Corporate
Tax Avoidance Remains Rampant Under New Tax Law
60
Profitable Fortune 500 Companies Avoided All Federal Income Taxes in 2018
By Matthew
Gardner, Steve Wamhoff Mary Martellotta, Lorena
Roque for the Institute on Taxation and Economic Policy
For decades, profitable Fortune 500
companies have manipulated the tax system to avoid paying even a dime in tax on
billions of dollars in U.S. profits.
This ITEP report provides the first
comprehensive look at how corporate tax changes under the 2017 Tax Cuts and
Jobs Act affect the scale of corporate tax avoidance.
The report finds that in 2018, 60 of
America’s biggest corporations zeroed out their federal income taxes on $79
billion in U.S. pretax income.
Instead of paying $16.4 billion in
taxes at the 21 percent statutory corporate tax rate, these companies enjoyed a
net corporate tax rebate of $4.3 billion.
Companies Represent Diverse Economic Sectors
The companies avoiding income taxes
in 2018 represent a range of segments of the U.S. economy:
Computer maker International
Business Machines (IBM) earned $500 million in U.S. income and
received a federal income tax rebate of $342 million.
The retail giant Amazon reported
$11 billion of U.S. income and claimed a federal income tax rebate of $129
million.
The streaming service Netflix paid
no federal income tax on $856 million of U.S. income.
Beer maker Molson Coors enjoyed
$1.3 billion of U.S. income in 2018 and received a federal income tax rebate of
$22.9 million.
Automaker General Motors reported
a negative tax rate on $4.3 billion of income.
All 60 companies’ effective federal
income tax rates for 2018 are shown in the table below.
Company
|
US Income
|
Federal tax
|
Tax rate
|
Industry
|
Activision Blizzard
|
$447
|
$-228
|
-51%
|
Computers, office equip,
software,
data
|
AECOM Technology
|
$238
|
$-122
|
-51%
|
Engineering & construction
|
Alaska Air Group
|
$576
|
$-5
|
-1%
|
Transportation
|
Amazon.com
|
$10,835
|
$-129
|
-1%
|
Retail & wholesale trade
|
Ameren
|
$1,035
|
$-10
|
-1%
|
Utilities, gas and electric
|
American Electric Power
|
$1,943
|
$-32
|
-2%
|
Utilities, gas and electric
|
Aramark
|
$315
|
$-48
|
-15%
|
Miscellaneous services
|
Arrow Electronics
|
$167
|
$-12
|
-7%
|
Retail & wholesale trade
|
Arthur Gallagher
|
$322
|
—
|
—
|
Financial
|
Atmos Energy
|
$600
|
$-10
|
-2%
|
Utilities, gas and electric
|
Avis Budget Group
|
$78
|
$-7
|
-9%
|
Motor vehicles and parts
|
Celanese
|
$480
|
$-142
|
-30%
|
Chemicals
|
Chevron
|
$4,547
|
$-181
|
-4%
|
Oil, gas & pipelines
|
Cliffs Natural Resources
|
$565
|
$-1
|
0%
|
Oil, gas & pipelines
|
CMS Energy
|
$774
|
$-67
|
-9%
|
Utilities, gas and electric
|
Deere
|
$2,152
|
$-268
|
-12%
|
Industrial machinery
|
Delta Air Lines
|
$5,073
|
$-187
|
-4%
|
Transportation
|
Devon Energy
|
$1,297
|
$-14
|
-1%
|
Oil, gas & pipelines
|
Dominion Resources
|
$3,021
|
$-45
|
-1%
|
Utilities, gas and electric
|
DTE Energy
|
$1,215
|
$-17
|
-1%
|
Utilities, gas and electric
|
Duke Energy
|
$3,029
|
$-647
|
-21%
|
Utilities, gas and electric
|
Eli Lilly
|
$598
|
$-54
|
-9%
|
Pharmaceuticals
& medical
products
|
EOG Resources
|
$4,067
|
$-304
|
-7%
|
Oil, gas & pipelines
|
FirstEnergy
|
$1,495
|
$-16
|
-1%
|
Utilities, gas and electric
|
Gannett
|
$7
|
$-11
|
-164%
|
Publishing, printing
|
General Motors
|
$4,320
|
$-104
|
-2%
|
Motor vehicles and parts
|
Goodyear Tire & Rubber
|
$440
|
$-15
|
-3%
|
Motor vehicles and parts
|
Halliburton
|
$1,082
|
$-19
|
-2%
|
Oil, gas & pipelines
|
Honeywell International
|
$2,830
|
$-21
|
-1%
|
Industrial machinery
|
International Business Machines
|
$500
|
$-342
|
-68%
|
Computers, office equip,
software,
data
|
JetBlue Airways
|
$219
|
$-60
|
-27%
|
Transportation
|
Kinder Morgan
|
$1,784
|
$-22
|
-1%
|
Oil, gas & pipelines
|
MDU Resources
|
$314
|
$-16
|
-5%
|
Oil, gas & pipelines
|
MGM Resorts International
|
$648
|
$-12
|
-2%
|
Miscellaneous services
|
Molson Coors
|
$1,325
|
$-23
|
-2%
|
Food & beverages & tobacco
|
Netflix
|
$856
|
$-22
|
-3%
|
Retail & wholesale trade
|
Occidental Petroleum
|
$3,379
|
$-23
|
-1%
|
Oil, gas & pipelines
