NEW YORK, USA (CNN) — Elon Musk has repeatedly bragged, or perhaps complained, that he will pay more federal taxes for 2021 than anyone, regarding $11 billion. But it looks like Tesla won’t pay a dime.
Tesla may not pay federal taxes anytime in the foreseeable future, even though the company just announced its most profitable year ever. In 2021, Tesla reported net income of $5.5 billion, and adjusted income of $7.6 billion.
But the company reported that its US operations lost $130 million last year before taxes. The company claims that all of its pre-tax profit, more than $6 billion, came from overseas operations, even though 45% of its revenue came from US sales.
Although Tesla reports that its foreign tax bill was $839 million, its state tax bill was only $9 million. And her federal tax bill was zero.
“This defies common sense, but it does not defies US tax law,” said Martin Sullivan, chief economist for tax analysts and an expert on US corporate tax practices.
Transferring profits abroad..on paper
Sullivan said he believes the $130 million loss on its US operations is likely due to a common practice for US multinationals: to structure their operations so that outside affiliates report the income, leaving the US company without taxable income. Absolutely.
Tesla doesn’t expect to pay US taxes anytime soon
Given the significant financial assistance Tesla has long received from government subsidies for its electric cars, the company doesn’t have to use a bogus game to move its profits overseas to avoid paying taxes. Instead, she can use past losses to protect her current income from any tax bill.
Tech companies that lose money for years before turning a profit like Amazon have used this method. So do legacy airlines with financial problems, which will likely not have to pay taxes for years to come following posting billions of dollars in losses during the coronavirus pandemic, despite receiving billions in federal aid.
Tesla had been losing money for more than a decade before it finally started reporting net income in 2020. These were real losses, occurring when the costs of developing and building its cars in their early years outpaced the money they might sell for. It did so with the expectation that it would turn a profit in the future with increased demand and lower costs. This is exactly what happened.
But, by incurring billions of dollars in losses, Tesla has been able to accumulate a net portable operating loss that can be used in the future.
Is Tesla losing money in America?
There’s another possible reason for Tesla to report a pre-tax loss on its US operations: one that’s less an accounting maneuver designed to lower taxes so much as a warning sign regarding the company’s viability. It may still be losing money on cars it sells in the US, and it can only make money using the low costs of a relatively new factory in Shanghai, China.
Rare huge tax bill for Mask
Musk has a history of using US tax law to pay little or no personal federal income taxes. A report by ProPublica shows that in 2018, Musk and many other Americans considered to be among the world’s richest people did not pay any income tax.
In Musk’s case, he gets no salary from Tesla, only very valuable stock options, as a form of compensation. Under US tax law, he does not have to pay taxes on these options unless he uses them to purchase some type of stock.
He would also have to pay taxes if he sold the shares he already owned due to his previous investment in the company, which he rarely did.
The combined stock deals he made will likely result in a nearly $11 billion federal tax bill, which he tweeted regarding.
But it may be the last time for years to come that he will pay a significant federal tax, unless Congress approves one of various proposals to tax the net wealth of the country’s richest individuals, rather than just their income.