What counts to tax deduction?

[eleaza]

When I was looking through the financial report of my city and my corporation. I find that although my city has a lot of profit tax income, but my company paid 0 profit tax. So I looked into other companies, and to my surprise almost no one paid profit tax, those few who paid, only with couple of thousands in their whole lifetime.

So this got me thinking, what exactly counts to accumulated losses that can be used as tax deduction? All the firms which have losses all add up to accumulated losses? If that's true then it's no surprise almost no profit tax is collected from players or AIs. It's way to easy to "report losses" from one of my firm, and "earn back" the losses from its upstream or downstream firms I also own. So long as the accumulated value compare to the total profit exceed the profit tax rate set in the city, I don't need to pay any tax at all. AIs with raw materials firms and retail stores lock in price war, also generate "losses" easily pass the profit tax rate, so even AIs usually don't pay profit tax. This is not just cleaver accounting trick or tax evasion issue, but a serious oversight of the "government laws" and game mechanics. (I guess all the city profit tax income comes from poor local businesses who don't know how to do "proper accounting" for "tax deduction").

One of the easiest way to fix this is to only add up ("firm losses" x "profit tax rate") instead of the whole losses from each firm to the accumulated losses. This way the total profit and profit tax should be reflected correctly. And those who has real losses would show tax deduction for the future.

BTW, there's a typo in tax deduction (not "deducation")

[cantdownloadit]

based on that you wont pay tax for some time.. see the accumulated losses of 714 million.

normally losses would be offset against profit, so until you have made this much profit you wouldn't expect to pay any taxes.

does this figure go down as your profits go up ? otherwise it could be a display bug I guess, city income does appear to go up when new businesses open in a city ?

[eleaza]

based on that you wont pay tax for some time.. see the accumulated losses of 714 million.

normally losses would be offset against profit, so until you have made this much profit you wouldn't expect to pay any taxes.

does this figure go down as your profits go up ?

Currently NO, the accumulated losses just keep growing even if I make hundreds of millions a year, and billions in lifetime. As long as I "generate losses" like rising the factory prices to unreasonably high, so my retail store always report huge losses, and since I pay myself, those are not real losses. And if these fake losses compare to total profit is higher than the profit tax rate, not only do I not have to pay profit tax, but keep piling up "tax deduction".

The calculation of tax deduction is just wrong. Only those carefully calculate each firm to always have positive profit will have to pay profit tax (not even AIs do that, and right now AIs pay very little profit tax as well)

[cantdownloadit]

heh perhaps its so realistic it uses tax avoidance like most multinationals

[eleaza]

heh perhaps its so realistic it uses tax avoidance like most multinationals

Trust me, real world "tax deduction" doesn't work like this., and certain not tax evasion.

[Spac3y]

The tax loss does not seem to function as it should at all. You are perfectly correct you can earn 10s of billions and the tax loss just keeps going up.

The tax loss should be based on the bottom line yearly surely, as once companies do become profitable you would want/expect them to be paying tax to the cities to help fund the budget.

[cantdownloadit]

I still think its a display bug

If you go into the cities option, income statement, although it shows all companies in my game paid no tax, it shows the life time corporate profit tax as $2,030,032,176 and last months as $10,194,426

(well it does in mine)

I downloaded ele's city on the other thread in 1998, and that shows 4.73 million per month in corporate profit tax.

Looking at your game, most of the companies didn't actually make a profit, for instance beta corp

Its operating revenue to date has been 19,636,756
Its total expenses today have been 20,990,717
So in effect it has not made a profit, which would explain the very small profit tax as they probably made a small profit 1 year

The net operating profit value includes increases in land value, which in itself doesn't make a profit or a taxable liability for the company unless they actually sell the land. Without knowing exactly what other profit represents cant be sure as we don't know what it is. But to me its the first 2 that matter.

[eleaza]

I still think its a display bug

If you go into the cities option, income statement, although it shows all companies in my game paid no tax, it shows the life time corporate profit tax as $2,030,032,176 and last months as $10,194,426

(well it does in mine)

I don't think the profit tax portion of the city income comes from players or even AI corporations. I think it's just a flat calculation of domestic consumption minus import (domestic production), then assume a 30% profit times profit tax rate. And I've looked into my income statement over time and other companies' as well. If they show no profit tax is paid, then it really isn't. And you could probably feel it too, play with just one city, raise the profit tax or drop it to zero, it has no effect on your income or net profit at all (if there are still tax deduction left). Do you feel your massive profitable corporation get taxed at all?

[WilliamMGary]

Yeah you can generate paper losses all day and grow your bank capital on hand. The tax should be based on operating profits.

[eleaza]

Yeah you can generate paper losses all day and grow your bank capital on hand. The tax should be based on operating profits.

I did not generate losses on purpose though, and I am genuinely making net profit from my operation, not growing capital with issuing share or borrowing cash from the bank. Even if I balance the price, and make each firm showing their own profit, the tax deduction still keeps growing. I think any firm with losses are added in accumulated losses regardless of the portion to the total revenue and operating profit.