|
Owens Corning
|
$405
|
$-10
|
-2%
|
Miscellaneous manufacturing
|
Penske Automotive Group
|
$393
|
$-16
|
-4%
|
Motor vehicles and parts
|
Performance Food Group
|
$192
|
$-9
|
-4%
|
Retail & wholesale trade
|
Pioneer Natural Resources
|
$1,249
|
—
|
—
|
Oil, gas & pipelines
|
Pitney Bowes
|
$125
|
$-50
|
-40%
|
Computers, office equip,
software,
data
|
PPL
|
$1,110
|
$-19
|
-2%
|
Utilities, gas and electric
|
Principal Financial
|
$1,641
|
$-49
|
-3%
|
Financial
|
Prudential Financial
|
$1,440
|
$-346
|
-24%
|
Financial
|
Public Service Enterprise Group
|
$1,772
|
$-97
|
-5%
|
Utilities, gas and electric
|
PulteGroup
|
$1,340
|
$-44
|
-3%
|
Miscellaneous manufacturing
|
Realogy
|
$199
|
$-13
|
-7%
|
Miscellaneous services
|
Rockwell Collins
|
$719
|
$-16
|
-2%
|
Aerospace & defense
|
Ryder System
|
$350
|
$-23
|
-7%
|
Transportation
|
Salesforce.com
|
$800
|
—
|
—
|
Computers, office equip,
software,
data
|
SpartanNash
|
$40
|
$-2
|
-4%
|
Retail & wholesale trade
|
SPX
|
$66
|
$-5
|
-8%
|
Industrial machinery
|
Tech Data
|
$203
|
$-10
|
-5%
|
Retail & wholesale trade
|
TOTAL, THESE COMPANIES
|
$79,025
|
$-4
|
-5%
|
|
Trinity Industries
|
$138
|
$-19
|
-14%
|
Miscellaneous manufacturing
|
UGI
|
$550
|
$-3
|
0%
|
Utilities, gas and electric
|
United States Steel
|
$432
|
$-40
|
-9%
|
Metals & metal products
|
Whirlpool
|
$717
|
$-70
|
-10%
|
Electronics, electrical equipment
|
Wisconsin Energy
|
$1,139
|
$-218
|
-19%
|
Utilities, gas and electric
|
Xcel Energy
|
$1,434
|
$-34
|
-2%
|
Utilities, gas and electric
|
Companies’ Low Taxes Stem from a Variety of Legal Tax Breaks
Companies profiled in this report
appear to be using a diverse array of legal tax breaks to zero out their
federal income taxes:
Accelerated Depreciation
Chevron, Delta Airlines, Duke
Energy, Halliburton, Dominion Resources, Jetblue, Ryder, Owens Corning, Devon
Energy and Ameren used
accelerated depreciation, a tax break that allows companies to write off the
cost of their capital investments much faster than these investments wear out,
to dramatically reduce their tax rates. Chevron reported $290 million of
depreciation-related tax breaks in 2018, and Halliburton reduced its taxes by
$320 million.
As a group, these companies reduced their taxes by $8 billion
using depreciation-related tax breaks. Accelerated depreciation is supposed to
encourage business investment, but a recent ITEP report explains why it is unlikely
to achieve that goal.[1] The
new tax law expands this break to allow corporations to deduct the entire cost
of a capital investment during the first year.
Stock Options
Amazon reduced its income taxes by more
than $1 billion in 2018 using a tax break for stock options. A June 2016
Citizens for Tax Justice report found that 315 companies in the Fortune 500
disclosed receiving benefits from this tax break, which allows companies to
write off stock-option related expenses in excess of the cost they reported to
shareholders and the public.[2] Netflixreduced its income taxes by $191 million
using this tax break. Salesforce.com reported $137 million of
stock option tax benefits.
Activision Blizzard reported $58
million of stock option tax breaks, with Honeywell close behind at $52
million. Deere, Rockwell Collins and Performance
Food Group each reduced their income taxes by $20 million using stock
options in 2018, and half a dozen other companies on this list reported smaller
stock option tax breaks.
Fossil Fuel Tax Subsidies
Oil
and gas tax breaks including depreciation and percentage depletion helped Pioneer
Natural Resources zero out its federal income taxes on $1.2 billion of
U.S. income in 2018. Occidental Petroleum used the enhanced
oil recovery credit to reduce its taxes by $158 million last year.
Alternative
Energy Tax Subsidies
A
number of companies took advantage of alternative-energy tax breaks as
well. Duke Energy enjoyed $129 million in renewable energy
production tax credits in 2018. The so-called Bipartisan Budget Act of 2018
expanded these credits. DTE Energy reduced its taxes by $223
million using production tax credits.
