The Zero Federal Income Tax of Tesla: Tax Avoidance Strategies
The Institute on Taxation and Economic Policy reported that Tesla earned USD 2.3 billion of U.S. income in 2024 but paid zero federal income tax. Moreover, in a review of its annual financial reports over the past three years, the company also paid zero in 2022 and only USD 48 million in 2023. The company has earned nearly USD 11 billion from 2022 to 2024.
A further look at its financial statements and other relevant documents revealed its specific tax avoidance strategies. These include the accounting method called accelerated depreciation that allowed it to deduct a larger portion of the value of its assets in the early years of its life. Tesla saved around USD 500 million in taxes through this tax avoidance approach.
It also saved about USD 250 million through tax breaks associated with how executive stock options are handled. Government programs designed to promote clean energy and advance manufacturing were indeed big help. The exact tax savings from these programs are unreported but these are part of its USD 300 million unspecified tax credits for 2024.
So-called net operating loss or NOL carryforwards were also utilized. Sendil Palani, Tesla’s Vice President of Finance, explained on an X post that the tax positions of the company are a result of billions of losses incurred during its early years. A NOL carryforward is a legal tax avoidance strategy that allows companies to use previous losses in future tax breaks.
Details from the 2022 financial statements of Tesla revealed that it had USD 18 billion in federal and 14 billion in state net operating loss carryforwards available to offset future taxable income. The company utilized USD 13.7 billion of these federal NOL carryforwards to offset its taxable income for 2022. This resulted in zero federal income tax liability for 2022.
The aforementioned years were not the first time it paid zero to little in income taxes. Its 2021 annual report indicated that it only paid USD 9 million in state tax and zero in federal tax. The company also reported that most of its pre-tax profits worth more than USD 6 billion came from overseas operations despite 45 percent of its revenues coming from U.S. sales.
It is also worth noting that Tesla has received massive state-level incentives. These include a tax incentive package from Nevada worth USD 1.2 billion which included sales and property tax abatements. The state government offered this tax incentive as part of the deal to build and operate its Gigafactory lithium-ion battery and electric vehicle component factory.
Nevertheless, despite remaining within the bounds of applicable laws, the tax avoidance strategies of Tesla have underscored the biased and distorted nature of the tax system at both the federal and state levels, which tends to favor large corporations and wealthy individuals, while putting ordinary Americans at a disadvantage through unavailable tax burdens.
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