Hacker News Reader

Comment by OldTimeCoffee | Hacker News Reader

The original start of this thread by jxramos was referring to how inventory was taxed. "curious, who's taxing for inventory?" You responded:

>Corporations are taxed on assets that they accrue (increases in total holdings are taxed as 'profit'). This applies to inventories, capital assets, and real estate.

and

>you did already pay taxes on holding that inventory.

Inventories are taxed as property which is, in general, about 1% of the cost (to the company) of the item.

You're conflating income and property taxes. What your describing in your previous posts is an income tax, which is the tax paid on the net income associated with an asset. However, you have to dispose of the asset to pay that tax. Until then the asset is property and it's only subject to property tax.

Normal accounting disclaimer applies. Definitely get an accountant and don't take accounting advice from the internet.

View on HN

>"Inventories are taxed as property which is, in general, about 1% of the cost (to the company) of the item."

Most jurisdictions don't have the asset taxes you're describing. Some do, in which case inventories cost extra to hold each and every year.

>"You're conflating income and property taxes. What your describing in your previous posts is an income tax, which is the tax paid on the net income associated with an asset. However, you have to dispose of the asset to pay that tax. Until then the asset is property and it's only subject to property tax."

No, when a company uses its revenues to buy stuff and hold onto it, the government counts the value of that stuff as profits, and taxes are paid on that 'income' in the fiscal year of acquisition. The assets are then gradually depreciated (with the depreciation treated as a loss). If the assets are sold off, income taxes are assessed against sales in excess of the depreciated value, and losses are assessed (along with corresponding write-offs) against sale values below the depreciated value of the asset.

>"Normal accounting disclaimer applies. Definitely get an accountant and don't take accounting advice from the internet. "

I completely agree with this, especially since tax law varies widely, even between Canada and the USA.

>No, when a company uses its revenues to buy stuff and hold onto it, the government counts the value of that stuff as profits

This is not quite right, though it is mostly correct in describing depreciation. When you purchase a depreciating asset it has a book value that is depreciated over time. That book value is not counted as income and definitely not as net income (profits), though it will appear with other assets on the balance sheet. You've essentially converted one type of asset to another, there is no gain or loss there to tax.

For depreciating assets, the depreciation is deductible because it represents a loss in value of the asset. In general, this can be taken when the depreciation is realized. If you dispose of the asset you pay taxes based on the deprecated value, like you've described.

It's important to realize that corporate taxes are almost exclusively on net income, that being the money left over after the business has done all of it's financial activities.

Reply on news.ycombinator.com