While earning billions of dollars in revenues, America’s video game industry has enjoyed a variety of tax breaks from the U.S. government. Electronic Arts, for example, earned $1.2 billion in global profits over the past five years, but only paid $98 million in taxes worldwide for a rate of 8%.

 

The tax deductions, write-offs and credits that video game makers are using were established for other industries. In 1969, for example, before the video game industry had been born, the IRS created a tax break that allowed companies to deduct the cost of software development. Since developing software is a huge part of creating video games, the industry has gained a fortune by exploiting this loophole. Electronic Arts alone was able to write off almost $6 billion in expenses over the last five years.

 

Aggressive lawyers have also saved tens of millions dollars in taxes by taking advantage of research and development credits. Writing in The New York Times, David Kocieniewski points out that while the video game industry has enjoyed this tax rule, other industries have been stymied. “In 2009, for instance, the federal tax court denied Union Carbide’s attempt to claim a research and development credit for its project to reduce the pollutants released from the smokestacks of a refinery in Louisiana. Union Carbide failed to meet the experimental threshold for the credit, though video game makers often seem to have little trouble meeting the requirement.”

 

It’s no wonder that oil companies—notorious in their own right for their subsidies—have begun to complain about the beneficial treatment for game manufacturers.

-David Wallechinsky

 

Rich Tax Breaks Bolster Makers of Video Games (by David Kocieniewski, New York Times)