The filing showed an income tax expense for the six months to June 30 2012 of $1.196 million (net loss of $49.104 million), and $1.134 million (net loss of $69.241 million) up to the end of June this year.
“The slight decrease was primarily due to a reduction in state income taxes and tax benefits arising from acquisitions, offset by an increase in foreign tax expense,” the company said.
The company had an income tax benefit of $217,000 in 2010 (net loss of $67.324 million), which increased to $1.444 million (net loss of $128.302 million) in 2011 because of a rise in the tax benefit from acquisitions, but an expense of $229,000 (net loss of $79.399 million) was the result in 2012. The company put this down to more foreign and state tax costs, though there were also income tax benefits as a result of other acquisitions. Twitter bought six companies in 2011, including its biggest-ever acquisition, TweetDeck, in May of that year for $20.4 million and made another 10 acquisitions in 2012, including Dasient for $19.1 million.
Loss carryforwards
The company outlined that on December 31 last year it had $298.8 million of federal and $216.7 million of state net operating loss (NOL) carryforwards, which it can offset against its profits in future years to reduce its taxable income. It added that the federal portion of the carryforwards will begin to expire in 2027, while the state carryforwards will do so from 2017.
“We expect our net operating loss carryforwards to increase in the quarter in which we initially settle a portion of the Pre-2013 RSUs [restricted stock units] as a result of the vesting of such RSUs,” the company added.
Twitter also has research credit carryforwards of $6.6 million and $10.5 million for federal and state income tax purposes, respectively. The federal portion will, like the NOL carryforwards, also begin to expire in 2027, but the state research credit carryforward has no expiration date.
The company warned that ownership change limitations in the Internal Revenue Code and at a state level may mean that it may not be able to use all the net operating loss carryforwards it wants to in any given year and this may mean some will expire before they can be used.
Twitter went on to outline future tax risks. For example, even though it believes it has provided adequately for its uncertain tax positions, it cannot guarantee that the tax authorities will agree with its view. It adds that its future income tax provisions could be affected if it earns less taxable income than anticipated in countries with a lower tax rate and more in jurisdictions with a higher one, by changes in the valuation of its deferred tax assets or liabilities or by changes in tax laws, regulations or accounting principles.
