this is about is jealousy, pure and simple. Apple deals in commodities … not life giving or life sustaining necessities … they are not taking advantage of anyone … every product they sell, the customer chooses to purchase and is not forced to buy it … If the prices were indeed unfair or too high, or genuine profiteering, their sales would reflect that. Consumers would refuse to support them … apparently millions of folks disagree with you and is reflected in Apple’s sales records.

    When over half of the population pays absolutely no federal income tax whatsoever … the top 10% of taxpayers already bay 80% of the total tax burden … how is it FAIR to expect any other individual or company to always pick up the tab? Simply because they have the cash? How is that FAIR? It is this fallacy that perpetuates an extremely mistaken view that others OWE you something and if someone is successful, it must have been by less than pure means … We all need to at least attempt to earn our own way without punishing those who worked hard to become successful.

  • Matthew Gonzales Landry

    Wrong, it is Apples responsibility to its shareholders to maximize profits. It is very irrellevent what their profit margins are or where their manufacturing plants are so long as they are operating within the law; and they are.

    Wrong. Big business also have social responsibilities. The (republican) law is crooked: do you not think about why Apple is getting a lot of negative press? It’s because Apple has all this money–they’re the most successful company ever–and they don’t want to spend any of it to help anyone. Their data centers, why don’t they have cleaner waste methods? With all that money, they couldn’t afford cleaner alternatives?

  • Matthew Gonzales Landry

    Yes, indeed … Matthew, where do you think earnings for 401k retirement investments come from? Corporate profits spur stock prices so investors can earn money from their investments for their retirement contributions in 401k plans … for every so-called RICH person investing in the stock market, there are over 10,000 average workers participating in stock investments … if we tax these companies more, they show less in profit, which will also reduce stock prices, which will in turn reduce investment gains earned for retirement … in which case we ALL lose regardless of income bracket. Punishing corporations for being successful, will only hurt the average guy in the end, as the RICH folks will move their investments elsewhere … or worse, just sit on it.

    This is only about fairness because of the amount of money involved, if Apple was losing billions of dollars each year, this wouldn’t even be discussed … what this is about is jealousy, pure and simple. Apple deals in commodities … not life giving or life sustaining necessities … they are not taking advantage of anyone … every product they sell, the customer chooses to purchase and is not forced to buy it … If the prices were indeed unfair or too high, or genuine profiteering, their sales would reflect that. Consumers would refuse to support them … apparently millions of folks disagree with you and is reflected in Apple’s sales records.

    When over half of the population pays absolutely no federal income tax whatsoever … the top 10% of taxpayers already bay 80% of the total tax burden … how is it FAIR to expect any other individual or company to always pick up the tab? Simply because they have the cash? How is that FAIR? It is this fallacy that perpetuates an extremely mistaken view that others OWE you something and if someone is successful, it must have been by less than pure means … We all need to at least attempt to earn our own way without punishing those who worked hard to become successful.

    No, haha you’re just wrong lol.

    The only reason why the 401k exists is because Target doesn’t want to pay for your retirement. They’d rather gamble your future away. Seriously, how can you people be so blind to recent event? The 401k isn’t for you: it’s for BIG BUSINESS. You just get unproportional gains.

    What you also don’t seem to get is that Apple is forcefully keeping their products relevant. iPads in school is just one example. What happens when iPads are fully installed in school campuses? That’ll be like using programs on the Mac at school only to get home and realize that the program you use at school isn’t available on your home PC. Now the kids with Macs at home reap the benefits while the kids with PCs have to wait until his or her family can afford a Mac.

    Wait did you just say people with no money don’t pay taxes? Did up you just say people with no jobs don’t pay taxes? Get off that fox news, dude. The top 10% aren’t living in a studio apartment in downtown Los Angeles. The top 10% aren’t eating Ramen noodles for dinner every night. The top 10% aren’t striving to be the first in the family to go to college.

    Listen, I’m a full-time college student with a lot of money in the bank. I’m not hurting in these economic town turn, but I know people who are. I know people who can’t get the medical care they need because of the lack of proper medical insurance. That’s one more worry in a list of worries that these struggling people don’t need to go through. These people shouldn’t wonder if they’ll have enough of a paycheck to get through the month. These people also shouldn’t wonder if they’ll have enough money to send their kid off to college. Yes, when you’ve been given the opportunity to be wealthy, you do have an obligation to help those doing the jobs you didn’t want to do. You are obligated to help those comming back from the war to a jobless enviornment.

    You people are so rediculous.

About the author

Ryan FaasRyan Faas is a technology journalist and consultant living in upstate New York who has written extensively about Apple, business and enterprise IT, and the mobile industry. In addition to writing for Cult of Mac, he is a contributor to Computerworld, InformIT, and Peachpit Press. In a previous existence he was a healthcare IT director as well as a systems and network administrator. Follow Ryan on Twitter and Google +

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