From the course: Finance Foundations: Income Taxes

Tesla and tax planning

From the course: Finance Foundations: Income Taxes

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Tesla and tax planning

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- Now the payment of income taxes is a large and important business expense. - For example, every year Microsoft spends as much paying its income taxes, $5 billion, as it does on all of its other general and administrative expenses combined. Proctor & Gamble, the large consumer products company, spends more on income taxes each year, about $3 billion, then it does on researching and developing new products. That's just $2 billion. - So businesses are very careful to plan their operations to legally minimize the income taxes that they pay. - [Man In Gray] 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, have you ever seen a Tesla electric car? - A matter of fact, I've seen bunches of 'em. The first one I saw was in front of a hotel in Hong Kong. I looked at it, but I didn't dare touch it. - A big technical problem, maybe the big technical problem, with electric cars is battery technology. - Correct. Battery cost, charging time, and travel distance on one charge are key battery technology challenges. - [Man In Blue] Now in 2014 Tesla Motors negotiated with many different states in the United States as the company decided 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. - [Man In Gray] 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. - [Man In Blue] And the winner was Nevada, which offered $1.3 billion in tax incentives over 20 years. - Now 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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