WEC Energy reported $12
million in production tax credits, and Xcel Energy claimed $75
million in wind production tax credits. CMS Energy also
reported renewable electricity production tax credits of $14 million, and Dominion
Energy claimed $21 million.
Tax Credits
US Steel used percentage depletion to cut its taxes by $48
million in 2018. Dominion Energy claimed about $59 million of
investment tax credits.
Rockwell Collins enjoyed $60 million in
research and development tax breaks in 2018. Netflix reported
$140 million in R&D credits, Activision Blizzard enjoyed
$46 million, and Deere reported $43 million. CMS Energy also reported R&E
credits. The R&E tax credit has been criticized for rewarding companies for
“research” they would have done anyway, as well as rewarding research in areas
such as fast food packaging and, in the case of Activision, video games. [3]
Prudential Financial reduced its income taxes by $111 million using
low-income housing and other credits in 2018, and Eli Lillyclaimed
$87 million of various business credits.
Vague Financial Disclosures Sometimes Prevent Full Diagnosis
of Corporate Tax Avoidance Strategies
All data cited in this report come
from the 10-K annual financial filings published by these companies. In many
cases, the company’s disclosures don’t fully clarify which tax breaks were
used.
For example, Chevron’s
annual report for 2018 discloses that unspecified “tax credits” reduced the
company’s income taxes by $163 million.
General Motors’ disclosure of $695 million of “general business credits
and manufacturing incentives” leaves unclear what fraction of those tax breaks
apply to U.S. income taxes.
Salesforce.com disclosed $132 million of “tax credits.”
International Business Machines tells us that “domestic incentives” reduced their
income taxes by about $110 million in 2018.
US Steel discloses using $71 million of “tax credits” last
year, while Amazon discloses $419 million of “tax credits.”
And Principal Financial discloses
that “tax credits” reduced its worldwide income tax rate by 3 percentage points
in 2018. None of these disclosures are sufficiently clear to allow analysts,
policymakers or the public to understand which features of the tax law are
responsible for these companies’ tax avoidance.
There is, to be clear, nothing
obviously illegal about the vague language these companies use to describe
their tax provisions.
Giving the public a clear sense of
how companies are reducing taxes has never been a central goal of the annual
financial reports published by these companies, nor has it been a priority of
the Securities and Exchange Commission, which mandates publicly traded
companies publish these reports.
Achieving a full understanding of how
companies are avoiding taxes would require that Congress, or the SEC, require a
higher standard of tax disclosure by publicly traded firms.
True Corporate Tax Reform Should
Start with the Hard Questions: Which Tax Loopholes Will Be Repealed?
In the run-up to the tax reform
debate of late 2017, the basic outline of U.S. tax avoidance was well known to
federal lawmakers. Reports from ITEP, as well as various government agencies,
had documented how Fortune 500 companies were using legal tax breaks to shelter
close to half of their income from federal taxes, meaning that even with a 35
percent tax rate the yield of our corporate tax was low and getting lower.
But when Congress and the Trump
Administration pushed through a technically flawed set of corporate tax changes
as part of the Tax Cuts and Jobs Act (TCJA) in December of 2017, the new law
cut the statutory tax rate to 21 percent, while leaving intact most of the tax
breaks that allowed profitable companies to zero out their income taxes.
The result, unsurprisingly, has been
a continued decline in our already-low corporate tax revenues: in fiscal 2018,
U.S. corporate tax revenues fell by 31 percent, according to U.S. Treasury
data. This was a more precipitous decline than in any year of normal economic
growth in U.S. history.
As this report demonstrates, it’s
easy to see which tax breaks are responsible for allowing our biggest and most
profitable corporations to avoid income taxes. Lawmakers interested in enacting
true tax reform should critically assess the costs of each of existing tax
break—including those discussed in this report—and take steps to ensure that
profitable corporations pay their fair share of U.S. taxes.
At a time when the public’s confidence
in our elected officials and our institutions is especially low, the specter of
big corporations avoiding all income taxes on billions in profits sends a
strong and corrosive signal to Americans: that the tax system is stacked
against them, in favor of corporations and the wealthiest Americans.
Sustainable corporate tax reform
that focuses on eliminating tax loopholes and shoring up revenues could help
allay these fears and can be a vital tool for addressing our nation’s fiscal
priorities and making critically needed public investments in our nation’s
future.
[1] Steve Wamhoff and Richard Phillips, The Failure of
Expensing and Other Depreciation Tax Breaks, Institute on Taxation and Economic
Policy, November 19, 2018. https://itep.org/the-failure-of-expensing-and-other-depreciation-tax-breaks/
[2] Citizens for Tax Justice, “Fortune 500 Corporations
Used Stock Option Loophole to Avoid $64.6 Billion in Taxes Over the Past Five
Years,” June 9, 2016. https://www.ctj.org/fortune-500-corporations-used-stock-option-loophole-to-avoid-64-6-billion-in-taxes-over-the-past-five-years/
[3] Citizens for Tax Justice, “Reform the Research Tax
Credit — Or Let It Die,” December 4, 2013. https://www.ctj.org/new-ctj-report-reform-the-research-tax-credit-or-let-it-die/