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Big companies avoid state taxes

By Kay Bell · Bankrate.com
Thursday, December 8, 2011
Posted: 3 pm ET

Remember when General Electric stiffed Uncle Sam on federal taxes? Then we found out that more than two dozen big companies also found ways to avoid paying the IRS and some even got back tax refunds?

Now comes word that 265 of the most consistently profitable U.S. corporations cost states $42.7 billion in taxes over three years.

"Corporate Tax Dodging in the Fifty States, 2008 to 2010," is a follow-up report from the Citizens for Tax Justice and the Institute on Taxation and Economic Policy, the two groups who conducted the earlier corporate federal tax-dodging investigation.

"Our report shows these 265 corporations raked in a combined $1.33 trillion in profits in the last three years, and far too many have managed to shelter half or more of their profits from state taxes," said Matthew Gardner, Executive Director at the Institute on Taxation and Economic Policy, in a statement accompanying the report's release. "They’re so busy avoiding taxes, it's no wonder they're not creating any new jobs."

The Citizens for Tax Justice and the Institute on Taxation and Economic Policy calculations used as a baseline the average statutory state corporate tax rate of about 6.2 percent (weighted by gross state product).

The tax organizations' research found that if the 265 corporations they looked at had paid the 6.2 percent average, they would have paid $82.6 billion in state corporate income taxes over the 2008 to 2010 period. Instead, they paid only $39.9 billion.

In fairness to the businesses, let's make one thing clear. The companies are not breaking any tax laws at either the federal or state levels.

But the companies' accountants and tax attorneys have found ways to avoid paying the maximum state tax rates.

And while it might be infuriating to us individual taxpayers who don't have such tax-lowering options, and definitely frustrating to states that are desperate for cash, the companies are well within their rights and responsibilities to shareholders to pay as little tax as possible.

Still, just for the sake of holiday party conversation, here are some details.

Sixty-eight of the 265 Fortune 500 companies profiled paid no state corporate income tax in at least one of the last three years.

Twenty of that group averaged a tax rate of zero or less -- that is, they got a refund -- during the 2008 to 2010 period.

That group of 20 includes utility provider Pepco Holdings, which pays taxes to the District of Columbia; pharmaceutical giant Baxter International, a tax resident of Illinois; chemical maker DuPont, based in Delaware; fast-food behemoth Yum Brands, which files taxes in Kentucky; and high-tech manufacturer Intel, based in cash-strapped California.

Citizens for Tax Justice and the Institute on Taxation and Economic Policy suggest some ways to make companies pay more to state tax collectors.

Implement combined reporting, which effectively treats a parent company and its subsidiaries as a single corporation for state tax purposes. This would help cut down on tax losses because it would eliminate most of the advantage of shifting profits into Delaware, Nevada and other low- or no-tax states.

Decouple from federal tax loopholes, such as bonus depreciation. This separation would increase the amount of taxable income corporations would have to claim in their state tax filings.

Increase disclosure, transparency and accountability. Requiring corporations to publicly report their in-state profits, as well as any subsidies or loopholes they are exploiting each year, would keep the pressure on them to pay their rightful state tax shares.

Do you think companies are getting away with something when it comes to paying taxes? Or are they just doing what you would do if you could?

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2 Comments
Deadpool
December 12, 2011 at 9:23 am

Oh, America...

You never cease to amaze me.

Homeless
December 09, 2011 at 7:46 am

This adds more fuel to the fire of class warfare...this fight has to stop being made at big corporations...I'm thankful for big corporations bc I'm employed by one. They allow me to feed my kids.

The people have to go back to the LAWMAKERS...the morons in CONGRESS. They are the ones that create these ridiculous loopholes that the average Joe can't take advantage of because we can barely understand the VERY BASIC tax forms we have to file. So of course we are not pouring over the tax code for all the loopholes, credits and deductions we could get. It is not the fault of the companies...they are just following the laws.

Now if we end lobbying, those congressmen would not have so much incentive to create those loopholes to benefit the industries that are lining their pockets.

Once again the Fair Tax would assist with these issues. Abolishing the too complicated tax code, getting rid of the IRS, and making lobbying useless. Forcing all the big companies that normally shelter their money from taxes, to pay more. Forcing the illegal immigrants to contribute to the coffers, and lets not forget the drug dealers and prostitutes. All the dollars they earn but don't pay taxes on would not be so sheltered, because what they buy would have them always paying into the system they are normally scamming on.

Then MAYBE our politicians would stop being SO corrupt and go back to being what they are supposed to be...PUBLIC SERVANTS.