Apple paid fewer taxes in the United States than Exxon Mobil Corp. in 2012, yet the oil giant and others in the energy industry have received more government scrutiny for tax breaks.
Apple is the world’s largest publicly traded company by market value, a title it briefly lost this year to Exxon Mobil.
The technology juggernaut’s global tax bill, for all taxes it paid in its 2012 fiscal year, was $7.7 billion, far less than Exxon Mobil’s total for all taxes paid in the United States alone: $12.2 billion, according to the companies.
Exxon Mobil’s taxes paid in the United States in 2012 included the $3.6 billion in federal corporate income taxes, $5.8 billion in sales-based taxes and $2.8 billion in other taxes, including property taxes.
Apple paid $6 billion in federal corporate income taxes, but would not offer details on its other taxes paid in the United States during its fiscal year, which ended Sept. 29, 2012.
While the earnings and taxes for the two companies are not entirely comparable, each company did report virtually identical global earnings before taxes for the three months that ended Dec. 31, 2012: $17.7 billion.
The difference between the companies’ tax payments, however, is dramatic.
That has a lot to do with an aging tax code that allows companies to avoid paying taxes on huge amounts of cash that they keep in overseas accounts, said Daniel Shaviro, a professor of taxation at the New York University School of Law and the author of “Decoding the U.S. Corporate Tax.”
Technology companies like Apple have succeeded in attributing much of their earnings to offshore subsidiaries that own the rights to their intellectual property, Shaviro said.
That allows them to have lower taxable incomes in the United States and results in lower bills here, he said.
At the end of Apple’s fiscal year, for example, $82.6 billion “in cash, cash equivalents and marketable securities” were held by foreign subsidiaries and not subject to U.S. taxes, according to filings with the U.S. Securities and Exchange Commission.
Oil companies like Exxon Mobil likely use some of the same accounting techniques, but cannot do so to the same extent that technology companies do, since oil can’t really be separated from the land where it was found, Shaviro said.
That leaves hydrocarbon producers like Exxon Mobil paying higher tax bills than other companies of high value.
Still, some politicians have targeted oil companies for added tax revenues. Pres. Obama has proposed eliminating a tax break that oil companies have benefited from for decades. The tax provision for intangible drilling costs allows oil companies to deduct some drilling expenses for new wells from their taxable incomes.
That benefit has helped spur risk taking and innovation in the energy industry, said Stephen Comstock, director of tax and accounting policy for the American Petroleum Institute, a trade organization.
Others argue that benefits enjoyed by oil companies, or tax-avoidance maneuvers enjoyed by technology firms, should not be allowed. But the specific tax provision granted to oil companies makes for an easy target for lawmakers, said Edward Kleinbard, professor of law at the University of Southern California Gould School of Law and former chief of staff for the congressional Joint Committee on Taxation.
“The difference is that the subsidies that the hydrocarbon extraction industries receive are baked into the law,” Kleinbard said. “They are explicit subsidies baked into the structure of the Internal Revenue Code. The tax planning of multinational firms with lots of intangible assets… those tax planning stratagems are not necessarily explicitly sanctioned by the law so much as they are the consequences of an old law that has not kept up with the critical importance of intangible assets in driving the profitability of an international firm.”
So while Exxon Mobil and other oil companies do pay billions of dollars in taxes, they should pay more, as should Apple, he said.
“Right now, it is the case that Exxon pays a lot of taxes,” he said. “That’s part of their cost structure and that’s affected in the price of gasoline at the pump and everything else that ultimately consumers buy from Exxon.”
“That doesn’t, in turn, excuse outright subsidies to oil and gas production at a time when the country’s long term interests are served, if you’re going to have any kind of energy policy at all, by developing other energy technologies that have a smaller carbon footprint and are more under the control of the United States,” Kleinbard said.
The oil industry, however, has argued that the intangible drilling costs provision has spurred innovation similar to deductions granted for research and development at companies like Apple and elsewhere. And the aggressive drilling efforts that are partially facilitated by the deduction have helped renew oil and gas production in the United States, API’s Comstock said.