Zoom’s pandemic popularity saw company profits increase by more than 4,000 per cent yet it has paid no federal corporate income tax, according to a new report.
Zoom Video Communications reported that it made a $660m (£476m) pre-tax profit in 2020, up from $16m (£11.5m) in 2019, according to the non-profit Institute On Taxation and Economic Policy.
Zoom’s video conferencing platform was widely used by remote workers and school children across the US due to Covid social distancing and quarantine measures.
“The immediate shift to online activity explains the company’s unprecedented income growth. For many, Zoom has become a ubiquitous daily meeting space, both for work, class instruction, family gatherings and evening happy hours,” said an ITEP report.
“But why was the company’s income bonanza not matched by at least a token federal tax bill?
“The main answer appears to be the company’s lavish use of executive stock options. Zoom’s income tax reconciliation says it reduced its worldwide income taxes by $300m in 2020 using stock-based compensation.”
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The ITEP report states that companies that compensate their leadership with stock options can write off, for tax purposes, “huge expenses that far exceed their actual cost”.
And the report added: “The company appears to have enjoyed tax benefits from accelerated depreciation and research and development tax credits.
“Notably, the combination of three tax breaks appears to be the recipe that Amazon and Netflix have used with such success to reduce their federal tax bills during the Trump corporate tax era so far.”
Zoom’s success during the pandemic saw it with $4.2bn in cash and equivalents on hand at the end of the 2020 fourth quarter.
“Zoom complies with all applicable tax laws in the countries where we do business. Zoom has invested heavily in research and development activities to build and enhance its communications technology— development activity that is specifically encouraged under current law,” a Zoom spokesperson told The Independent.
“We are proud of the role we have played through this technology in supporting and fueling the US economy, particularly during the pandemic, enabling tens of thousands of businesses and schools to continue operating.
y-c-c on March 22nd, 2021 at 02:35 UTC »
Stocks compensation:
This part didn't make sense to me at all. This is just saying that they paid their employees (executives are still employees) a lot of money. But those stocks compensation still have to be paid via income tax on the employee side, so it's not like any taxes got skipped there.
P.S. Ok, there are some nuances here depending on whether it's RSUs (basically just stocks) or ISOs (tax-advantaged stock options). RSU grants are taxed as regular income, so no tax is lost here. ISOs are heavily tax-advantaged, but they trigger AMTs if you exercise them so it's likely they will still end up paying taxes, and there is a $100k / per year limit, so if we are talking about "lavish" amounts, I would imagine most of the stock options cannot be granted as ISOs (remaining amounts would get converted to NSOs, which are less tax-advantaged).
TLDR: Using stocks compensation to evade tax makes no sense to me. I would love it if someone can point out flaws in my logic though.
Tommyownzall on March 21st, 2021 at 22:33 UTC »
Most likely Zoom operated at a loss for several years and only started making positive net income during the pandemic thus offsetting their taxable income.
mreed911 on March 21st, 2021 at 19:18 UTC »
TL;DR: Zoom followed US tax law.