The huge increase in profits that video conferencing company Zoom has seen over the past year is another reminder of how deeply the pandemic has changed our lives. One thing that has not changed in the face of the upheavals: Corporate America’s Ability to Avoid Paying Taxes.
Zoom reported earlier this month that it made $ 672 million in its fiscal year ended Jan. 31, up 3,200% from the $ 21 million it reported in the previous fiscal year. At the same time, Zoom announced to investors this month what federal taxes can be expected on these profits. The answer? Nada.
In fact, Zoom’s 2020 tax burden is likely to be below zero. That’s because, according to its annual accounts, Zoom posted a $ 300 million tax credit last year to use for future profits. This means that Zoom’s hundreds of millions of dollars in profit not only resulted in a tax charge of $ 0 for 2020, but will also reduce the company’s debt to Uncle Sam for years to come.
“We only tax about half of all corporate profits,” noted Matt Garner, a senior fellow at the Department of Taxation and Economic Policy, who released a report on Monday highlighting Zoom’s estimated tax burden of $ 0 for 2020.
Garner, like other experts CBS MoneyWatch spoke to on the story, said Zoom did not appear to have used loopholes or done anything other than obey U.S. tax laws. “We allow companies to legally exempt a large part of their income from taxation.”
Oversized executive compensation
The main reason for Zoom’s de minimis tax burden is the excessive compensation of executives. According to a calculation by CBS MoneyWatch based on the company’s latest financial reports, Zoom paid $ 580 million in stock bonuses in 2020 alone, much of which is likely to go to a handful of top executives.
And that’s in addition to what it pays its executives in salaries. For example, CEO Eric Yuan had a cash salary of $ 300,000 for 2020. On a single day in mid-December, Yuan paid in a stock grant of nearly $ 72 million.
There is no way to know for sure what taxes Zoom has paid or will pay for 2020. Businesses like people are allowed to keep their tax returns and payments private.
As a publicly traded company, Zoom has until the end of May to reveal how much it has paid its top executives over the past year. But even as a public company, Zoom needs to give its shareholders a rough indication of how taxes will affect profits. Tax experts contacted by CBS MoneyWatch agree that based on his records, Zoom is unlikely to have to pay federal income taxes anytime soon.
“Zoom is unlikely to pay taxes in 2020,” said Bob Willens, one of Wall Street’s top tax and accounting experts.
A spokesperson for Zoom declined to say whether or not the company paid federal taxes or answered other questions about its tax bill for 2020. In a statement to CBS MoneyWatch, the Zoom spokesman said the company “complies with all applicable tax laws in the countries in which we do business”.
The spokesman also pointed out Zoom’s R&D spending, which businesses can use to lower their tax burden, but which in Zoom’s case is not the main driver of the tax savings.
While Zoom did not report spending on a U.S. federal income tax payment in 2020, it estimated that it is expected to pay up to $ 5.7 million in total taxes in 2020, much of it to foreign governments. Zoom made $ 14 million in overseas pre-tax profit last year and paid nearly $ 4 million in taxes on that income, which equates to a tax rate of 28%. The factor in the company’s US profits and tax payments and Zoom’s overall tax rate for the last year falls to just 0.8%, far less than the 21% companies are expected to pay before federal income tax deduction.
If you paid $ 14.99 per month for a Zoom Pro membership, you paid more to Zoom than you paid federal income tax, despite making a profit of $ 660 million last year – an increase of 4,000 percent since 2019. Yes. It’s time to put an end to rigged tax laws that benefit the rich and powerful. https://t.co/P6hQnpWAPT
– Bernie Sanders (@SenSanders) March 21, 2021
Share awards as tax breaks
The main source of tax savings from Zoom and that of a number oflike Amazon is its Executive Stock Grants.
This is where things get a little tricky. When reporting their profits to investors, companies may issue share awards at the price they are worth on the date they are granted. But when it comes to taxes, companies are allowed to write off the greater amount those stocks are worth the day an executive actually redeems them.
So if you have a company like Zoom, which tends to issue lots of stock awards (3.3 million shares last year alone) with its share price rising (up nearly 400% last fiscal year), you’re getting a pretty big gap.
As a result, in the case of Zoom, the company told its shareholders that issuing shares to executives cost the company $ 275 million last year. But it told the IRS that the same stock grants cost the company $ 580 million, or $ 305 million more, which was enough to clear the more than $ 140 million it received in taxes on its 670 profits Should have owed millions of dollars. And then some.
Despite this double treatment, Steven Rosenthal, Senior Fellow at the Urban-Brookings Tax Policy Center, says the way tax law deals with stock options makes sense. Businesses are generally allowed to write off the total value of their employees, be it in cars, cash, or some other requirement. Make an exception for stock awards and, according to Rosenthal, you will have other loopholes for companies to take advantage of.
On the other hand, employees have to pay taxes on what they earn, which would cover the value of the option if exercised that is not granted. And for tax collection and enforcement purposes, it is much easier to collect tax at the time a stock option or grant is sold by the employee than when it is issued by the company.
“From a tax point of view, it’s good policy,” said Rosenthal. “It’s only half the truth to say that Zoom didn’t pay taxes because executives picked up the income and paid the taxes.”
Others disagree. Bernie Sanders, Senator from Vermont, thundered on Twitter this week: “If you’ve paid $ 14.99 a month for a Zoom Pro membership, you’ve paid more to Zoom than you paid federal income taxes … It’s time to get one End rigged tax law that benefits the rich. ” & powerful. “
President Joe Biden has not yet released any proposals to increase corporate taxes, although he has announced that he will. In the past, he has said that the amount of taxes companies pay should be more closely related to their reported profits than they are now.
“There’s nothing extraordinary or illegal about what Zoom is doing here,” said Garner, the author of the report on Zoom’s $ 0 tax bill. “The real question is, at a time when many companies have struggled to keep the doors open, if a company that had the success of Zoom last year fails to pay taxes, who is.”