How Game Makers Like EA Mine for Tax Breaks 123
Sometimes it seems like the U.S. government's relationship to commercial video games is mostly adversarial, as when public officials vilify or move to censor games (even when the results are mixed). An anonymous reader writes with a reminder that the business side of the games business has a much cozier government link, as reflected in this excerpt from the New York Times: "Because video game makers straddle the lines between software development, the entertainment industry and online retailing, they can combine tax breaks in ways that companies like Netflix and Adobe cannot. Video game developers receive such a rich assortment of incentives that even oil companies have questioned why the government should subsidize such a mature and profitable industry whose main contribution is to create amusing and sometimes antisocial entertainment." Since filling out even a simple return can be rather game-like, maybe they're just doing what they do best.
Why the government should subsidize? (Score:5, Insightful)
"why the government should subsidize such a mature and profitable industry whose main contribution is to create amusing and sometimes antisocial entertainment"
Gotta have circuses with your bread.
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Why is it that corporations get tax breaks at all?
Why is it that the ultra-rich, mostly Republicans, get to shuffle their income through loopholes like calling it "capital gains" (taxed at a mere 15%) while the middle class get robbed blind by the tax code?
We should fix the tax code, that's no question. But the "fixes" supported by the Republicans are more Robber Baron style "crony capitalism", nothing more.
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Why is it that corporations get tax breaks at all?
Because corporate taxes in the US are stupidly high. If they didn't get tax breaks they'd go somewhere else, and who could blame them?
Comment removed (Score:4, Interesting)
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Then why are they not all in Somalia? No taxes at all there.
They don't have to go to Somalia. They could go to Germany, say, or France. They can go to almost any other country on the face of the planet. Last time I checked the US was #2 in corporate tax rates. We lose out on billions of dollars when companies recognize profits in other countries because it's too expensive to repatriate the money.
And then you just go off into generic lefty screed #235. Look, none of this has anything to do with the f
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In an ideal world, you would not have to tax the corporation but each share holder directly for capital gain and dividends. There would have no exception to the tax code except health related condition, no deduction for children, no deduction for old people, ... The tax should be a fix percentage, like 25%, of your incomes minus the minimal income to be considered poor in your state. That ceiling should not be determined by a political process but by the application of a formula that would look likes this:
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replace Ha/O by Ha/Oa
Re:Why the government should subsidize? (Score:4, Insightful)
The tax should be a fix percentage, like 25%
A fixed percentage could only ever be ideal if it was a wealth/capital tax and not an income or sales tax.
Fixed percentage income (and sales) taxes lead to positive feedback loops in wealth concentration, which at the very best hamper the economy severely and at worst causes a total economic collapse.
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I specified capital gains at the beginning of my post and I did not said sales tax I talked about a luxury goods tax. if you include those in the income, why would it leads itself to a positive feedback loops in wealth concentration ?
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In an ideal world, you would not have to tax the corporation but each share holder directly for capital gain and dividends.
I've had the same thought myself. Why tax a corporation, since you can just tax the owners of that corporation?
There would have no exception to the tax code except health related condition...
Your system has already failed. Once you make any 'exception', you must now quantify and police this exception. Can I deduct my asprin? Birth control pills? My artificial leg? Then you will have others start complaining that THEY have an important thing that needs to be deducted.
And there should be a luxury taxe around 25% that applies on all alcohol and tobacco, on object worth more that 2000$,...
You are once again opening the door to more taxes. Guess what will be the next 'luxury item'? Guns? Fast food?
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Re:Why the government should subsidize? (Score:4, Interesting)
The better question is, "why do corporations pay tax at all?"
To encourage corporations to actually invest back into their products instead of stockpiling money that then is used to buy up competition.
it's simply built into the price you pay. So it's just effectively a VAT in different clothing.
Corporate taxes are on net profits, not turnover.
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VAT isn't based on turnover either.
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VAT isn't based on turnover either.
One meaning of the word turnover is sales revenue. And that is exactly what VAT is based on.
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Corporate taxes do nothing of the sort - if, as you're suggesting, the goal of a corporation, motivated by corporate tax rules, is to get income as close to zero as possible by reducing income via investment back into their products, such investment would presumably result in more income, which would simply exacerbate their "problem". Even if things worked as you imagine them to (they don't - see Apple, w
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Consider this: there isn't a single dollar which can flow through a corporation (and that's all money does: flow through corporations) which isn't already taxed:
So? Taxes has to payed in one way or another. Profit taxes tend to be very effective in that they hurt startups and companies who fall on rough times the least. They also as previously mentioned encourage reinvesting in the company and growth in general.
