We’ve written ad nauseam in this space lately about Apple (Nasdaq: AAPL) being the richest company on the planet. Here’s yet another reason why the mega tech stock has so much cash.
A report in today’s New York Times details “How Apple Sidesteps Billions in Taxes.” By having small offices in states like Nevada, where there is no income tax, and Ireland, the Netherlands and Luxembourg, where taxes are low, Apple manages to avoid the astronomical corporate tax rates one might suspect would be bestowed upon the world’s most profitable company.
As the Times report reveals, Apple paid $3.3 billion on $34.2 billion in profits last year – a tax rate of 9.8%. By comparison, Wal-Mart (NYSE: WMT) paid $5.9 billion in corporate taxes on $24.4 billion in profits – a tax rate of 24%. By opening offices in zero- and low-tax areas, Apple trimmed about $2.4 billion from its tax bill, according to a study performed by economist Martin A. Sullivan.
So the $28.5 billion in cash Apple has on hand is partly a product of paying lower taxes. No wonder the company was finally able to offer a dividend.
Not that what Apple is doing anything illegal. Many companies in the tech industry have managed to sidestep tax codes since many of their profits come from either digital products or royalties on intellectual property, which makes it easier for them to transfer those profits to low- or no-tax areas. According to the Times, the 71 tech companies listed on the S&P 500 paid an average of one-third less taxes over the past two years than other S&P companies.
So Apple is playing by the rules. Like many tech companies, it has found a way to circumvent them.
That’s one advantage tech stocks have over your average retail stock. And yet another reason Apple has been stockpiling so much cash.