Netflix Posted Biggest-Ever Profit in 2018 and Paid $0 in Income Taxes

I don't know the answer so this is just speculation and five seconds of Googling (but I am writing this regardless because I hope someone knowledgeable will see this and correct me so I actually learn something)

My first stop was https://www.investopedia.com/terms/c/corporatetax.asp

> Corporations are permitted to reduce taxable income by certain necessary and ordinary business expenditures. All current expenses required for the operation of the business are fully tax deductible. Investments and real estate purchased for the intent of generating income for the business are also deductible. A corporation can deduct employee salaries, health benefits, tuition reimbursement and bonuses. In addition, a corporation can reduce its taxable income by insurance premiums, travel expenses, bad debts, interest payments, sales taxes, fuel taxes and excise taxes. Tax preparation fees, legal services, bookkeeping and advertising costs are also used to reduce business income.

So here is my interpretation: Let us say for ease of math, I am Pupflix and I have 100 customers who pay $10 per month. I have an annual income of $100 * 10 * 12 = $12,000. Let us say I pay salary of $20 a month, so $12 * 20 = $240. I can deduct that. So my income is now $1200 - $240 = $960. Lets say my operating expenses are $10 a month. I can deduct that as well, so deduct $120 from $960, which leaves me with $840.

Now all this is relatively straight forward. From what I've learned from previous conversations, corporation tax is on profits, and not in revenue. Apparently, this is essential because some businesses are very low margin. Apparently, when all is said and done, a retail grocery store typically has under 5% profit (before any shenanigans).

However, what happens when our Pupflix pays Disney Corporation $1000 in licensing fees for the right to stream Disney content for the next ten years? Does our Pupflix deduct $1000 this year? That would be very wasteful because our income at this point is only $840.

I believe this is where Loss Carryforward comes in. https://www.investopedia.com/terms/l/losscarryforward.asp

> For example, if a company experiences negative net operating income (NOI) in year one, but positive NOI in subsequent years, it can reduce the amount of future profits it reports using a loss carryforward to report some or all of the loss from the first year in the subsequent years. This results in lower taxable income in positive NOI years, and reduces the amount the company owes the government in taxes. Imagine a company lost $5 million one year and earned $6 million the next. The loss from the first year can be carried forward and included in the current balance sheet for the second year, lowering the profits, and therefore the taxable income, for that year to $1 million.

I am not an accountant. My guess is that the accounting people will somehow run multiple possible execution paths and choose the "best" one. I think the tax field is very nuanced and just being able to classify an expense as either operating vs capital can make a difference in the amount of taxes a corporation has to pay:

https://www.investopedia.com/ask/answers/042415/what-differe...

For example, when I was a contractor my boss told me that I am a "cap ex" which is OK but for some reason he couldn't bring me on as full time because reasons. Not that this would change my work at all. I was working with the team just like any full-time employee would. I just wasn't their employee. How this makes sense, I have no idea. I doubt he lied to me. There are probably hundreds of things like this where you could argue an expense is one way or another depending on what suits a company the best at that time.

I welcome all corrections and additions to eliminate omissions and especially concrete examples that refurb asked for

Just to clarify, there's no 13% sales tax - that'll be 5% federal and X% provincial (which ranges from 0-10%).

One unintended consequence in my district is that we have two guys who trade seats back and forth between state senate and state house. They're totally interchangeable and neither one ever talks to their constituents (well, the ones who don't write big checks anyhow)