You sell a hundred bananas and, in so doing, generate $100 profit, however of that $100 you have to pay $50 in corporate taxes.
Meanwhile, a less profitable company only sold 50 bananas and end up making zero profits because of static costs as rent.
the net effect of eliminating that corporate tax would be a reduction in prices for your customers
No, the net effect would be that you would have to tax something else instead, like a $0.33 sales tax on the bananas.
The less profitabl
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- you seem to believe profit is a bad thing; I don't - it's what creates jobs, feeds people, pays for people's retirement, improves standards of living, etc. etc. etc.;
- you further seem to feel subsidizing less profitable (and therefore less economically efficient) enterprises by punishing (read: taxing) more profitable (therefore more efficient) companies is a good thing; I most certainly don't - you don't rewar
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you seem to believe profit is a bad thing
No, I don't. I simply believe that adding too much volatility to an already volatile system is bad. And that means that you place a decent part of taxes where they cause less volatility.
Btw, in your first post you basically claimed that it makes no difference where taxes are placed, so why are you so opposed to corporate taxes in the first place? Unless you have some ulterior agenda.
you seem to be of the view that all companies having identical profit margins is a desirable outcome of governmental policy
I simply can't see how you could have come to that conclusion, unless you think I am some kind of extremist that want 100% cor
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It's legitimately debatable whether the existence of corporations is a net positive (ie whether trading off legal accountability by shareholders for the creation of vast pools of capital does more good than harm)
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Why is it that the ultra-rich, mostly Republicans...
Yeah, because all of those Democrats in DC are all dirt poor...
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Itemized deductions? That's the biggest tax scam of all. Do it, and your chances of being audited go way up.
The tax code is the US's favorite place to enact policy, right where the poor can't use it. You can deduct mortgage payments, but not rent, because the government wants you to be a homeowner. Without mortgage payments (or cheating!), it's hard for an individual to come up with enough deductions to equal the standard deduction.
Recently, they've made various energy efficient home improvements de
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Gotta have circuses with your bread.
+1. [wikipedia.org]
Sad but true.
Tax breaks = Subsidize? (Score:2, Insightful)
"why the government should subsidize such a mature and profitable industry whose main contribution is to create amusing and sometimes antisocial entertainment"
Subsidy [reference.com]: a direct pecuniary aid furnished by a government to a private industrial undertaking, a charity organization, or the like.
So the article writer assumes that not taking money is the same as giving money. That is some screwed up logic right there. It makes me wonder why we're subsidizing this writer (by not taxing his income at a higher rate).
Sure, you can complain about the tax system and about all the tax breaks so-and-so qualifies for, but it's dishonest to say that the government is subsidizing EA. I'd even say it's pandering, since by the second paragraph they mention (and have a screenshot of) Dead Space 2. The implicatio
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What is the difference exactly between giving you $100 and lowering your tax by $100? Of course they're the same and that's why the governments favourite way to partially subsidize projects is tax breaks.
Even the politicians are honest about it, when they lower the tax on say food or books they actually say they're subsidising food or books.
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What is the difference exactly between giving you $100 and lowering your tax by $100? Of course they're the same and that's why the governments favourite way to partially subsidize projects is tax breaks.
Even the politicians are honest about it, when they lower the tax on say food or books they actually say they're subsidising food or books.
I understand where you're coming from, but there are some practical and philosophical distinctions between the two:
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They aren't the same. Tax code complexities can easily make that $100 vanish. You forget the US's little game with standard deduction and itemized deduction. You have to itemize to claim many of these tax breaks. If the itemized amount + that $100 tax break is less than the standard deduction, which can easily happen if you don't have mortgage payments, then those tax breaks are useless to you. (If you itemize, you can deduct mortgage payments, but not rental payments, because the US wants citizens to
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but remember, all those programmers with an education burn out and go work for insurance companies writing boring accounting programs when they're done with games. But they wouldn't have gotten the education without the carrot of making video games. Most game companies start as small businesses, it's one of the last industries where you can start a business by yourself and grow it into multi-millions of dollars in a reasonable time. So many game houses get small-business credits for years until they get bou
Sure, if you're a rules lawyer or have some OCD (Score:2)
"Since filling out even a simple return can be rather game-like, maybe they're just doing what they do best."
