Freeport-McMoRan (FCX)

[eddy2]

A topic not yet discussed is the different types of tax debt. You have revenue tax that is tied to the expenses of the company ie: wages, consumable costs, depreciation and the likes including capital costs.

You then have sales tax that are tied to your consumable purchasing tax. This tax has nothing what so ever to do with wages. It is structured to your cost of consumables including any billed out rent or leasing of premiums, property or mining royalties paid out. It’s a fixed tax cost that is only associated directly to the goverment.

Let’s look at some of the risks associated with sales tax. One of course is the tax on consumable goods being higher then the sales tax for the goods or service offered. The other being the risk of credit to the customer for the goods or service. The other being accumulated inventory that is disposed of below costs.

Because sales tax is tied at a percentage to the item being sold as well the consumable tax’s being the liability of the sales tax.

Sales tax - consumable tax = share holders equity

If the consumable tax is higher then you would have a deficit owing to share holders at a multiple many times the par value of the tax owed due to the leverage put into place.

Is this a bad thing. Not really if you can factor in the recievables and payables.

Remember one debt is current while the other is none current. What that is telling you is the current debt is associated to your recievables the other being payables.

Remember we are still talking tax debt not bank debt.

Example a company purchases a finished plastic part from a vender for a product to be produced and sold. There is sales tax charged from the vender to the company. The company can take those charges and deduct them from the sales tax from the product they produced and sold. By doing so the administration cost including wages are still considered but now only coming on the back side not the front side of the equation.

In other words if the wages along with consumable costs ect. Tax exceeds the consumable tax cost by them selfs your in positive territory.

So your all thinking then they can’t go broke. Well they can’t if you can’t collect.

You can stall if you can sell the tax debt to investors but you can only sell the sales side of the tax debt. The company must hold the other side of the wager.

I hope this clears things up for many folks out there.