The joy of earning billions...and paying no taxes!

Our previous article focused on the ways in which companies are moving away from generally accepted accounting principles (GAAP) and towards non-GAAP adjustments in order to manipulate their balance sheets in a way that suits them best. 

These new methods of clever accounting have far ranging effects as we have seen, in spite of new tax laws set up by the Trump administration, corporate tax avoidance remains rampant. 

According to a new report by the “Institute on Taxation and Economic Policy,”it was found that 60 profitable Fortune 500 companies managed to avoid all Federal Income Taxes in 2018. The companies that managed to avoid paying the taxes were not distinct to one segment of the economy but represented a wide range of segments. 

Included in the report were examples such as computer maker International Business Machines (IBM) which 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.

60 Companies Avoiding All Federal Income Taxes in 2018

U.S. Income and Federal Tax figures in millions of dollars.

Company

U.S. Income

Federal Tax

Effective 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

Source: Institute on Taxation and Economic Policy analysis of SEC filings

The loop holes and tax breaks used by these companies are varied and range from accelerated depreciation, stock options, and energy tax subsidies to name just a few.

One of the most egregious loopholes in the tax code, known as the stock option loophole, allows companies to deduct millions or billions from their taxable income for compensating executives in the form of stock options. Corporations can take these deductions even though granting stock options costs them nothing.

In a report produced in 2016, Citizens for Tax Justice (CTJ) reviewed five years of corporate filings and found this loophole allowed companies to annually avoid an average $13 billion in taxes. It should also be highlighted that the average sum corporations are currently avoiding could be understated because not all corporations report information about stock options.

The ITEP report also pointed this out as they stated, “In many cases, the company’s disclosures don’t fully clarify which tax breaks were used.“ Therefore, analysis of the balance sheet does not always lead to the true picture of a companies financial health.

“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.”

They go on to say that despite these companies managing to avoid paying their share of taxes, there is nothing illegal about what they are doing. They are simply taking advantage of legal tax breaks that have been provided to them in order for them to shelter a large portion of their earnings from Federal taxes. There are, however, a number of moral and ethical questions that can be raised.

If these companies are to be reigned in the only true change will come from sustainable tax reform which only the government can accomplish. The big problem facing the government as an institution is as the years pass, the debt and deficits grow, the working population pays a larger and larger portion of taxes as the public’s confidence in elected officials continues to weaken.