A legal corporate tax benefit flipped Facebook's liability into a refund, sparking online controversy over "corporate welfare."
By KRISTEN BUTLER, UPI.com
Even though Facebook reported $1.1 billion in pre-tax profits from U.S. operations in 2012, it will probably pay zero federal and state taxes — and even receive a federal tax refund of about $429 million — according to a Feb. 14 statement from Citizens for Tax Justice.
The tax-research and lobbying organization calls the footnotes in Facebook’s Jan. 30 financial statement “an amazing admission,” but there’s nothing illegal about the corporate tax breaks the company is claiming. Companies are allowed to treat the cost of non-cash compensation, such as stock options, as an expense that reduces profits, just like salaries.
Facebook relies heavily on stock options and restricted stock units as a form of compensation. It paid out a lot over years as a private company and must now account for that on its income statement and balance sheet.
Facebook says it had a $559 million federal tax liability in 2012, but that liability isn’t a payment. In a footnote, the company also said that it had a $1.03 billion “excess tax benefit” last year related to “stock option exercises and other equity awards.” That benefit is what flips the federal tax liability into a refund, after a small percentage is applied to state taxes.
Citizens for Tax Justice says companies should treat stock options the same in their reports to shareholders as they do in their tax filings. According to its 2012 annual earnings report, Facebook said it paid some "income and other employment taxes," and paid $2.86 billion to "the appropriate tax authorities.” Nonetheless, the Citizens for Tax Justice report led to online backlash against the social network.