Friday, April 30, 2004
Although the top U.S. corporate tax rate is 35%, Google reported an effective tax rate of 59% in the third quarter (down from 70% in the second quarter) because of its treatment of employee stock options. Google takes a conservative approach and deducts costs associated with the options, thus lowering its pretax income (the denominator in the ETR calculation). As Gordon Smith points out on his Venturpreneuer Blog, Google’s 59% ETR greatly exceeds the ETRs for the S&P 500 (28%) as a whole as well as the high-tech companies in the index (32%), as calculated by George Yin in his recent article, How Much Tax Do Large Public Corporations Pay? Estimating the Effective Tax Rates of the S&P 500, 89 Va. L. Rev. 1793 (2003), blogged here last week.
2 responses to “Google Pays 59% Tax Rate”
Google’s Taxes
Google’s effective tax rate last quarter was 59%! And that is down from 70% in the quarter before. To get a sense for how high those numbers are, compare them to the averages here. The cause of Google’s tax woes?…
If pretax income drops, doesn’t that also mean the tax rate moves downward with it. Or does the IRS look at options expenses differently — i.e., on the income statement, net income will be reduced, but the actual taxed amount is higher when options are expensed?
thanks!