Apple CEO Tim Cooke got a lot of heat last week after it was revealed the Cuppertino, Calif.-based computer giant is even better at dodging the Internal Revenue Services than it is at coming up with cool new slate devices, smart phones and personal music devices.
(Full disclosure: This post was composed on an Apple iMac.)
Then, Cooke got hauled before a U.S. Senate subcommittee to explain how Apple does what it does so well. (The tax evasion trick, not the tech.)
It comes down to making money in foreign markets, money that through the magic of globalism never gets taxed anywhere. Which you’d think would include a lot of Louisville-based companies. But you’ll be surprised.
As Bloomberg reported, Apple execs used loopholes to avoid paying taxes on $44 billion in offshore income from 2009 through 2012. Apple also created Irish-based subsidiaries that essentially don’t actually exist anywhere … and pay no taxes to any government! Well, until they repatriate that revenue. If they repatriate the revenue.
In the few brief days since Cooke was in the hot seat, our friends at the New York Times have put together one of their incredibly detailed interactive posts on how different business sectors – and even individual businesses – compare when it comes to paying taxes, domestic and foreign.
Or, more to the point, not paying taxes.
In the main post, “Who Will Crack the Code?” business writer David Leonhardt demonstrates how the U.S. corporate tax code is deeply flawed, with companies paying an aggregate tax rate of about 20 percent. Members of our IL audience probably pay closer to 30 percent, according to our surveys. Though some significant percentage will pay the 2013 capital gains tax rates of 20 percent for singles earning more than $400,000 and couples earnings more than $450,000. (You know who you are.)
But, if you run a small company, your business likely is paying a way higher tax rate than the Big Boys. And in the utility sector, only the losers pay taxes, to quote the late Queen of Mean, Leona Helmsley.
Let’s look first at how much our largest companies are paying via the interactive post “Across U.S. Companies, Tax Rates Vary Greatly”:
• Health insurer/health care provider Humana paid $4 billion in 2012 taxes on earnings of about $10 billion for a tax rate of 40 percent, way more than the 29 percent average paid by all companies across all sectors. Ouch. But Humana generates little, if any, revenue outside the United States.
• Spirits giant Brown-Forman was close with a tax rate of 31 percent, or $1.3 billion on earnings of $4.13 billion. Still, Brown-Forman, which generates more and more revenue from Europe, duty-free shops and developing markets, pays a lower rate.
• Yum! Brands, not surprisingly, is the Mac-Daddy of Louisville-based corporations, paying only 21 percent, or $2 billion, on earnings of $9.3 billion. Yum! Brands has tripled its China presence during the past five years.
For fun, let’s look at corporations that, while not based in Louisville, have major presences here.
• General Electric, which owns Appliance Park in Louisville, paid even less than Yum! Brands at 21 percent. GE builds aircraft engines and other durable goods on every continent with the exception of Antarctica.
• Shockingly, Atlanta-based UPS paid 36 percent – Humana territory – even though some significant percentage of its revenue comes for foreign operations.
• UPS clearly needs a new CFO because its biggest customer, Amazon, pays six percent.
• But Ford, which produces vehicles around the globe, tops nearly everyone, paying only 3 percent!
As Leonhardt notes in his post, there’s something definitely screwy about the U.S. corporate tax structure.
But does anyone have the political will to fix it?
Paging Rand Paul.