csllanna
iPF Novice
Today headline all around the world will be The New York Times - How Apple Sidesteps Billions in Taxes
The essential idea of the whole article is: Braeburn Capital, an Apple subsidiary in Reno, Nevada, manages and invests the company's cash. Nevada has a corporate tax rate of zero, as opposed to the 8.84 percent levied in California, where Apple has its headquarters.
But how this could be happening, I wonder. So, maybe let us do some research on it:
How does the income tax system working in USA?
1) Corporate tax imposed in the USA is on the Federal, most states, and some local levels of the income of entities treated for tax purposes as corporations.
2) Federal tax rates on corporate taxable income vary from 15% to 35%. While the state and local taxes and rules vary by jurisdiction (many are still based on Federal concepts and definitions).
2.a) Corporate income tax is based on net taxable income, means Gross income (business and possibly non-business receipts less cost of goods sold) less allowable tax deductions.(Certain income, and some corporations, are subject to a tax exemption)
3) Corporate income tax is imposed on all domestic corporations and on foreign corporations having income or activities within the jurisdiction.
3.a) For Federal purposes, an entity treated as a corporation and organized under the laws of any state is a domestic corporation.
3.b) For state purposes, entities organized in that state are treated as domestic, and entities organized outside that state are treated as foreign.
4) Domestic corporations are taxed on their worldwide income at the Federal and state levels.
5) Federal corporate income tax is imposed at graduated rates.
6) Tax rates imposed below the federal level vary widely by jurisdiction, from under 1% to over 16%.
7) State and local income taxes are allowed as tax deductions in computing Federal taxable income.
7.a) However, the states do not allow a tax deduction for income taxes, whether Federal or state.
7.b) Further, most states deny tax exemption for interest income that is tax exempt at the Federal level.
8) Groups of companies (a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control.) are permitted to file single returns for the members of a controlled group or unitary group, known as consolidated returns, at the Federal level, and are allowed or required to do so by certain states. The consolidated return reports the members' combined taxable incomes and computes a combined tax.
9) Corporations must file tax returns in all U.S. jurisdictions imposing an income tax. Such returns are a self assessment of tax. Corporate income tax is payable in advance installments, or estimated payments, at the Federal level and for many states.
10) Nearly all of the states and some localities impose a tax on corporate income. The rules for determining this tax vary widely from state to state.
10.a) Most states tax domestic and foreign corporations on taxable income derived from business activities apportioned to the state on a formulary basis.
10.b) Many states apply a "throw back" concept to tax domestic corporations on income not taxed by other states.
10.c) Under the U.S. constitution, states are prohibited from taxing income of a resident of another state unless the connection with the taxing state reach a certain level (called "nexus").
10.d) Since the tax must be fairly apportioned, the states and localities compute the income of out of state corporations (including those in foreign countries) taxable in the state by applying formulary apportionment to the total business taxable income of the corporation. Many states use a formula based on ratios of property, payroll, and sales within the state of those items outside the state.
10.e) Formulary apportionment is a method of allocating the profit earned, or loss incurred, by a corporation or corporate group to a particular tax jurisdiction in which the corporation or group has a taxable presence. It is an alternative to separate entity accounting, under which a branch or subsidiary within the jurisdiction is accounted for as a separate entity, requiring prices for transactions with other parts of the corporation or group to be assigned according to the arm's length standard commonly used in transfer pricing. In contrast, formulary apportionment attributes profit or loss to each jurisdiction based on factors such as the proportion of sales, assets or payroll in that jurisdiction.
Why Nevada doesn't impose tax on Corporate Income Tax and Personal Income Tax?
1) Nevada has no personal income tax or corporate income tax.
1.a) Nevada's tax laws also draw new residents and businesses to the state.
2) Nevada's state sales tax rate is 6.85 percent.
3) Corporations such as Apple Inc. Allegedly have set up investment companies and funds in Nevada to avoid paying taxes.
3.a) However, Since Nevada does not collect income data it cannot share such information with the federal government, the IRS.
How to overcome this issue, i.e., stopping companies from escaping States Taxes?