So is this the new real-time strategy game you want to sell to our future accountants? Personally I tend toward games with the fewest rules, they're more entertaining.
here's a (non)novel idea for a game... (Score:2)
"evading the IRS and taxes"
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"Since filling out even a simple return can be rather game-like, maybe they're just doing what they do best."
So is this the new real-time strategy game you want to sell to our future accountants? Personally I tend toward games with the fewest rules, they're more entertaining.
inventory
you have a staff, a lantern, and a large piece of pork.
look around
You are in a large room
there are large twisty tax breaks across the floor, all alike.
On the other side is an armored car and there are piles of gold on the floor there.
econ 101 for slashdot (Score:5, Funny)
But EA is a "job creator", so those tax breaks "trickle down" to the hoi polloi in the form of jobs.
Re:econ 101 for slashdot (Score:4, Insightful)
I think it works more like this.
1. Have somewhat obnoxious business taxes.
2. Hand out tax breaks to select businesses.
3. Power!!!
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Not only that, but entertainment is US most profitable industry,
Really? According to this, it's #51 (2008)
http://money.cnn.com/magazines/fortune/fortune500/2009/performers/industries/profits/
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Is that before or after Hollywood's accounting?
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No, corporate profits for well connected monopolies is way up due to the fiscal policy [slashdot.org] that creates this imbalance, which is basically currency destruction [slashdot.org] and thus prevention of any sort of investment opportunity, and the confused masses are searching for the solutions in all the wrong places [slashdot.org], while government comes out with bogus ideas [slashdot.org] on job creation.
Entertainment is a domestic and export industry (Score:2)
The way I see it is that tax breaks go into the pockets of the well connected rich and they do all the hiring overseas.
Entertainment is deeply rooted in language, geography and culture. The Avengers. James Bond. Harry Potter. Dr. Who. Unmistakably British. In script, story, setting and performance.
While wage scales and other incentives may make it somewhat cheaper to build your principal sets in Vancouver or record your musical score in London, the results are often quite mixed.
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There is no reason tax breaks need to translate into more jobs. From econ 101: companies maximize profit.
profit = (1-tax rate) * (tax free profit as a function of size)
maximize that function by taking the first derivate with respect to size and the tax rate term drops out--it is irrelevant to the maximization. So corporate taxes are irrelevant (in the econ 101 world).
Oh please (Score:3)
I find it amusing that other corporations would be bitching. Just about every corporation out there uses some form of voodoo accounting to show a loss regardless of their actual profits. This article doesn't show what's wrong with the video game industry in terms of tax breaks and federal funding it shows what's wrong with our country and tax system as a whole.
Show losses get yourself lower taxes and some pork and who cares what sort of sleazy accounting methods you use.
Re:Oh please (Score:5, Insightful)
From TFA, EA conforms to generally accepted account principles, or GAAP as we call it in the biz. So hop off me jet pack and don't assume because a company shows a loss they are sleazy, chadwhick. I find it quite amusing that the common folk just assumes every corporation has some evil voodoo master accountant, probably wearing a green visor with a bean counter too, sitting in the back room scheming how to make the common tax payer subsidize his/her (to be pc) business. The amount of rigamarole that a corporation such as a EA has to go through to even file its taxes costs more than what most of us make in the past 4 years combined. Yeah, the tax code has all these fancy dancy write offs, deductions and what not, but it also has something called phase outs. Yeah, phase outs. That means the nice little deduction that congress gave you, gets phased out over certain income levels. Take the article with a grain of salt. Its a complicated subject that takes years to master and it was written by somebody with a liberal arts degree who asked 2 questions to 2 people.
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"I find it quite amusing that the common folk just assumes every corporation has some evil voodoo master accountant,"
Does the financial crisis wring a bell? Maybe, just maybe you missed this...
Video (trillions in secret special give-aways)
http://www.youtube.com/watch?v=cJqM2tFOxLQ [youtube.com]
http://dailybail.com/ [dailybail.com]
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I find it quite amusing that the common folk just assumes every corporation has some evil voodoo master accountant, probably wearing a green visor with a bean counter too, sitting in the back room scheming how to make the common tax payer subsidize his/her (to be pc) business.
You mean there's a company out there who's accounting department isn't trying to minimize their tax burden? Isn't that their job? Accountants don't come up with new laws for tax breaks, of course. Big companies have lobbyists fo
Re:Oh please (Score:4, Interesting)
Well the problem is that when we here record profits what they REALLY mean is record EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) which is a fancy way of saying we made sales, and cut costs.. before then the accountants will start their magic JuJu to whittle the taxable portion down as far as they can so they don't have to pay dividends to shareholders. That's where executive salaries come in because companies would rather pay for ridiculous properties in New York City, multi-million dollar salaries, hoard huge sums of lucre, and racing teams than pay out the dividends or taxes. When the CEO wants X million dollars that's where it comes from... In normal business accounting you WANT to be paid out of the non-EBTDA money... because that's what investors and efficiency guys don't question.
