From the course: Accounting Foundations

Tesla and tax planning

From the course: Accounting Foundations

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Tesla and tax planning

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- The payment of income taxes is a large and important business expense. - For example, every year Microsoft spends as much paying its income taxes, about $5 billion, as it does on all its other general and administrative expenses combined. Procter and Gamble, the large consumer products company, spends more on income taxes each year, about $3 billion, than it does on researching and developing new products, about $2 billion. - So businesses are very careful to plan their operations to legally minimize the income taxes that they pay. - [Instructor With Glasses] In fact, countries, provinces, and states use their income tax rules as bargaining tools to attract businesses to their areas, bringing jobs and other economic activities. - Let us give you one example. Now, in 2014, Tesla Motors negotiated with many different states in the United States as the company was deciding where to build a large lithium ion battery factory. The factory was expected to cost $5 billion to build and was expected to employ 6,500 people when in full operation. - [Instructor With Glasses] The U.S. states of Nevada, Texas, New Mexico, Arizona, and California offered tax breaks to Tesla to induce the company to locate the battery factory in their state. - [Instructor Without Glasses] The winner was Nevada, which offered $1.3 billion in tax incentives over 20 years. - This is an example of tax planning. In addition to all of the energy, transportation, and local workforce factors considered by Tesla in deciding where to locate its battery factory, the company also considered the tax implications. - Good business practice as well as good personal financial management involves careful income tax planning. - Let's learn some basic principles of income tax planning.

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