Apple has been extremely successful as of late, and that means many have their crosshairs fixed on the Cupertino based company. The New York Times has spotlighted Apple once again in their “iEconomy” series, and this time focus on Apple’s corporate tax burden. Previously, NYT made a big deal about the iPhone and iPad production process. Now they’re focusing on taxes, and again highlighting Apple despite many other companies producing products in China, and finding loopholes in the tax code.
Their main point is that Apple has become a trend setter in finding ways to lessen their tax burden, and it has resulted in Apple’s effective tax rate falling to only 9.8% in 2011. Apple themselves reports in their 10-K filings with the Securities and Exchange Commission that their rate was 24.2%. That’s a big difference between 9.8% and 24.2%, and the question is how did the New York Times come to such a lower number? The answer comes from Forbes who completely invalidates the New York Times article.
Tim Worstall of Forbes Magazine debunked a previous claim from Greenlining Institute regarding Apple’s corporate tax burden. It seems the NYT was basing their claims on the same ideas behind Greenlining Institute. As Forbes points out, both were incorrect because they based their calculations on the wrong figures. NYT’s 9.8% claimed rate is based on Apple’s $3.3 billion paid in taxes in 2011 compared to earnings of $34.2 billion, which is only 9.8%. The problem is that taxes are based on earnings from the previous year, so 2011 taxes are based on 2010 earnings, 2010 taxes are based on 2009 earnings, and so on. We won’t know Apple’s tax rate on the $34.2 billion until the taxes for 2012 are released.
Calculations are based on the previous year’s earnings, so Apple earned $18 billion in 2010, and paid $3.3 billion in taxes on those earnings. That comes to a tax rate of 18.33%, and Apple’s 2010 taxes on 2009 earnings show $2.7 billion paid on $12 billion in earnings, and a 22.5% tax rate. The New York Times definitely had a big oversight in their report which felt more like a tabloid article looking for views rather than an investigative report, which is a sad state of affairs for journalism as a whole. It’s also worth noting, that Apple records 70% of its profits overseas, and yet still uses some loopholes like most American companies to reduce their tax bill. The problem is the behemoth tax code, and it’s the object that needs to be highlighted in investigative reports before any companies.
Apple did provide an official response to The New York Times which you can read below.
Over the past several years, we have created an incredible number of jobs in the United States. The vast majority of our global work force remains in the U.S., with more than 47,000 full-time employees in all 50 states. By focusing on innovation, we’ve created entirely new products and industries, and more than 500,000 jobs for U.S. workers — from the people who create components for our products to the people who deliver them to our customers. Apple’s international growth is creating jobs domestically since we oversee most of our operations from California. We manufacture parts in the U.S. and export them around the world, and U.S. developers create apps that we sell in over 100 countries. As a result, Apple has been among the top creators of American jobs in the past few years.
Apple also pays an enormous amount of taxes which help our local, state and federal governments. In the first half of fiscal year 2012 our U.S. operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax.
We have contributed to many charitable causes but have never sought publicity for doing so. Our focus has been on doing the right thing, not getting credit for it. In 2011, we dramatically expanded the number of deserving organizations we support by initiating a matching gift program for our employees.
Apple has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules. We are incredibly proud of all of Apple’s contributions.”