The latest member of the world’s trillion-dollar club pays a shockingly small amount of federal taxes.
Nvidia announced a $26.97 billion revenue in the 2023 fiscal year, $26.91 billion in 2022, and $16.67 billion in 2021. However, it only paid a few hundred millions in annual income taxes during that period.
The company reveals in its financial statements that it recognized income tax expense of $189 million, $77 million, and $174 million for fiscal years 2022, 2021, and 2020 respectively. Its annual effective tax rate was 1.9%, 1.7%, and 5.9% for fiscal years 2022, 2021, and 2020, respectively.
This is largely attributable to federal tax benefits the company receives for attracting immense foreign direct investment into the US tech market, as it spearheads the rise of AI as a force in global business.
The Chips and Science Act passed last August to boost the US semiconductor supply chain with research and development means Nvidia receives a 25% tax credit for investments in semiconductor manufacturing. The law appropriates $52.7 billion over five years in the form of grants and loans to incentivize chip making in the US. The firm also enjoys tax benefits for attracting foreign direct investment inflows into the US AI market.
Additionally, a large portion of the chip manufacturer’s income comes from other jurisdictions such as Israel, Europe, China, and Taiwan. In 2019, 50% of Nvidia’s profits came from Israel. That year, the company only paid 3.7% in US federal tax. The firm has offices in more than 20 countries. The US only constitutes 7.3% of its revenue, with Taiwan (24.6%) and China (22.6%), being the top sources of sales revenue.
Nvidia outbid Intel and bought Israeli chip designer Mellanox Technologies for nearly $7 billion in 2019. Nvidia’s Israel operations include its largest research and development center outside the US, with 3,000 employees, representing 12% of its total workforce.
While US companies pay federal corporate income taxes levied at 21% or (8.84% in California where Nvidia is based), tax breaks expanded by the 2017 Tax Cuts and Jobs Act as well as the CARES Act enacted in 2020 meant 55 big corporations in the US paid nothing in corporate taxes that year. Instead of paying a collective total of $8.5 billion, they received $3.5 billion in tax rebates, amounting to $12 billion in corporate tax breaks. Nvidia is a beneficiary of these two laws.