Why California taxpayers should be steamed at Apple

Part of it has to do with the accounting sleight-of-hand that saved the company $2.4 billion in federal taxes last year - as well as millions more in California taxes (money that the state could surely use). The NYT zeroes in on a small Apple subsidiary named Braeburn Capital that manages and invests the Cupertino-based company's cash - and which is located in Reno, where Apple doesn't have to pay any state tax on interest and dividend income.

When someone in the United States buys an iPhone, iPad or other Apple product, a portion of the profits from that sale is often deposited into accounts controlled by Braeburn, and then invested in stocks, bonds or other financial instruments, say company executives. Then, when those investments turn a profit, some of it is shielded from tax authorities in California by virtue of Braeburn's Nevada address. Since founding Braeburn, Apple has earned more than $2.5 billion in interest and dividend income on its cash reserves and investments around the globe. If Braeburn were located in Cupertino, where Apple's top executives work, a portion of the domestic income would be taxed at California's 8.84 percent corporate income tax rate. But in Nevada there is no state corporate income tax and no capital gains tax.

Now it's true that companies often set up operations in other states and even countries to save on taxes. But Apple was making its move right around the time California lawmakers were passing all sorts of tax breaks to keep tech companies in the state.

In 1996, 1999 and 2000, for instance, the California Legislature increased the state's research and development tax credit, permitting hundreds of companies, including Apple, to avoid billions in state taxes, according to legislative analysts. Apple has reported tax savings of $412 million from research and development credits of all sorts since 1996. Then, in 2009, after an intense lobbying campaign led by Apple, Cisco, Oracle, Intel and other companies, the California Legislature reduced taxes for corporations based in California but operating in other states or nations. Legislative analysts say the change will eventually cost the state government about $1.5 billion a year.