Loans, Interest & Taxes

[CaptainBlacktail]

Are Loans and Interest not tax deductible? The only information that I can find says that taxes are based upon Operating Profits less interest, however in every single one of my games I find that any sort of real estate subsidiary that I start generates losses after interest yet still continues to pay taxes.



In this screenshot, the CEO salary isn't taken into expenses and neither is the interest expense into the accumulated deficit, however neither is the bond interest.



Here the Write-Off, Received Bond Interest and Deposit Interest Income are not taxed either.

Is this working as intended or should the interest be tax deductible? If it's tax exempt then the cost of borrowing can actually be quite a lot higher than what the coupon rate is.

[David]

I asked the dev team and got the answer from them that the tax is calculated on the firm level. The total profit tax shown on the corporate income statement is the total tax paid by all individual firms of the corporation.

The reason for the way the tax is calculated is that each city can have a different profit tax rate. When it comes to the incomes and expenses at the corporate level, the game cannot determine which city's tax rate it should use. As such, the items in the "Other Profit" section on the Corporate Income Statement are excluded from tax calculation.

While this is not perfect, it does cope well with the game mechanism.

If you have any suggestions for improving this, please let us know.

[CaptainBlacktail]

Ok, that's what I thought might be the case. Thank you!

The way the states have dealt with this in the US is by using an apportionment. A lot of them still follow the old three factor formula with adjustments or different weighting depending on the state but it basically is ( Sales in State/Total Sales + Property in State/Total Property + Payroll in State/Total Payroll ) /3. With the internet a lot of states have switched to market based sourcing, essentially just the Sales in State/Total Sales, with the Sales in State being determined by the location of the purchaser.

As a note, corporations have to follow this apportionment for determining all state sourced income. So it creates slightly weird cases where a firm would be profitable in one state but it can be offset by losses from another, which won't occur with the current game system.

The system is not too complicated but you would need to track and calculate couple more variables. I also wasn't paying attention on when the taxes are calculated and paid, but it would have a big difference if it's being calculated daily, monthly, quarterly, or yearly. Obviously the US states calculate it only yearly, but they have the benefit and problem of dealing with prepaid taxes, refunds and underpaid taxes which the game doesn't have.

How are the taxes on Insurance Companies and Banks determined? Does it get calculated based upon deposits/claim reserves at each branch?