Facebook getting a $429m tax refund even though it owes $559m

Despite a bungled IPO, Facebook’s Mark Zuckerberg is still suddenly a billionaire and quite a few Facebook employees are worth a mint.

Because of that new found wealth, Facebook uses the tax law to the fullest, and counts the stock in a way that makes the books look as though the company faced a loss. Facebook actually owes $559 million in federal taxes, but because of a cute accounting trick, they’re writing off their stock options and getting a rebate.The end result is a whopping $429 million tax refund.

Anyone else think the US tax law is a mess and tilted in favor of the 1%? Usually it’s the bankers that are squeezing the system for all its worth but this time, it’s everyone’s favorite social tool.

facebook

Facebook via Shutterstock

Business Week:

Even though Facebook (FB) 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 says companies such as Facebook should treat stock options the same in their reports to shareholders as they do in their tax filings. Citizens for Tax Justice calls the tax footnotes in Facebook’s Jan. 30 financial statement “an amazing admission,” but there’s nothing illegal about the breaks the company is claiming. Companies like Facebook are allowed to treat the cost of non-cash compensation, such as stock options, as an expense that reduces profits, essentially the way they treat cash compensation such as salaries.

Whether it’s gaming the tax law this time or claiming ownership of your own photos, the history of this company is pretty clear. While I can see the benefits of using Facebook in certain circumstances, the annoying behavior that will never go away outweighs the benefits for me, which is why I closed my account. Buyer beware.


An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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  • http://www.facebook.com/people/Andrew-Patton/592034163 Andrew Patton

    It wouldn’t be fair not to point out that the difference between the payment and the refund was paid by the Facebook insiders who exercised those options and had them counted as wages. They could not be deducted otherwise.

  • FinMarketGuru

    Yes thats right and same views about how facebook will get tax benefits are covered here:

    http://www.finmarketguru.com/facebook-will-not-pay-any-taxes-for-2012-and-heres-why/

  • SkippyFlipjack

    John admonished me in public, so I chose to respond in public. Why you’d want to pile on and look like a douchebag rather than replying to the specific posts of mine that have your undies in a bunch is your business I suppose.

  • http://www.politifact.com/ Jake Orlando

    No. If public comments weren’t everyone’s business, and if each didn’t have a reply button, then you’d be emailing John your opinion.

  • SkippyFlipjack

    This has nothing to do with you. If you find a post of mine objectionable, reply to that post.

  • http://www.politifact.com/ Jake Orlando

    John is not probably right, he’s absolutely right. There is no excuse for ad hominem attacks, no excuse for rudeness. If you think your arguments are correct, articulate them clearly.

  • http://www.politifact.com/ Jake Orlando

    I don’t see anything wrong with a policy of propping up certain industries, industries that actually help certain areas stay alive (operative word: actually). Here in California, Hollywood gets preferential tax credits…because it’s our lifeline. West Virginia has coal, for better or worse. Other states are big on manufacturing.

    But where I part ways is at the idea that April 15th should be a day when the government pays YOU. Tax credits should only reduce your burden, they shouldn’t reduce your liability insofar that your massive corporation is actually getting a check.

  • http://www.politifact.com/ Jake Orlando

    I don’t agree with that. You shouldn’t pay tax for existing, you should pay tax because you made money. I know lots of business owners whose businesses are not making a net gain in profit whatsoever; even $250 bucks would put them in the red.

  • http://www.politifact.com/ Jake Orlando

    Here in California we’re expecting a huge windfall from the IPO. We have loopholes here and there, but not enough to give out massive returns to corporations like this.

  • lynchie

    Especially when the 99% can’t do the same. We don’t possess a cadre of tax attorneys and neither have the time or money to even look at saving taxes when we make so little to begin with. Check out the crisis in Greece where the rich simply don’t pay/

  • lynchie

    That applies to everyone. Pay the tax rate, and shut the fuck up or leave the country. The problems in Greece by the way are caused mainly because the rich pay no taxes, they simply don’t pay. They are seldom prosecuted (they are the job creators, after all) and the country has spiraled down because there is no money to pay for the things a government does and the deficit went up.

    http://www.spiegel.de/international/europe/wealthy-greeks-still-dodging-taxes-despite-crisis-a-864703.html

    We are in exactly the same crisis and like Greece we have a Congress owned by the 1% and no one is ever sent to jail except some poor smuck at the bottom who claimed a meal with his wife and got caught.

  • http://www.rebeccamorn.com/mind BeccaM

    Believe me, I know, which is why I used the ‘scare quotes.’ ;-)

  • SkippyFlipjack

    no, it describes his posting style.. nothing about the person himself

  • Sweetie

    It’s made out of ad hominem.

