Darwin Bond-Graham
Yesterday San Francisco’s politicians announced that Google, Apple, and other Silicon Valley companies will be charged for the use of the city’s bus stops. Until yesterday the private buses, untold numbers of them, enter the city each morning to pick up thousands workers headed for corporate campuses in San Mateo and Santa Clara counties to the south. Each evening they return to drop employees off, and while they clog city streets and impede the movement of the city’s public buses, the companies haven’t been made to pay a dime for using taxpayer infrastructure.
Private tech company buses are arguably the most conspicuous symbol of inequality and displacement that is tearing California’s Bay Area apart. They hyper-mobility they provide for tech company employees translates into rising rents in the Bay Area’s urban cores of San Francisco and Oakland and displaces those whose incomes aren’t keeping pace with real estate prices. The tech company buses are also a lesson in how many Silicon Valley giants have become incredibly valuable. The biggest tech companies thrive off taxpayer supports, be they bus stops, public universities, or telecommunications infrastructure. At the same time they aggressively avoid taxes themselves. They’re the archetype of the free rider, the shameless citizen who takes from the collective to amass private wealth and doesn’t give back to community without a fight.
Google, for example, will now pay San Francisco about $100,000 a year to run its buses into into the city, according to the Metropolitan Transportation Agency’s director Ed Reiskin. Google, however, is one of the most aggressive tax avoiders. $100,000 is insignificant to Google’s bottom line. It’s 0.000002 percent of Google’s 2012 revenue. It’s one one-hundredth of one percent of Google CEO Eric Schmidt’s 2011 compensation. It’s hardly a rounding error in the company’s quarterly accounting reports.
The statutory U.S. corporate income tax rate is 35%, meaning that a corporation should be expected to pay 35 cents of every dollar in earnings to the feds. Depending on who you ask, Google pays much less than this, mainly by employing a strategy known as transfer pricing.
Through transfer pricing Google assigns ownership of valuable intellectual property to foreign subsidiaries, and claims that certain economic activities take place in a specific jurisdiction that are outside of the Internal Revenue Service’s reach, and inside a low tax jurisdiction. This jurisdiction is Ireland, where many of the tech companies have established offices in order to take advantage of virtually non-existent tax rates. Google and its tech industry peers state ritualistically in their securities filings that all revenues assigned to these low-tax, offshore jurisdictions will be indefinitely reinvested abroad. Here’s what Google actually wrote in their 2012 annual report:
“As of December 31, 2012, $31.4 billion of the $48.1 billion of cash, cash equivalents, and marketable securities was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we would be required to accrue and pay U.S. taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.”