Zoom will pay zero federal taxes due to tax credits from previous years | Hacker News Reader

Zoom will pay zero federal taxes due to tax credits from previous years

cbsnews.com

30 pointsMoody_1000151 comments

Or, told another way:

For several years, Zoom has spent much more than it has earned ($300M more in fact), on expenses like staff, rent, services and supplies from other companies - which will have generated large amounts of income taxes, payroll taxes, sales taxes, franchise taxes, municipal taxes, etc.

This past year they have grown dramatically, and will have generated even more income taxes, franchise taxes, municipal taxes, etc than ever before, and also some present or future capital gains taxes due to the huge increase in the company's valuation.

They just don't have to pay federal income tax yet, until the net income they make exceeds the net losses they recorded over previous years.

But hey, at least we got thousands of clicks from outraged people about tech companies not paying taxes? KPIs met! Win!

Why should income tax be a substitute? Where is my subsidy for having gone into debt for a degree?

Debt is not a loss. It is a liability.

IT's money spent which could have been somewhere else

No, that would be an expense.

Because corporations are taxed on profit but you as an individual are taxed on income.

There are some deductions for tuition and student loan interest. But I do think that student loan payments should be fully deductible against income.

Is this sarcasm? Why wouldn't I still be outraged? Because they have "tax credits".

Okay can I as individual get tax credits by going into debt? If I can't "tax credits" then Zoom shouldn't get them. It's just common sense.

Seriously the current tax structure in the United States seems to be anti-human being. Humans have to pay up front in cash 100% each year, corporations can just claim they are writing off debt, apparently even in years they have no debt. Where does it stop? Why would someone defend this who pays taxes themselves?

Individuals are not taxed on a "profit and loss" basis.

> Individuals are not taxed on a "profit and loss" basis.

Is it safe to assume you have no investments or save for retirement?

I have those .. in their respective tax shelters.

(In the UK these are ISA and personal pensions, and on both I don't pay income tax. This vaguely corresponds to the 401k system)

Going into debt is not the same as a loss.

Can you, as an individual, provide the value of a Zoom that benefits society? Are you paying thousands of people a salary (paying taxes on their salary)? Are you providing a service that people are using to, ostensibly, make their lives better?

If so, you should incorporate +and probably already do if you happen to employ thousands of people) since laws around incorporating are there to encourage people to take the risk of providing these values.

Societies that burden business with taxes generally do not understand that businesses are the lifeblood of economy and draining the lifeblood makes the economy sick.

If companies are the lifeblood of the country, then the government is the bones. It provides absolutely necessary infrastructure like roads, water, sewers, and law enforcement. It provides economic and social stability through fiscal controls and food subsidies. It provides an educated population through schools.

When viewed this way, the vitriol arising from a large company not paying taxes makes sense. The entire organism requires coordination in order to survive, and the government and companies need to work together and support each other in order to thrive.

This isn't even going into the outrage arising from the fact that large companies are treated very differently from small businesses and individuals.

The point is they do pay all kinds of taxes; the more they spend in a year, the more taxes are generated (as I said, employee income taxes, franchise taxes, sales taxes, etc etc etc).

Federal income tax is just one of the many taxes that companies are subjected to, and one that innovative companies normally don't pay anyway because it's not good business to hoard profits, it's much better to invest for future growth, leading to more of all the other kinds of taxes being generated now and into the future.

These rage-bait articles that always focus on corporate income tax only work because many people aren't aware of this.

X company made $100M Revenue, $50M Gross Profit ( Revenue Subtract COGS ), paid $30M for employee salary, $10M for Office, Building and Rent, $10M for Operation such as Accounting, Financial Expenses, Legal, Insurance, Utility expenses....... all within the same Country or State

Subtracting everything, X Company made Zero Net Profit. How much should X Company paid on Tax?

How much did this Lifeblood ( X Company ) contributed to the entire organism ( Society )? ( Hint: it is not Zero )

Yes, you as an individual can get tax credits. If you own foreign stocks, you pay foreign taxes and get a US tax credit for the foreign taxes paid. Or if you lose money on a stock (and realize the loss by selling), you get tax credits.

Sounds like you're questioning the validity of the concept of a tax credit, a fundamental and necessary component of income taxation. Income taxation is economically inefficient, but if it's implemented, deductions / credits are vital.

> Seriously the current tax structure in the United States seems to be anti-human being

Companies are groups of human beings, earning income collectively. Corporate income taxes wouldn't be needed if the tax system was effective at tracking all financial flows. If the system worked properly, we'd just tax the money when it was paid to individuals as salary or dividends, which has to happen for it to be used by people; it's no good to anyone just sitting in a company bank account doing nothing.