  • Sweetie

    The so-called flat tax isn’t flat. It’s a regressive tax with a deceptive label. Money makes money. The more one has, since it’s a tool, the more opportunity one has to make more.

  • Sweetie

    That’s a terrible regressive taxation idea, punishing people for not having any money. As for using it on corporations, they should be taxed on what percentage of their income goes to compensation. The top people in the company would be looked at with this method and stock options would count. After a certain threshold, then the company would automatically get hit. Playing tricks like Steve Jobs did with his $1 salary and huge amounts of stock plus a jet wouldn’t work. The compensation paid to ordinary workers at a corporation would not be counted, so the corporation would not have an incentive to underpay.

  • http://www.rebeccamorn.com/mind BeccaM

    I know, John, and I both understand why and sympathize. Just seems a little ironic.

  • SkippyFlipjack

    If the shoe fits..

  • perljammer

    Heh. You, don’t you, that you can “Like” this article on Facebook.

  • http://adgitadiaries.com/ karmanot

    Thank you

  • http://adgitadiaries.com/ karmanot

    This is the second or third time you have referenced ‘Drive by Chris.’ Give it a rest Skippy,

  • http://AMERICAblog.com/ John Aravosis

    We have to – we still got a lot of traffic from Facebook, and traffic equals add sales, which equals not closing down the blog :)

  • http://AMERICAblog.com/ John Aravosis

    That’s fine. You can even say nicely that you think he treated the subject unfairly, that’s fine. I just don’t like when people make the attacks somewhat personal, which yours was. I don’t really agree about this post, as I indicated. He didn’t say they broke the law – he said they owe taxes and got out of it. Which they did :) And that’s been our argument against Romney, Starbucks, the investment banks etc – not that they necessarily broke the law, at least as far as paying taxes, but that they’re so expert at skirting it, that it’s fundamentally unfair.

  • SkippyFlipjack

    Can’t stand Zuck but the idea that he “hates unions” is nonsense; it’s based solely on his interest in education reform.

  • SkippyFlipjack

    OK you’re probably right and I’ll try to be more civil. In this case I feel like I’ve seen a bit of a trend recently where Chris’s posts are a little lazy (as in, he’s embarked on little research to add anything to the context of an article) or make overly broad contentions, and because he doesn’t join the comments (a frustrating approach to us in the fray, but an understandable one; many blog writers do the same) there’s little to do but gnash teeth (and create nicknames). (To be honest the frustration dates back to a post about how real progressives must blindly support every union in every industry — my paraphrasing — but it’s bad form to let arguments carry across threads. Sorry.)

    Your points are all true. I was arguing that the headline and content of this post seemed to inflate the news-worthiness of the big refund and while I’d still argue that, it has nothing to do with the substance of the story itself and probably wasn’t worth whining about.

  • Indigo

    Creative accounting is creative accounting is creative accounting.

  • http://www.rebeccamorn.com/mind BeccaM

    No, the far more obvious conclusion is to stop letting rich people write the tax code.

    Your latter suggestion does not in any way guarantee a fix to the problem being caused by the first condition.

    Oh, and by the way, know who has been pushing the whole ‘flat tax’ and ‘simplify the tax code’ meme? Rich people. Because they know the stupid rubes are likely to fall for it, and end up shouldering even more of the tax burden.

  • http://www.rebeccamorn.com/mind BeccaM

    Alas, even this blog has a link to “Like” posts and repost them to FB. And it is far from alone.

  • http://AMERICAblog.com/ John Aravosis

    Hi, someone get up on the increasingly wrong side of the bed the past week or so? We don’t do personal attacks in the comments. I’ve told you guys, disagree all you want, don’t belittle people, either other commenters or people who write for us. Your comment is bitchy. And frankly, you’re also wrong. The post mentions the stock option write-off. And most people still think it’s sleazy. Not to mention, if you’ve been following the entire issue of taxes these past several years, the issue has not been that these guys are breaking the law, the issue has been that they’ve been finding cute ways of not paying taxes, legally. Starbucks, for example. Totally legal. And kind of sleazy. So I’m not entirely sure what you’re complaining about, since this has been the story for years now, that these guys can afford the best accountants who always get them out of paying taxes, while the rest of us continue to pay.

  • ComradeRutherford

    So-called ‘Think Progress’ switched to Facebook’s commenting software years ago. Now, if you don’t have a Facebook account you can’t log in to a ‘progressive’ website.

    As if Think Progress was ‘progressive’, since they are in bed with Zuckerborg who hates everything Progressives stand for: unions, decent pay, progressive politics, privacy, etc.

  • ComradeRutherford

    Double-Think: they are both true at the same time and there is nothing odd about that. 2+2=4 and 2+2=5.

  • ComradeRutherford

    Vermont has a state-wide minimum income tax rate. Even if your company made no money, it still has to pay a $250 income tax.

