Tesla won’t be paying a cent in federal taxes this year despite the company recording record profits and stock prices. In fact, according to CNN Business, they may not have to pay taxes in the near future at all.
This news comes from Tesla’s recent financial filing with the Securities and Exchange Commission. It revealed the company’s federal tax bill was a big ol’ donut. They will still have to pay a foreign tax bill of $839 million. Its state tax bill will be a measly $9 million.
Tesla’s CEO Elon Musk also said that he will be paying about $11 billion in taxes this year – a number he points out is the largest tax bill an individual has received from the IRS. Though, considering he is worth nearly $245 billion, I think he’ll be okay.
So how did Tesla achieve this feat? How were they able to net a $5.5 billion income and adjusted $7.6 billion income, yet not have to pay a dime in federal taxes? Loopholes.
The EV maker reported that the U.S. side of operations actually lost $130 million pre-tax in 2021. Tesla claims that over $6 billion of its pre-tax profits came from oversea operations, despite 45 percent of revenue originating from U.S. sales.
Speaking to CNN, Martin Sillivan, chief economist at Tax Analysts, said that even though it makes no local sense, “it does not defy U.S. Tax code.” That may be worse? I don’t know. Sullivan believes Tesla may have carried out a commonly used structuring practice that allows their overseas operations to report income.
He gives the example that a company assigned its IP to a foreign arm of the country, and the U.S. unit would pay a fee to use it. That means the U.S. company can report losses or very little income.
Bing, bang, boom you just learned how to avoid corporate federal taxes!
“It’s a US multinational thing. It’s very common. It’s almost malpractice not to do that,” said Sullivan.
President Biden has vowed to crack down on these loopholes, but not much has been done yet.
Don’t worry, other U.S. companies employ similar practices. Amazon, General Motors and Stellantis all do similar things. In fact, a recent report from the U.S. Department of the Treasury found 61 percent of the international profits of U.S. multinational companies are on the books in seven small countries that have – let’s say favorable – tax codes.
If you want to start a multinational corporation and hide the profits, check out Bermuda, the Caymans, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland. Those are some grade A tax havens, baby.
Just to add insult to injury, because Tesla posted a “loss,” they will receive a future tax break. The past losses are known as “net operating loss carry forwards.” They accumulated over a decade of Tesla’s heavy cash burn during development. Thanks to the billions in losses it has racked up, Tesla earned sizable net operating loss carry-forwards that it could use in the future.
Just remember, the company made over $7 billion last year and their CEO is the richest person in the entire world by a wide margin. Also, you had to pay taxes this year.