The focus on company income tax is just a media trick to get people enraged, but it really is a non issue. Big companies generate huge amounts of taxes by merely exisiting, because they move huge amounts of money around that ends up in the hands of other companies and individuals, and plenty of tax gets paid when that happens.

They don't have to pay taxes this year because they didn't make money in previous years? How are previous years relevant to this year? I know what they're doing is legal, but it sure is silly. Their net loss over the last few years wasn't because they couldn't have been profitable. It was part of their business strategy.

A strategy that grew their capacity to provide value to the world.

The economy is more complex than "look, money, let's take it for government."

Yes, and they've been rewarded with profits and a soaring stock price. Why shouldn't they pay taxes for that? It's undoubtable that they used federal and public infrastructure in the process of making and growing the company.

Then again, why should the entity be punished for creating value and jobs and competition? Please tell.

I guarantee all the people involved were taxed. I would rest a lot easier knowing that the organization that employs me didn't have to worry about taxes. Instead it has to employ an army of people just pay them. Double taxed, everyone is.

The impulse to see "soaring stock price and valuation" as a reward that can be drained is exactly the kind of sophomoric economic view i was referring to.

it's quite obvious that if you took all of the value of a company the company would cease to exist along with the benefit they bring to society. you don't want to take all of their value? you just want to take the "fair share"?

how do you know what the "fair share" is that doesn't harm the capacity of the company to continue to provide value? fairness would be they pay for the public goods and services they use. do they employ trucks to deliver their product? then they should pay gas taxes on their deliveries. but, wait, they already do that so we want something _more_ fair than being treated the same as everyone else.

that still leaves us with the unknown of "how much more_than_fair_taxes we should require of a company and be sure not hinder it's ability to provide value?"

If stock price and valuation isn't a reward, then why is executive compensation often tied to stock price?

> how do you know what the "fair share" is that doesn't harm the capacity of the company to continue to provide value?

I don't know, but it should pass a smell test at least. I can tell you that a company that was recently net negative only because of reinvestment using those negative years to not pay taxes during positive years doesn't pass the smell test.

>If stock price and valuation isn't a reward, then why is executive compensation often tied to stock price?

It is a good question but a different point to the current discussion. Which is Tax Code.

>>They don't have to pay taxes this year because they didn't make money in previous years? How are previous years relevant to this year?

If you don't allow a company to carry forward loses you get a capricious result:

Company A makes $20M in 2019 and $20M in 2020 which is $4.2M dollars tax each year or $8.40M total tax on $40M total earnings.

Company B makes -$30M in 2019 and $70M in 2020 which is 0 year and $14.7M or $14.7M total tax on $40M total earnings.

There's nothing capricious about those results. $70M annual profit should be treated differently than $20M. That was $70M that the company decided not to reinvest.

You only get to deduct expenses, not investments. They could have bought a 70 million dollar piece of farm equipment with that money to reinvest, but they'd only get to deduct a small portion that year.

Regardless, you can't tell based on the data given whether the companies re-invested the money or distributed to shareholders. The difference between those companies could just be whether they booked a $50M sale on Dec. 31 or Jan. 1. Or whether they wrote off a bad asset on Dec. 31 or Jan. 1.

It's totally capricious.

I guess there's something I don't understand here. You're telling me that if a company spends money to invest in itself or improve its infrastructure, that isn't considered an expense? That seems like it would disincentivize investment in company growth.

Capital expenditure (infrastructure) and operating expenses are treated differently.

An investment in a new factory cannot be deducted as a business expense all at once; it must be depreciated over its useful life, so only a portion of it can be recorded as an operating expense against income for every year it is used.

For software companies it's fuzzy; if you have a team of developers constantly working on enhancements to the company's platform, should the staff wages be counted as expenses or capital investment? It comes down to accountancy technicalities:

https://www.wallstreetprep.com/knowledge/accounting-capitali...

Aside from the different handling of capital investment vs expenses, "deciding [not] to reinvest" is not the only factor that determines a company's net income.

Take a company that loses $100M one year because of a natural disaster (like a pandemic), just manages to stay afloat by taking out loans, then makes net income of $50M the following year.

The company has net-lost $50M over two years and incurred large debts, and now has a huge tax obligation on the $50M, before they can start paying their lenders back.

A company in that situation may be better off shutting down, leading to huge job losses for the employees and trading partners, and an overall loss of tax payments that the company could otherwise have generated long into the future.

