If I sell burgers, and it costs me roughly $1.00 per burger to purchase the burger ingredients, pay rent on the kitchen/vending location, pay for employees etc, and I sell the burgers for $1.05 each, The thing that gets taxed is the left over profit, ie $0.05. Same principle applies here. Only difference is the progressive tax on corporation profit is virtually non existent (roughly a flat 20% based on the fiscal year). Now, the problems/tax evasion comes from what is considered as part of a business’s overhead. Often, these are exaggerated due to the incentive of being taxed less.