Facebook's recent decision to go public may be a boon for the company in more ways than one.
Facebook is structuring its initial public offering in a way that will allow the company to sidestep federal and state income taxes on its 2011 earnings, according to a report from Citizens for Tax Justice, a nonprofit advocacy group focused on tax policy. In addition, Facebook expects to see about half a billion dollars come back in the form of tax refunds.
It's all thanks to the stock options Facebook is offering its employees — 187 million stock options, to be exact.
Facebook staffers, including CEO Mark Zuckerberg, are expected to buy these shares at low prices this year and then exercise them once they hit a higher value. Because of the way the tax law is set up, whatever the difference is between the price of shares when the workers originally purchased them and their price by the time they are exercised, Facebook can deduct that amount from its taxes.
That's projected to bring in $7.5 billion in tax breaks for Facebook, including a $3 billion deduction from its federal and state income tax bill. In addition, Facebook will likely pay no federal or state income taxes this April, and is expected to get money back from the government on its 2009 and 2010 taxes to the tune of $500 million dollars.
Facebook's initial public offering has created buzz in the tech and trading worlds, but by shrugging off federal and state income taxes in a year when it made $1 billion in profits, the company is also placing itself at the center of a long-running debate over what kind of tax burden corporations should be asked to shoulder. President Obama's budget, which he released Monday, includes proposals to boost taxes on some corporations — setting him up for a battle with some of his Republican rivals.
But Facebook isn't the only major company looking to get the best deal on its taxes. There are any number of accounting strategies firms can use to reduce their tax obligations, from moving assets overseas to structuring their business in a way that passes the tax burden directly on to investors. By using these and other techniques, 30 major U.S. firms — including General Electric, Wells Fargo, Boeing and Verizon — managed to avoid paying a dime in income tax in 2008, 2009 and 2010, according to a report last fall from CTJ.
Thanks to Facebook and so many other companies deducting the value of their stock options when exercised, the Treasury stands to lose as much as $20 billion over the next 10 years, the Joint Committee on Taxation has found.