Facebook Inc. Pays No Taxes in 2012

Food, Inc. on Facebook (Photo credit: Jory™)

Facebook Inc. Pays No Taxes in 2012

In their most recent filing, Facebook Inc. reported not paying any taxes on their 2012 income of $1.1 billion. There are a number of reasons that a company would not pay taxes on such a sizable amount of income and this case it appears that loses from prior years and the granting of stock options to employees are the main reasons. The company lost money during earlier pre-IPO years when it was growing and only beginning to monetize its services. In addition the company gave stock grants to employees to a large degree which is common in the technology industry. These stock options are considered business costs and are therefore deductible.

The company could have paid around $385 million on the income if not for the two offsets. The law is clear and allows both tax deductions that were taken. The country wants young companies investing in themselves at a loss while products are developed and territories are added. And stock options are better taxed at the individual level than at the corporate level. Facebook CEO Mark Zuckerberg  reportedly paid near $500 million in taxes on the options that he exercised shortly after the IPO. This is quite a bit more than the tax that the company would have had to pay for the year. And there were a good number of others that also exercised options recently.

Any report that Facebook Inc. should have paid the tax and not been allowed to take the deductions is incorrect and doesn’t consider all the tax liabilities at all levels of the players involved.

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