Patagonia’s $3B corporate gift is also a convenient way to avoid taxes | Hacker News Reader

Patagonia’s $3B corporate gift is also a convenient way to avoid taxes

qz.com

21 pointsjanandonly25 comments

Clickbait title trying to make this sounds like something sinister when based on the article it's a perfectly fine and standard way of every charity and they could have even done it with $0 paid in tax (but they paid millions) if they wanted to.

"They’re taking advantage of a feature of the tax law that lots and lots and lots of philanthropists take advantage of. When an exempt organization receives dividends or sells appreciated stock, the exempt organization doesn’t pay taxes. And that’s true for public charities, private foundations, and also 501(c)(4)s."

There's room to question whether existing laws create the right incentives.

If they staff the foundation with a bunch of family members and give them well paid jobs with nebulous responsibilities, forgiving the taxes on the money used to establish the foundation can be of less benefit that the taxes would have been.

If the foundation efficiently puts a lot of resources into things that benefit society, then that probably makes more sense.

“Perfectly fine” and “legal” are different conceptual things. It may be legal, and part of our current system, but I think it is deplorable how easy it is to skirt around paying taxes to support a society.

Personally I think the Patagonia thing is mostly marketing, but that aside, I think it's a desirable feature of a tax system that taxes can be avoided in this way.

One way to think of taxes is the government saying "if you're not going to spend money on your own for the public good, well take it and do it for you". Letting people decide which charity / good their money gets spent on as a a first option is more efficient and gives more direct agency over how we spend our money to help society

> Personally I think the Patagonia thing is mostly marketing

I would've said the same about many companies, but after reading some books (Especially the older one from the founder: https://www.goodreads.com/book/show/22155.Let_My_People_Go_S...) I feel it's genuine in their case and not just greenwashing.

There's many instances in this book where they did the right thing, even if it as not the standard and they could've made more money by doing it the "standard" way (worker rights, materials, jumping on fast fashion trends,...).

Or so is the framing that the founder uses!

It's very easy to be cynical and always see the worst in people, but it's still possible that people are reasonable and like to do the right thing.

Very easy. But also very right most of the time. Especially if the people are billionaire founders of huge companies...

There are tax loopholes that are probably bad for society (e.g. buy, borrow, die), but charitable donations like this one are probably a net win. Having the option to make such donations incentivizes them over doing something else (potentially something else non-taxable) with the assets, and charities are often (but not always) more effective than governments at accomplishing things that benefit society.

Its a way tax free way to pass on power and influence. Just because other people do it doesn't mean its good.

The "tax free" way costs them 5 times as much. It's cheaper to pay 20% tax than to give away 100%.

This is title is designed to feed a narrative to people that don't understand taxes.

Also, how is giving away 3 billion going to avoid "billions in taxes"? No place on the planet has that kid of tax rate. Even the article makes this clear, past the inflammatory headline.

How about the article title: Patagonia founder gives donates fortune to fight climate change?

Because it doesn't generate outrage like implying somehow they took money that would somehow magically be yours.

It's not sinister. It's just tax avoidance and creation of a PAC that has a huge but non-controlling share of Patagonia.

"Most of Patagonia’s shares—98%—are going to a nonprofit, meaning that Chouinard will not have to pay taxes on that gift"

"When an exempt organization receives dividends or sells appreciated stock, the exempt organization doesn’t pay taxes. And that’s true for public charities, private foundations, and also 501(c)(4)s"

"If they just gave 100% of their Patagonia shares to the (c)(4), then the (c)(4) would have control over Patagonia. Instead, they’ve created a dual-class structure, sort of like Google or The New York Times, where a minority shareholder actually has majority control"

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https://fortune.com/2022/09/21/patagonia-family-control-shar...

Under Patagonia’s new business structure, company shares have been split between two new entities: the Patagonia Purpose Trust, and the Holdfast Collective charity. The Collective gets 98% of total shares while the Trust gets just 2%. However, the Trust’s 2% of shares also carry all of Patagonia’s voting rights, which means the trust has 100% of company oversight

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https://economictimes.indiatimes.com/news/et-evoke/patagonia...

The new non-profit, the Hold Fast Collective, is a brand new creation from Patagonia itself which is headed by Greg Curtis, a Patagonia corporate lawyer who joined in 2014.

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https://www.thekiteboarder.com/2018/10/16/craft-an-interview...

Yvon Chouinard is 84 years old and his children don't want to work for Patagonia - he has very little choice of what to do. His children are in the incredibly privileged position of not caring about money and even say so. The son is a surfer/kite boarder. Grandchild(ren) are still very young so Yvon is most likely trying to preserve generational wealth because his children do not want to contribute to the preservation and continuance of Patagonia. So his corporate lawyer will do it.

Jim Crow clauses were legal too.

Philanthropy is always about dodging taxes and improving your public image rather than actually helping people.

That's the most cynical view possible, but if that's the case, it presents an obvious opportunity to structure the tax laws to incentivize pro-social behavior.

I dislike the articles misleading people about taxes to foster more misguided populism. A company giving away 100% of some value to avoid 20% in taxes is not theft from the people in any manner whatsoever. It's more costly to the company to give away money than to simply pay taxes.

If society doesn't want charities, then do away with them. If society wants tax exempt charities, then don't rabble rouse when people or companies donate to them.

They gave away 100% of some value... to a charity the company owners run. So they basically gave it to themselves and saved 20% on taxes.

No, before they actually owned the money, and could do anything they wanted with it. Once it's given in this format, even if they're on the board, the money is now legally owned by the charity and must be used for that purpose. They cannot claw it back, they cannot buy Ferraris with it, it's gone.

Your comment is exactly an example of beliefs articles like this foster, despite being wrong.

Learn how laws work before making unfounded assumptions.

If they just wanted to avoid taxes, they could have done it in the same way every other rich person seems to manage to do it (some combination of offshoring corporate earnings, borrowing against assets, and a variety of loopholes). Instead they gave away the entire company.

Not saying it makes them saints but it’s hard for me to view it so cynically.

Something I learned from this article is that the CEO of Tripp lite did the same thing but donated it to some far right 'nonprofit'.

https://www.nytimes.com/2022/08/22/us/politics/republican-da...

Won't be buying any of their gear ever again.

I stopped buying Tripplite when they would not stand behind their products and blamed the user for failures. I had the same model of UPS fail in 3 different physical locations in the same way, all used according to manufacturer instructions - Tripplite would not stand behind a single one. Garbage company, garbage products.

Besides the obvious points being made in this thread, there is one sketchy thing here: the family still has control of the company. What can they use this control for? What salaries can they pay themselves? Can they issue dividends to themselves?

the question i had reading this when it came out, and now, is what they mean by "avoid"

it seems the answer is, "avoid paying taxes that they would have owed if they sold the company personally and kept all the proceeds as cash themselves"

the article is mostly critiquing rich people giving low taxed gifts to non profits while retaining control over what that money is used for vs an ostensibly independent board controlling it

Yeah this just how taxes on capital gains donations work. Zero sinister about this

Every time there is an act of philanthropy there are multiple articles "exposing" the fact that the philanthropist won't also be paying taxes on the wealth he or she has given away. These articles are pointless at best and misinformation at worst. Lazy journalism.

The headline, for example, strongly suggests that this is just some kind of cynical play by Chouinard to lower his tax bill. I am sure that, from a personal wealth perspective, he would still be much better off had he kept his $3 billion in Patagonia stock and paid whatever taxes he might have avoided here.

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