    I just wish the Fed could do that same thing. Charge a tax of, say 10%, on the net worth of the company. If Facebook is ‘worth’ $1B, then a 10% tax of a mere $100M sound fair.

  • ComradeRutherford

    “why I closed my account. ”

    Your account is not closed, and nothing you put on Facebook was ever deleted. Facebook owns everything you’ve ever put on there. An Austrian recently proved that when you ‘delete’ something from Facebook (including your entire account), all you are really doing is hiding that information from yourself.

  • Naja pallida

    Which is something they always seem to ignore when they complain that we have such high corporate tax rates. We could solve many of our financial problems and lower the tax rate, if they actually paid what they owed instead of doing everything they could to find ways to avoid paying.

  • nicho

    Oh yes, and in fact, corporations are ensuring that people continue to use it. Want to get a chance on that all-expense paid trip to Paris — “like us on Facebook.” Want to get a free beer at the local pub — “like us on Facebook.” Want to be get notice of specials at your favorite restaurant — “like us on Facebook.” Want to get information from your city government — “sign in with your Facebook sign-on” Want to comment on a story in your local newspaper — “Sign in with your Facebook sign-on.” I don’t sign up for any of that crap, but millions do — and that’s all that matters.

  • lynchie

    No written by the rich so the rich don’t pay taxes. No one lobbies for the poor and middle class. It is supposed to be our Congress and President but that hasn’t happened in decades.

  • lynchie

    Corporations never pay the posted tax rate.

  • Naja pallida

    Austin had a huge tech base up until around 2005 (it’s sitll pretty big)… companies like Motorola, IBM, Dell, AMD, many major game developers, like Blizzard, all had large operations in the city. To the point where they were called “The Silicon Valley of the South” for a while. Then the tech bubble burst, and much of it dried up almost over night, but I don’t think a company like Facebook would have trouble attracting talent no matter where they were located. They do have an office in Austin, that is almost always hiring. Zynga is just down the street from me too. I wonder if I could get an appointment to complain to them for getting my grandmother into Farmville.

  • Naja pallida

    Yeah, but if you remember TV commercials all mentioning “AOL Keywords”, you know how fast something can dry up. Facebook has worked very hard to put its tentacles into as much as possible, but when you rely on the user loyalty – and constantly insult that loyalty – they’re only going to be a serious contender right up until something better comes along. They’ve just been very lucky that no one, not even the powerhouse that is Google, has been capable of putting a serious dent in their model.

  • SkippyFlipjack

    Access to the best employee base in the country, for one — the Bay Area is essentially the Hollywood of the tech startup trade. They’re rolling in cash, tax rates aren’t as important as innovation, acquisitions, etc

  • SkippyFlipjack

    Everything’s cyclical but Facebook has staying power — they smartly integrated their services all across the Internet in ways MySpace did not, from their broad user base (my niece and my mom are both on Facebook) to their authentication and comment systems to bundling with electronic devices. They’ll become less “cool” as kids adopt something newer but they’ll be a force for quite some time.

    Walk into an internet cafe anywhere in the world and you’re likely to see someone — not just a travelling American — on Facebook. I don’t think MySpace ever had that kind of reach.

  • Naja pallida

    I’m just surprised they haven’t moved their HQ to another state. Not sure what benefit they gain from being in California, when they could move to, say, Texas and probably get more favorable taxation at the state-level.

  • SkippyFlipjack

    The lede in the Business Week article contains the real story: Facebook claimed a billion-dollar tax deduction for stock option grants you’d think they’d have to pay taxes on. Secondary news: Facebook’s reporting a profit to shareholders while claiming losses to the IRS.

    Drive-By Chris thinks the real story is that they got a big tax refund — which as everyone knows just means they overestimated their tax payment, and get back their own money. He also calls it a “cute accounting trick” when it’s (unfortunately) perfectly legal. Stellar news analysis, as usual.

  • Ann

    Don’t they employ thousands of people and aren’t they a publicly traded company….you’re a squirrel

  • Naja pallida

    Less than before their IPO, but still hundreds of millions of people. Yes. Until the next big fad site shows up, they’re going to remain relatively popular. But like everything on the internet, it is only a matter of time before Facebook becomes the embarrassing ghost town that is MySpace.

  • MichaelS

    At a MINIMUM, the SEC should follow Citizens for Tax Justice’s lead and require companies like these to report their tax losses as financial losses to shareholders. Right now, Facebook gets to report $1.1B in profits to shareholders, but also gets to report massive LOSSES to the US tax authorities. One of these claims is fraudulent — they can’t both be true. So which one is it, Facebook?

  • kingstonbears

    Does anyone still use Facebook?

  • guest1

    The tax code is written by rich people, time to simplify it

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