1) According to The Hamilton Project - Reforming Corporate Taxation in a Global Economy: A Proposal to Adopt Formulary Apportionment, written by Reuven S. Avi-Yonah (University of Michigan Law School) and Kimberly A. Clausing (Reed College),
1.a) They propose a system of formulary apportionment for taxing the corporate income of multinational firms. Under the proposal, the U.S. tax base for multinational corporations would be calculated based on a fraction of their worldwide income. This fraction would simply be the share of their worldwide sales that is destined for customers in the United States.
1.b) This system is similar to the current method that U.S. states use to allocate national income. The state system arose due to the widespread belief that it was impractical to account separately for what income is earned in each state when states are highly integrated economically. Similarly, in an increasingly global world economy, it is difficult to assign profits to individual countries, and attempts to do so are fraught with opportunities for tax avoidance.
1.c) Under the proposed formulary apportionment system, firms would no longer have an artificial tax incentive to shift income to low-tax locations. This would help protect the U.S. tax base while reducing the distortionary features of the current tax system. In addition, the complexity and administrative burden of the system would be reduced. The proposed system would be both better suited to an integrated world economy and more compatible with the tax policy goals of efficiency, equity, and simplicity.
IMHO, business is maximizing the profit for the shareholder while balancing the ethics issue between the stakeholders and the economic. Let's stop pinpointing to the Apple, but compromise to a solution first.
Chinese Dedicated iPad Forum Index Page：http://www.ipadforums.net/chinese-dedicated-ipad-forum/
Malaysian Dedicated iPad Forum Index Page：http://www.ipadforums.net/malaysian-dedicated-ipad-forum/
Source of document:
1) County & Nevada Taxes
2) Nevada
3) How Apple Sidesteps Billions in Taxes
4) Reforming Corporate Taxation in a Global Economy:A Proposal to Adopt Formulary Apportionment
5) Corporate tax in the United States
The essential idea of the whole article is: Braeburn Capital, an Apple subsidiary in Reno, Nevada, manages and invests the company's cash. Nevada has a corporate tax rate of zero, as opposed to the 8.84 percent levied in California, where Apple has its headquarters.
But how this could be happening, I wonder. So, maybe let us do some research on it:
How does the income tax system working in USA?
1) Corporate tax imposed in the USA is on the Federal, most states, and some local levels of the income of entities treated for tax purposes as corporations.
2) Federal tax rates on corporate taxable income vary from 15% to 35%. While the state and local taxes and rules vary by jurisdiction (many are still based on Federal concepts and definitions).
2.a) Corporate income tax is based on net taxable income, means Gross income (business and possibly non-business receipts less cost of goods sold) less allowable tax deductions.(Certain income, and some corporations, are subject to a tax exemption)
3) Corporate income tax is imposed on all domestic corporations and on foreign corporations having income or activities within the jurisdiction.
3.a) For Federal purposes, an entity treated as a corporation and organized under the laws of any state is a domestic corporation.
3.b) For state purposes, entities organized in that state are treated as domestic, and entities organized outside that state are treated as foreign.
4) Domestic corporations are taxed on their worldwide income at the Federal and state levels.
5) Federal corporate income tax is imposed at graduated rates.
| Taxable Income ($) | Tax Rate |
| 0 to 50,000 | 15% |
| 50,000 to 75,000 | $7,500 + 25% Of the amount over 50,000 |
| 75,000 to 100,000 | $13,750 + 34% Of the amount over 75,000 |
| 100,000 to 335,000 | $22,250 + 39% Of the amount over 100,000 |
| 335,000 to 10,000,000 | $113,900 + 34% Of the amount over 335,000 |
| 10,000,000 to 15,000,000 | $3,400,000 + 35% Of the amount over 10,000,000 |
| 15,000,000 to 18,333,333 | $5,150,000 + 38% Of the amount over 15,000,000 |
| 18,333,333 and up. | 35% |
6) Tax rates imposed below the federal level vary widely by jurisdiction, from under 1% to over 16%.
| State | Taxable Income ($) | Tax Rate |
| Alabama | 0 to 50,000. | 15% |
| California | 8.84% | $0 |
| Nevada | None | None |
7) State and local income taxes are allowed as tax deductions in computing Federal taxable income.
7.a) However, the states do not allow a tax deduction for income taxes, whether Federal or state.
7.b) Further, most states deny tax exemption for interest income that is tax exempt at the Federal level.