Your line of argument seems to be that it's always important to get the most possible tax out of a company in any given year, no matter the overall net outcome for society over the long term.

Exactly. Carryover losses are a way of dealing with the fact the tax code seeks to impose taxes on a continuous variable (gains in wealth) but samples at discrete intervals (yearly). They’re necessary to avoid distortion that would result if a company with -$50 one year and $70 the next were taxed much more heavily than one that earned $10 two years in row. The alternative would be to give refunds for losses.

Fact check: True, but misleading. I'll cite:

"The biggest reason for Zoom's de minimis tax bill is outsized executive compensation. Zoom paid $580 million in stock compensation alone in 2020, much of it likely to a handful of top executives, according to a calculation by CBS MoneyWatch based on the company's latest financial filings."

At some point, somebody will have to pay taxes on selling that stock. Or if they never sell it, at least they will prop up the stock market, so the Fed has to do less of that with everyone else's money.

Did they really write “likely to a handful of top executives”. Stock compensation is pretty typical for tech companies.

But as long as they put “likely” in front of that statement they felt it was appropriate?

I mean, they could look at 10-Ks. To see how the executive are compensated.

Fact checking and editing has fallen out of favor in the age of facebook headline sharing.

Correct me if I am wrong, wouldn't that mean if the stock value goes down and is sold at a much lower price, the collected tax would be much less?

And isn't it possible to reduce tax even more from capital losses from stocks?

Yes to the second, which is inherently self-consistent policy in a taxation system that taxes income/profits.

The first depends on the type of compensation and whether a prior 83(b) election was made (and taxes paid at that time).

But in general, the money’s going to get taxed and if the taxpayer is a US citizen, the US will get its cut.

Why would Xi Jinping pay taxes to the US?

The real travesty is the excessive regulation preventing innovation and generally slowing the speed of business. If it were not for all the unnessesary ham-fisted regulation that currently exists small businesses and entrepreneurs would be better positioned to enter various markets. But no, in addition to governmental testing of baby cribs you have a government that also tests the amount of force required to light a match or the noise level of a child's cap gun.

We have an epic event based around automobile safety that turbo charged government regulation and created a new bureaucracy that found that there was no safety concern regarding the very car that was used for establishing that very bureaucracy.

By all means, keep complaining about taxes and regulation. They sure could use another round of debate.

Federal income taxes are highly economically inefficient. They create a huge deadweight loss of taxation (productive employees wasting their time helping corporations comply with tax law).

Land and gas are economically efficient to tax. They don't have a big deadweight loss of taxation and create positive incentives.

The Federal government creates tax laws that corporations need to follow. The government added the concept of net operating loss carryforwards to the tax law. Not looks like government officials are complaining about the rules they added to the tax code.

I used to work with the Section 482 tax laws for pricing among multinational enterprises. I found the laws to be complicated and ridiculously impractical, particularly the residual profit split method for valuing intellectual property. Many companies used these laws to shift IP offshore. Politicians are made about the tax structures that were created following their laws.

This isn't a democrats / republicans thing. Both political parties are adding tons of rules to an already bloated US tax code. And congress is constantly upset about the rules they have created.

>> "Land and gas tax are economically efficient."

Isn't the former already expressed in the form of property tax? And if so, I wouldn't say it's economically efficient. Calculating the value of land/real estate is a blackbox (at least at the local level) only to be known and determined by the taxing entity (i.e government).

Land taxes are different than property taxes. Property taxes are on the building, land taxes are just on the land.

Land isn't a perfect tax, still needs to be levied as you mentioned, but it cannot be hidden and incentivizes land owners to use the land for its "highest and best use". There are no complicated depreciation schedules, credits, deductions, etc. for land. It's also highly progressive.

* In fact, Zoom's 2020 tax bill will likely be less than zero. That's because Zoom, according to its financial statements, booked a $300 million tax credit last year to use against future earnings.*

So basically tax credit for prior year losses.

Not sure this is an issue?

This sounds extremely reasonable?

Really rich people will always find some way to get loopholes enshrined in law or find a foreign country willing to do it.

There is no way around. The only people paying disproportionately more in taxes are middle class people. Incidentally that also helps rich people by having less competition at the top.

If you want fairness, no-one should be forced to pay taxes, everyone should pay for the services they use and there should be no corruptible centralised entity who can decide for everyone.

>If you want fairness, no-one should be forced to pay taxes

Agree

> everyone should pay for the services they use

Usage taxes and VATs are always voted down because they hit poor and middle class the hardest, at least in the US.

> and there should be no corruptible centralised entity who can decide for everyone.

But muh roadz!

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