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I guess most people have learnt from Enron and Arthur Anderson Accountants that even the accountants can't be trusted once they get the benefits from closing their eyes. So while you are in all likelihood correct, the damage that has been done to the reputation of accountants the world over is pretty hard to repair.
Re:Oh please (Score:5, Funny)
Constructive Cannibalism +1.
Just don't do it too often - they tend to be high in fat.
Making jobs (in crime) (Score:2)
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The fact you assume he uses an accountant to find tax dodges as a given says something about you.
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The game industry is not too bad in that regard; they outsource much less of their development than someone like IBM.
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Obvious fix: (Score:3, Interesting)
Simplify the US tax code, so that it does not manipulate the market by rewarding/penalizing different industries, based on what legislator wants to curry favor with a particular company.
Of course, that leaves a lot less opportunity for graft and corruption, so the odds of it getting done in DC are slim to none.
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"Simplify the US tax code, so that it does not manipulate the market by rewarding/penalizing different industries"
You're under the delusion that any system can't be gamed, all tax systems are gamed by corporations and lobbyists - just who do you think is electing your president and writing your laws? Until Americans start becoming well informed and involved seriously in understanding how the relationships between business and government works you will all forever be lost.
complexity = shenanigans (Score:2)
The following are both true statements.
The US has one of the highest corporate tax rates in the world.
The US has one of the lowest corporate tax burdens in the world.
There is a lot of scope for simplifying. For example, the US is one of the few companies that tax income no matter where it is produced. Most countries only tax corporate income on the income produced within that company. So US multinational companies are at a disadvantage because they have to pay corporarte tax twice [both US and foreign]. Ins
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Wow! That was easy. Now the hard part. Define "income".
My brother-in-law worked as a shift supervisor at a local printer. His work never took him out of the plant. He was given a company car to drive. Is that income?
I get a relatively nice health-plan where I work. Is that income?
The company often pays me to travel. Puts me up in a fairly nice places and lets me eat at restaurants I'd never go to on my own dime. Is that income?
Even in Canada they do it (Score:4, Interesting)
I worked at a video game company here in Vancouver, and I remember tax time being interviewed by a consultant about my "R&D" innovations. Anything, I mean ANYTHING, even remotely like R&D. "Uh, you mean even the work I spent optimizing the code?" "Yes."
I was told at one point in the company's history, our biggest source of income were tax credits from the Government of Canada.
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While I did not work in video games, I had similar experiences while working in Canada. Those tax breaks were huge for our company even though I would not call what we did R&D.
One coworker got headhunted into a much better position just due to the fact that he had hands on experience in getting these tax breaks for our company and a sizable bonus based on a percentage of the money he could get for the new company.
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I was told at one point in the company's history, our biggest source of income were tax credits from the Government of Canada.
Was that time the first year or so? Many tech companies go the first couple years on government grants alone. What private investor with reasonable funds would risk their money on something that's not guaranteed to return 11% in Q3? I actually think its one of the best things the government does. Sure there is favoritism and corruption but we should try (however impossible it may sound) to fix that, not cut R&D spending.
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I was told it was the first five years. In those first five years, they released profit making games.
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I too have worked for Canadian companies doing software development, and as best as I can make out the Canada R&D tax credit is basically a 'D' (development) tax credit which pays companies to do what they would be doing anyway.
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Texas is an anagram of taxes.
You can find more interesting trivia at www.wikipedia.org.
Accountant and lawyers are misunderstood gamers... (Score:4, Funny)
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Funnily enou
Poor oil companies (Score:1)
Hey! The video display on their pump plays crap while I'm filling up. Maybe they could get the entertainment credit for that.
Oil companies? (Score:1)
entertainment? (Score:2)
"Because video game makers straddle the lines between software development, the entertainment industry and online retailing, they can combine tax breaks in ways that ... Adobe cannot.
Entertainment is what it takes, eh? Sounds like Adobe needs to put this [p01.org] into their website! Or maybe they can make a trailer for CS6, and add nuclear strikes or even a BFG 10000. They can add a mode where software developers break the hearts of artists by suggesting they change their design. Suddenly work becomes more fun and Adobe gets tax breaks. Win-win.