8) Groups of companies (a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control.) are permitted to file single returns for the members of a controlled group or unitary group, known as consolidated returns, at the Federal level, and are allowed or required to do so by certain states. The consolidated return reports the members' combined taxable incomes and computes a combined tax.
9) Corporations must file tax returns in all U.S. jurisdictions imposing an income tax. Such returns are a self assessment of tax. Corporate income tax is payable in advance installments, or estimated payments, at the Federal level and for many states.
10) Nearly all of the states and some localities impose a tax on corporate income. The rules for determining this tax vary widely from state to state.
10.a) Most states tax domestic and foreign corporations on taxable income derived from business activities apportioned to the state on a formulary basis.
10.b) Many states apply a "throw back" concept to tax domestic corporations on income not taxed by other states.
10.c) Under the U.S. constitution, states are prohibited from taxing income of a resident of another state unless the connection with the taxing state reach a certain level (called "nexus").
10.d) Since the tax must be fairly apportioned, the states and localities compute the income of out of state corporations (including those in foreign countries) taxable in the state by applying formulary apportionment to the total business taxable income of the corporation. Many states use a formula based on ratios of property, payroll, and sales within the state of those items outside the state.
10.e) Formulary apportionment is a method of allocating the profit earned, or loss incurred, by a corporation or corporate group to a particular tax jurisdiction in which the corporation or group has a taxable presence. It is an alternative to separate entity accounting, under which a branch or subsidiary within the jurisdiction is accounted for as a separate entity, requiring prices for transactions with other parts of the corporation or group to be assigned according to the arm's length standard commonly used in transfer pricing. In contrast, formulary apportionment attributes profit or loss to each jurisdiction based on factors such as the proportion of sales, assets or payroll in that jurisdiction.
Why Nevada doesn't impose tax on Corporate Income Tax and Personal Income Tax?
1) Nevada has no personal income tax or corporate income tax.
1.a) Nevada's tax laws also draw new residents and businesses to the state.
2) Nevada's state sales tax rate is 6.85 percent.
3) Corporations such as Apple Inc. Allegedly have set up investment companies and funds in Nevada to avoid paying taxes.
3.a) However, Since Nevada does not collect income data it cannot share such information with the federal government, the IRS.
How to overcome this issue, i.e., stopping companies from escaping States Taxes?
1) According to The Hamilton Project - Reforming Corporate Taxation in a Global Economy: A Proposal to Adopt Formulary Apportionment, written by Reuven S. Avi-Yonah (University of Michigan Law School) and Kimberly A. Clausing (Reed College),
1.a) They propose a system of formulary apportionment for taxing the corporate income of multinational firms. Under the proposal, the U.S. tax base for multinational corporations would be calculated based on a fraction of their worldwide income. This fraction would simply be the share of their worldwide sales that is destined for customers in the United States.
1.b) This system is similar to the current method that U.S. states use to allocate national income. The state system arose due to the widespread belief that it was impractical to account separately for what income is earned in each state when states are highly integrated economically. Similarly, in an increasingly global world economy, it is difficult to assign profits to individual countries, and attempts to do so are fraught with opportunities for tax avoidance.
1.c) Under the proposed formulary apportionment system, firms would no longer have an artificial tax incentive to shift income to low-tax locations. This would help protect the U.S. tax base while reducing the distortionary features of the current tax system. In addition, the complexity and administrative burden of the system would be reduced. The proposed system would be both better suited to an integrated world economy and more compatible with the tax policy goals of efficiency, equity, and simplicity.
IMHO, business is maximizing the profit for the shareholder while balancing the ethics issue between the stakeholders and the economic. Let's stop pinpointing to the Apple, but compromise to a solution first.
Chinese Dedicated iPad Forum Index Page：http://www.ipadforums.net/chinese-dedicated-ipad-forum/
Malaysian Dedicated iPad Forum Index Page：http://www.ipadforums.net/malaysian-dedicated-ipad-forum/
Source of document:
1) County & Nevada Taxes
2) Nevada
3) How Apple Sidesteps Billions in Taxes
4) Reforming Corporate Taxation in a Global Economy:A Proposal to Adopt Formulary Apportionment
5) Corporate tax in the United States
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