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  • Getting Emotional About Apple’s Tax Payments

    May 24th, 2013

    So a certain liberal talk show host was busy ranting the other day about how Apple was avoiding taxes. Trying to portray himself as a man of the people, he speculated that Apple wasn’t even paying for the trash pickups at One Infinite Loop. Oh the injustice of it all!

    Unfortunately, it appears that the radio host in question maybe read the headlines about Apple’s appearance before a Senate committee earlier this week, but ignored the substance of the issues. He came across as assuming Apple paid no taxes, and thus should be taken to task. He avoided the fact that Apple still pays billions in corporate taxes to the U.S. Treasury.

    As usual with politically charged issues, the broad gray areas were ignored. So, for example, such companies as Apple, Google and Microsoft, and such wealthy individuals as Mitt Romney, routinely shield huge amounts of income from the tax man because they can. The tax laws in this country, both personal and corporate, comprise a mass of loopholes that can be exploited if you have some smart accountants to guide you through the mud.

    Indeed, it does appear that Apple didn’t violate any laws. As with any profit-making company, they simply took advantage of them. But CEO Tim Cook reminded the Senators that Apple doesn’t hold bank accounts in the Caribbean or Cayman Islands, as other companies do.

    In the course of his presentation, Cook said that Congress needs to overhaul the tax laws, to simplify them and make them more equitable. To the surprise of some, Cook admitted that if Apple paid more as a result, so be it. However, repatriating all that cash that’s being held abroad wound, under current regulations, cause them to send about a third of it to Uncle Sam. So the answer is no. And, no, I’m not going to get into the issue over whether Apple is gypping the government of Ireland out of millions or billions of dollars of tax revenues. That’s above my pay grade.

    Unfortunately, the chances that the tax laws will be changed in our lifetime in any significant way, at least to make them easier to prepare, is probably little to none. At a time when Washington frets over whether some conservative groups were improperly singled out for extended review when applying for tax exempt status, it’s doubtful that the real problems will be dealt with. Sure targeting specific groups, right, left or otherwise, is bad form, but it doesn’t change the crazy quilt of regulations that can confuse and befuddle almost anyone without an accounting degree. And that includes IRS employees.

    Now it does seem certain that some Senators hoped to make hay out of interrogating Cook and other Apple executives. But Cook has gotten high marks for staying on point, and cleverly deflecting even the most difficult questions. Attempts at grandstanding fell short, and when such hard-boiled politicians as Senator John McCain almost fawned over Apple when he fretted that his iPhone required too many updates, you can see that Cook did what he had to do. In the wake of that session, Apple’s stock price even trended up slightly. Wall Street was pleased, and even those who continue to call for Cook’s ouster must have been nonplussed at the way it all turned out.

    Of course, the bigger argument is not lost tax revenues, but the fact that Apple still assembles all their “iconic” products overseas, mostly in Asia. Sure, they use parts built in the U.S.A., but you can see where the complainants were fired up. In saying that, how many of those Senators would be happy to pay extra for their iPhones and iPads — and we know many of them use Apple gear — in exchange for a “Made in the U.S.A.” label?

    Cook did reveal that, as promised, a refreshed Mac will be built in Texas some time this year. He has yet to say which model, although the facts may be revealed during the WWDC keynote on the morning of June 10. I’ve suggested that the Mac Pro would be the best candidate, simply because it is a (for Apple) limited production product with an extremely high average selling price. There’s plenty of room for inefficiencies, and Apple will have a reasonable amount of time to fix production bottlenecks, should they occur, without killing Mac sales for an entire quarter.

    Certainly the 2012 iMac experience rankles. Cook has already admitted that it would have been better to introduce a major iMac upgrade after the first of 2013. That way, customers wouldn’t have to wait weeks or months to get delivery. Apple lost hundreds of thousands of potential sales introducing this model prematurely, and it seems certain that’s a mistake they hope to avoid.

    So does that mean that more Macs will be built in America beyond a single model? That’s hard to say, but as salaries climb in China, it will become less economical to assemble Apple gear there. Since Foxconn also operates in the U.S.A., it would seem that potential production hangups can be overcome in a reasonable amount of time. Apple’s profit margins are sufficient that, with improved productivity, it might even be possible to recover all or most of the loss from assembling gear in a country where salaries are much higher.



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