If you are like many other Americans, odds are that you have started preparing your taxes for April 15th already. Many of you have been sending a lot of money to Uncle Sam as proven by your W-2s and many businesses are preparing to send out large payments. You would figure that we are not alone and expect that big corporations are paying their share too. Or are they? Facebook reported $1.1 billion in pre-tax U.S. operations for 2012 and they will probably not be paying federal or state taxes. If that did not sound bad enough, then you may be interested to hear that they may actually be getting a $429 million refund according to the Citizens for Tax Justice.
So how does Facebook do it? Facebook can treat the cost of non-compensation (like stock options) as an expense in order to reduce their profits in the same way that salaries can be treated as an expense. Facebook depends on stock options and restricted stock units as a form of compensation. Facebook paid out a lot in stock options when they were a private company that is now being recognized on their accounting statements.
If you pored through Facebook’s financial statements, you may have noticed that the company had a $559 million federal tax liability in 2012. However Facebook is not cutting a check for that amount. There is a footnote in their financial statements that says that the company had $1.03 billion as an “excess tax benefit” in regards to “stock option exercises and other equity awards.” The benefit outweighs the liability, which is why Facebook would be getting a refund. A portion of the difference is applied towards state taxes.
Facebook is also expecting to reduce their tax liability in the future by an additional $2.17 billion according to Bloomberg/Businessweek. This will be made possible by using further net operating loss carry-forwards that they have banked. During a recent conference call, Facebook CFO David Ebersman cited that the company has accumulated tax benefits and has around $10 billion in cash and investments.
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