Really no surprise (Score:2)
Toss it out, start over, and if it grows longer than the Hong Kong tax code (about 200 pages) - Congress is fired and a new group of people start the task. Flat rate, single deduc
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Really, a tax like that should be progressive and have a cutoff on the low end pinned to real income.
In the beginning, the vast majority of wage earners were not even required to file a tax return, much less actually pay income tax. Anyone who made enough money to be required to file most likely already employed an accountant.
While in perfect proportion, losing 20% of 30,000 a year hurts a lot more than losing 20% of a million a year. However, all of that can be expressed in just a page or 2.
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Start with an exemption that is 200% of the poverty line (poverty line for a single person is $10,890), and then index it for inflation. One deducti
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But that would mean rich people actually have to pay taxes. We can't have that!
(Seriously, though, politicians' campaigns are sponsored by corporations and people with money, so a tax code that doesn't outrageously benefit them is pretty much out of the question.)
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Indie developers? (Score:2)
So tell me, if EA can deduct all developer salaries as R&D expenses, why can't an indie developer likewise deduct his entire paycheck and pay no income tax?
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The indie game developer, with the right business structure, could probably deduct his paycheck from his business, so he doesn't have to pay as much tax on his business profits, but then it turns into personal income, and he has to pay payroll taxes from the business, as well as payroll taxes as an individual, plus Social Security, Medicare, unemployment insurance...
On a related note, billionares like Warren Buffet famously only pay ~15% on his long-term capital gains and dividends, but the government ha
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However, Buffet himself has said flat out that he pays a smaller percentage on his overall income than his staff do. He argues that the fix for the current economic problems requires that people at his income level be taxed MORE.
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At least here in Canada, salaries/wages are taken off the revenues before they calculate the tax. If you've formed a corporation as an indie developer you can (as the corporation) write off the salary as a cost of doing business, but don't get ahead of yourself. You as the individual working for your own company still pays personal taxes on all gains, so in the end do you really win more than just being a sole proprietorship? That depends on a ton of variables.
"But largely because of deferred revenue, deduc
Huge Tax Irony (Score:1)
Here is a huge tax irony. A business that must repair its equipment to do business gets to write off its cost of repairs. However, a salaried wageslave person who has to go to the doctor to get fixed up, cannot write off the cost of their repair, i.e. medical cost, except through a complicated series of tax actions. The reality is, and has been, the wage slave middle class are the slow moving, easy tax targets -- the sheep to be fleeced. If the politicians wanted to be fair, they would allow individuals to
what should happen (Score:2)
Companies should be encouraged to provide Medical Insurance for their workers. On a yearly basis this could of course be partly written off as a "cost of business" (this will get companies to actually do it). Then we get the insurance companies to provide "wellness" coverage and things roll forward to the point where if somebody falls off a ladder or just gets sick then that cost is still covered.
BTW a company should cover any kind of injury that happened WHILE ON THE CLOCK. (personally i think somebody kee
EA makes games? (Score:2)
I thought they just got paid for other peoples games.
Oil companies complaining (Score:2)
Video game developers receive such a rich assortment of incentives that even oil companies have questioned why the government should subsidize such a mature and profitable industry whose main contribution is to create amusing and sometimes antisocial entertainment.
Maybe the oil companies should clean up their messes before they start casting stones...
Is it up to the pres? (Score:3)
Wow. I didn't see the connection at first. Dawning my tinfoil hat:
Pres Clinton
Chicken ranchers.
Pres W
Mohair ranchers (Mohair is vital to the economy of the Texas Hill Country) Mohair Production [wikipedia.org]
NASCAR Track owners
Oil Companies
Hedge fund managers
Pres Obama
Automakers
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I included a link because not very many people know what a Mohair ranch is. By bigotry are you assuming I'm meaning to make Obama look bad? To spell out my point, W and Clinton gave tax breaks to friends. Obama gave tax breaks to save jobs. If you think that is bigotry, you need to look up the definition.
Why? (Score:1)
Meh. I own property in Orange County, Florida (although I no longer live there, I can't exactly get out of it unless it burns down or I get foreclosed), which means I subsidize EA. I worked there once. You're probably aware that they hire college/highschool greenhorns who either burn out or decide an asexual life is the life for them. While I do not exactly begrudge them that, I do question the need to subsidize it. End the tax breaks for these people, please. Thanks, from a guy in the Florida Keys whose li
Coming in 2012...TAX FORM HERO (Score:2)