Netflix income taxes 2018

This ITEP blog, written by Matthew Gardner, asserted that “Netflix posted its largest-ever U.S. profit in 2018—$845 million—on which it didn’t pay a dime in federal or state income taxes. In fact, the company reported a $22 million federal tax rebate.” Netflix’s 2018 10-K does show a “current provision” for federal income tax of -$22 million on page 58. The same page shows U.S. net income before taxes of $845 million. Both match what ITEP says.

However, provisions for income taxes in accordance with GAAP accounting are often very different from cash paid for taxes. The -$22 million provision is not a cash rebate or refund like Gardner says. He also conveniently omitted that page 42 of the 10-K shows Netflix paid income taxes of $131 million. The 10-K does not say how much of this was U.S. federal and state income tax.

A few days later a Snopes article asked “Did Netflix Make $845M In Profit and Pay $0 in Taxes Under New Tax Law?” No true or false judgment was given. To Snopes' credit, the article recognizes Netflix's taxes paid, $131 million. The article quoted Gardner of ITEP: “The popular video streaming service Netflix posted its largest-ever U.S. profit in 2018 — $845 million — on which it didn’t pay a dime in federal or state income taxes. In fact, the company reported a $22 million federal tax rebate.” …. "In all likelihood, every last dime of that $131 million has to do with foreign income and foreign taxes. We don’t know for sure but it sure looks that way based on current and cash income taxes.”

The way something looks is not proof. Gardner expresses no similar uncertainty and says nothing about Netflix paying foreign income taxes in his ITEP blog article. The only way to really know how much Netflix paid in U.S. federal income taxes is knowing what is on Netflix's U.S. Form 1120, which is a private matter between Netflix and the IRS. State income tax filings are likewise private.

Regarding Netflix's foreign operations, page 58 shows a provision of -$133 million for foreign taxes. So Gardner might be correct about the $131 million taxes paid being to foreign countries. This likely helped reduce Netflix's U.S. income tax provision, being that Form 1120 allows a credit for foreign taxes. The main U.S. corporate income tax rate of 21% suggests a crude tax estimate of 0.21 * $845 million = $177 million. The $131 million foreign taxes paid is large relative to that. Also significant are the deferred tax provisions of  -$37 million federal and -$52 million state. This suggests larger deductions (faster depreciation) of capital spending for federal and state income taxes purposes than per GAAP accounting. (The difference will be reversed in future years.)

Lastly, neither Gardner nor Snopes said anything about Netflix employees paying federal or state income taxes. It seems Gardner's overwhelming purpose is to promote the idea that corporations per se should be taxed more. "When hugely profitable corporations avoid tax, that means smaller businesses and working families must make up the difference." That is clearly a non sequitur.