Friday, April 22, 2011

I'm not sure what to make of complaints that BP gets to deduct its gulf clean up costs from its tax return...

It certainly is legal to do so, those costs are definitely an expense that BP has incurred, and business expenses are legitimately written off against income. And if as a result of those costs, BP has no remaining net income, then it follows that BP isn't going to be writing a tax check to the US Treasury.

Maybe the complainers feel that BP shouldn't expense those costs, perhaps as some kind of penance for having caused the spill (stipulating that they caused the spill and were thus responsible for all of the resulting damage).

Yet, the money BP is spending is supposed to make people (and the area) whole on their losses, so not allowing BP to write off those costs imposes a penalty on BP that goes over and beyond the actual damages.

Maybe the complainers know this and they don't care. Maybe they're just out for blood.

The comment of one of the complainers seems to bear this out. Nick Nyhart, the President of Public Campaign, reportedly said ""It doesn't add up... And it sends the wrong signal to the public about preferential treatment".

What doesn't add up? The math makes perfect sense. Prior to accounting for the costs it incurred in relation to the spill, BP had a profit. After booking those expenses, BP has a loss. Companies with losses don't pay income taxes (clue: income taxes are paid by companies with 'income'... no 'income', no 'income' taxes)

And what 'preferential treatment'? EVERY company that incurs expenses gets to deduct those expenses against their income in the year they incur those expenses. BP isn't doing anything that is any different than what every other company does with their tax return. How can something be 'preferential' if everybody is doing it?

And another complainer, Steve Ellis, vice president of Taxpayers for Common Sense, while acknowledging that "This is all on the up and up" still complained that "It doesn't mean it makes it any easier for taxpayers to swallow...". Why would taxpayers have trouble swallowing? I know of taxpayers (me, for one!) who get upset when profitable companies figure out a way to not pay taxes, but I don't know of any who get upset when companies that lose money don't pay taxes. Again, it is pretty straightforward concept: if you lose money, you don't pay tax.