Zoom made nearly $672 million in 2020 and yet avoided paying any federal income tax, according to its latest annual report.
The Silicon Valley company, founded in 2011 by Eric Yuan, has seen its profits skyrocket during the pandemic.
Zoom reported earlier this month it made $672 million in its fiscal year ended January 31, up 3,200 per cent from the $21 million it reported making during the previous fiscal year.
The sum marks a 4,000 per cent increase on its 2019 profits.
Eric Yuan, 51, founded Zoom in 2011 and in December cashed in $72 million in stock
But Zoom admitted that it did not pay any federal income tax on those profits, despite the corporate tax rate being set at 21 per cent.
The company is thought to have swerved tax perfectly legally, by making use of stock-based compensation for employees.
The move helped reduce its worldwide tax bill by more than $302 million for the year ending January 31.
Corporations that pay their executives in stock often benefit from a provision in the federal tax code that lets them write off expenses that appear far larger than their actual cost, according to the Institute on Taxation and Economic Policy.
‘This is a strategy that has been leveraged effectively by virtually every tech giant in the last decade, from Apple to Facebook to Microsoft,’ said Matthew Gardner, a senior fellow at the think tank, in a blog post detailing Zoom’s tax discount.
‘Zoom’s success in using stock options to avoid taxes is neither surprising nor (currently) illegal.’
Zoom’s profits have risen 3,200 per cent over the past year, thanks to the pandemic
Zoom has become an indispensable tool for millions of people worldwide
Zoom paid $580 million in stock compensation alone in 2020, much of it likely to a handful of top executives, according to a calculation by CBS MoneyWatch based on the company’s latest financial filings.
Yuan had a cash salary of $300,000 for 2020, yet on a single day in mid-December he cashed in a stock grant worth nearly $72 million.
Zoom also, CBS reported, booked a $300 million tax credit last year to use against future earnings – which will also reduce what the company will owe to the tax authorities for years to come.
‘We are allowing companies to legally exempt a big chuck of income from taxation,’ Gardner told CBS.
Bernie Sanders, the Vermont senator who has campaigned for tougher corporate tax laws, said that Zoom was taking advantage of the ‘rigged’ corporate tax code.
‘If you paid $14.99 a month for a Zoom Pro membership, you paid more to Zoom than it paid in federal income taxes even as it made $660 million in profits last year – a 4,000 percent increase since 2019,’ he tweeted on Sunday.
Zoom’s tax schemes are entirely legal and use existing mechanisms to avoid tax
Zoom did pay about $5.7 million in global income taxes last year, giving it an effective tax rate of just 0.8 percent, according to the annual report.
That amount included about $1 million in state taxes and some $3.9 million in foreign taxes.
The company also recorded a deferred federal income tax expense of $689,000, though that’s separate from its federal tax bill.
A Zoom spokesperson said the company ‘complies with all applicable tax laws’ in the nations where it does business.
It has also invested in research and development to bolster its communications technology, which is ‘specifically encouraged under current law,’ the spokesperson said.
Research and development credits reduced Zoom’s total income tax bill by about $3.2 million last fiscal year, its annual filing shows.
‘We are proud of the role we have played through this technology in supporting and fueling the US economy, particularly during the pandemic, enabling tens of thousands of businesses and schools to continue operating,’ Zoom said.