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Why Aren’t More Companies Moving to Nevada? Apple Is!

 

A recent article published in the New York Times, highlights how Apple is taking advantage of Nevada’s 0% corporate tax rate.

Apple has created a subsidiary for their $100 billion in cash that invests in bonds and other low risk financial instruments. All the interest earned, $2.5 billion since 2006, has been shielded from state income tax because it is a Nevada subsidiary. By creating this Nevada subsidiary, Apple has saved $221 million by not having to pay California’s onerous 8.84% corporate tax. There are many other technology corporations headquartered in California that have billions in cash that could do the same as Apple.  Cisco Systems Inc. has over $35 billion in investments, Google $34 billion, and Intel $5 billion just to name a few. These corporations could save millions of dollars each year if they would just relocate some employees to Nevada a couple hundred miles away and shield their investment income from California state tax.

I have always lamented over how Nevada doesn’t get more businesses to relocate here when there is no corporate and personal income tax as well as low property taxes compared to say Texas, another state with no income tax. More motivation should be that home prices are significantly lower in all parts of Nevada compared to California. Sure, our school systems have extremely low graduation rates, but when it comes to saving millions of dollars, money trumps all. Corporate CEOs and their employees should gladly move to our great state at the prospect of saving millions of dollars personally and for their businesses.

Just yesterday, June 27th, 2012, Apple announced they are relocating to Reno their servers for cloud computing and ITunes, and their business and purchasing center.

I’m sure tax savings, in addition to savings from cheaper land, labor and electricity, was a factor in this decision. I’m guessing Apple’s income from ITunes and portions of their business is now being sourced in Nevada, potentially saving millions a year in future taxes. Let’s hope this is the start of a trend of companies wising up to the high costs of doing business in California!

 

As I’m staring at an article in Business Week, I keep searching for the article to explain why my company wants to pay for something we already have. The “cloud” is by definition just a network of computers and the reason they came up with the name is because of the original diagram shape of the internet (a cloud). In the cloud are networks, applications, data, servers, etc…the usual stuff, which I already have.

What am I paying for with the cloud? In all respects you are paying for three things – security, expertise and opportunity costs.

Supposedly there are armed guards guarding these database centers where your cloud is located. Ok, that’s a step up from the glass windows and wooden doors at the office. Security covered.

The expertise consists of IT managers making sure you get the right amount of speed and continuous accessibility of your information.

The opportunity costs could add up. As accountants, we think of everything to make the cloud have superior cost effectiveness over a server. The cost of the server, say $5,000-$10,000 a year depending if you buy a new one, the IT personnel hired, the relevant costs of your business growing out of your current server, the rent space, carrying costs and the electricity overhead of the server.

But in order to take advantage of these opportunity costs you would have to do a lot of service analysis. How much accessibility will you need? When will your accessibility needs change? What services do you require? In accounting there’s busy season and then there’s really busy season, so calling up the cloud and saying you are going to increase your accessibility requirements and pay more the next couple of months isn’t the easiest estimate. If estimating sales variability and growth at the drop of a hat were that easy then we’d all be working alongside guys named Professor X and Obi-Wan Kenobi.

The cloud is having all your information online, in real time, freely secure and accessible all within reach. But that distance is only as far as your nearest wi-fi connection, and that’s what it truly boils down to. Sure wi-fi and Internet hot spots are popping up exponentially but they just aren’t everywhere yet. Until they do I look forward to the days without a cloud in the sky.





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