Apple’s Tax Strategy Saves Them Big Money
Michael Harper for RedOrbit.com
Love them or hate them, Apple makes great products. To sell them, Apple uses some of the best marketing available and backs it up with a memorable retail experience. These facts alone could be a contributing factor to Apple’s success and their subsequent wealth. In addition, it turns out Apple has another method they’ve used to accumulate their massive amounts of cash. Apple uses some clever footwork, legally avoiding billions in taxes.
According to a report released by the New York Times, Apple uses subsidiary companies all over the world in order to side-step some local taxes. One such subsidiary is the cleverly named “Braeburn Capital” in Reno, Nevada.
With its headquarters and campuses based in Cupertino, Apple proudly calls California home. However, 200 miles east in Reno, Nevada, Braeburn Capital is responsible for collecting and investing the mountains of cash made by the California company. The reason is quite simple; the corporate tax rate in California is 8.84%, but in Nevada, the tax rate is zero.
A global company, Apple has several of these kinds of companies set up in low-tax areas all over the world like the British Virgin Islands, Ireland, the Netherlands and Luxembourg. According to the Times, some of these offices are nothing more than a mailbox or an anonymous-looking office.
Apple is simply taking advantage of tax codes written well before the technological age boomed. Digital content can be sold from anywhere. Thus, Apple can legally sell content from anywhere in the world, often choosing the places with the lowest tax rates. Likewise, when Apple sells an iPad, MacBook Air or any other device, part of the profits go directly to subsidiaries like Braeburn who then invest in stocks or bonds and handle the book keeping. Braeburn’s address keeps the tax men at bay.
How much is Apple able to save by not paying taxes all over the world? According to Charles Duhigg, author of the Times piece, Apple’s global tax rate was 9.8%, allowing them to only pay $3.3 billion in cash taxes on a $34 billion profit. This means Apple saved $2.4 billion in federal taxes alone last year. It’s likely they saved even more in local and state taxes.
By comparison, Walmart had a tax rate of 24%, about average for a major global corporation.
Apple isn’t the only company to try and save some money on their taxes. They are, however, more easily noticed in this practice because their profits are so incredibly high. Analysts have recently estimated the company will net a US record-setting $45.6 billion this fiscal year. If Apple had a tax rate similar to last years, a rough wolfram alpha calculation shows they will pay an estimated $4.46 billion this year.
Though they are legally side-stepping huge taxes, $4.6 billion is a number which can’t be scoffed at.
In a statement to the New York Times, Apple has said it ”pays an enormous amount of taxes which help our local, state and federal governments. In the first half of fiscal year 2012, our US operations have generated almost $US5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of US income tax”.
As Business Insider points out, as Apple is scrimping to save what it can, their home state is going broke. Certainly California and the US government won’t ask Apple to pay up, fearing the huge company would leave altogether. As the Business Insider suggests, perhaps the answer is to reconfigure global tax policies, a task easier said than done.