But using Apple’s corporate accounting profit to arrive at its effective global rate of 9.8% is dubious because profit figures are different numbers versus the taxable income figures companies report to the Internal Revenue Service. A look at Apple’s filings with the Securities and Exchange Commission shows the more appropriate effective rate for Apple is likely more than double the 9.8% effective rate the Times reported. Apple already reports in its filings that its global effective rate for both 2011 and 2010 is 24%, and its effective U.S. federal rate is likely 20.1%. Moreover, its global effective rate for 2009 was 31.8%.I did look at Apple’s 10K filing for fiscal year ended September 24, 2011 and some of what the New York Times wrote is basically correct:
Apple’s accountants have found legal ways to allocate about 70 percent of its profits overseas, where tax rates are often much lower ... In Apple’s last annual disclosure, the company listed its worldwide taxes — which includes cash taxes paid as well as deferred taxes and other charges — at $8.3 billion, an effective tax rate of almost a quarter of profits … tax experts say that strategies like the Double Irish help explain how Apple has managed to keep its international taxes to 3.2 percent of foreign profits last year, to 2.2 percent in 2010Income before provision for income taxes was $34.2 billion while the tax provision was almost $8.3 billion. So the reported effective tax rate was over 24% not less than 10%. But the New York Times article noted that. So let’s go to the details as reported in Note 5 (Income Taxes), which notes that foreign pretax income was $24 billion with about $10 billion in reported US taxes. In other words, Apple did allocate 70% of its profits overseas. Foreign taxes were only $0.6 billion or 2.5% of its foreign pretax income. So why was its tax provision so high? The Federal portion was almost $6.9 billion due to almost $3 billion in deferred Federal taxes. The one thing that troubled me about the New York Times article was its claim that Apple avoided California taxes with its Nevada operations. This not only ran contrary to my understanding of how California tax law works but seems to be contradicted by the fact that the state tax provision was almost $0.8 billion or just under 8% of US pretax income. Two parables I guess – (a) understanding tax provisions isn’t always easy; and (b) don’t trust everything you read in the news especially if it is from Fox.