WASHINGTON (Reuters) – Fifteen U.S. corporations including online retailer Amazon.com Inc (AMZN.O), power company Duke Energy Corp (DUK.N) and insurer Prudential Financial Inc (PRU.N) avoided U.S. tax on nearly $25 billion in combined profits last year, a tax watchdog group said on Tuesday.
A report by the Institute on Taxation and Economic Policy, or ITEP, said data showed how profitable Fortune 500 companies have routinely lowered their tax bills long before the Republican tax overhaul signed into law by President Donald Trump in December.
The 15 corporations had profits of $24.5 billion in 2017 but managed to obtain nearly $1.4 billion in rebates from the U.S. Treasury for a combined tax rate of minus 5.6 percent, according to the ITEP report, which examined corporate income tax disclosures.
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The nonpartisan group said the new U.S. tax regime, which slashed the corporate income tax rate from 35 percent to 21 percent beginning in January, will likely allow corporations avoid even more tax.
ITEP said while “disclosures made by these companies are too vague to allow a complete diagnosis of how they are avoiding income taxes” they used a variety of tax breaks to cut their tax bills.
Amazon (AMZN.O) received a $137 million federal rebate on $5.4 billion in U.S. profits, resulting an effective tax rate of negative 2.5 percent, by using a tax break that allows companies to write off the value of executive stock options, according to ITEP.
Charlotte, North Carolina-based Duke Energy obtained a $247 million rebate on $4.2 billion in U.S. profits by using accelerated depreciation on capital investments and renewable energy production tax credits to lower its federal tax rate to a minus 5.9 percent, the report said.
Officials at Amazon.com were not immediately available for comment.
A spokesman for Duke Energy called the report “deeply flawed and misleading.”
The bonus depreciation tax policy was introduced during the recession “to encourage companies to invest and create jobs to spur economic growth,” spokesman Neil Nissan said in a statement.
Last year’s tax legislation dramatically expanded the depreciation tax break used by Fortune 500 corporations, the group said.
Prudential Financial (PRU.N), which has operations in investment management and other financial services in addition to insurance, reduced its effective federal tax rate to negative 1.9 percent on $2.5 billion in U.S. profits partly through low-income housing credits, ITEP said.
Officials at Prudential also were not immediately available for comment.
Shows why the Corporate Tax Rate is meaningless except as a talking point to flummox the voters.
stock option write offs – what a joke on working public.
It is the loopholes passed by the bribed politicians that is the problem, not the corporate tax rate.
kokoda – stock options are clearly deductible. The question is the timing of the deduction. Generally, deductions are allowed when the liability is incurred, not when the payment is made.
For instance, I take delivery of a new bit of equipment (ignoring depreciation implications) and the invoice is received in December, 2017, which I pay in January, the next financial year. I get the deduction in 2017, even though I pay in 2018.
Current rules for stock options do the same thing – the year the liability is incurred, the deduction can be taken.
The problem being is that it can be years before stock options are exercised. The amount of tax ultimately payable will remain unchanged – just the timing of the payment will be affected. Stock options eventually turn into a real expense – the employee is paid out the difference between the actual value of the stock and the option price. That is clearly a business expense and is deductible.
Companies are simply pushing out the tax liability, not avoiding it entirely. Maybe that should be changed. But custom and practice is to allow deductions when the liability is incurred, not when the actual cash is paid.
Thanx for the clarification.
I know they are deductible – my point is that it and many other benefits should not be deductible as a business expense. I don’t know crap about stock options except that they are provided to the officers at a cheap price, usually with a holding period, and after that the officer can sell at a higher price. At the sale, how does that affect the company?
Get rid of all the loopholes that reduce taxes beyond the corporate rate.
I’ll go back to IBM in 2010 (in addition to those in this article) – they had 5 Billion Profit in US sales and paid ZERO taxes.
Kokoda – it is at the sale that the company incurs the expense. The companprovides the option to the employee for say a dollar. The employee has the option to buy the stock for a dollar no matter the actual value. Say the actual value is ten dollars. The employee buys the stock for one dollar, but the company must provide it at a value ten dollars, thus costing the company nine more than it receives. That difference is deductible. Again the question is when – when the option is issued is the current law, not when it is exercised.
The employee is taxed when they sell the stock/ exercise the option at their marginal rates.
The biggest users of options are not actually CEOs (who do of course get them) but rather are start-ups, especially techs. They give their employees options in order to entice them to initially work for less, in hope of making a killing on options.
Re IBM, I am not up to speed on that. However, very very often, almost universally, when that is said in an article it is based on a company having world-wide profits of $5 billion, but not US profits. The corporate profit and loss says they made $5 billion, but if it was made overseas and not in the US, then no US tax is payable. Tax is payable in the country where it is earned, and US tax is not payable until that profit is repatriated to the US. Which may ir may not ever happen.
Llpoh
The IBM bit in 2010:
13 Billion total Profit
5 Billion from US
8 B outside US
Just think of all the other large/international corp’s with tax atty’s or hire firms – my point is these firms have profits in Billions and don’t pay squat but a worker makes $80,000 gross and gets creamed in taxes.
Kokoda – I did a quick look into those figures re IBM. Those figures are annual report profits, which have zero relationship generally speakimg to reported tax return profits. They are not the same, and will never be the same. Without seeing the tax return it is impossible to know what has occured.
But put me in the camp that believes that corps should not pay any taxes at all. Taxing the entities that create jobs does not make sense to me. Tax the dividends at marginal individual rates, instead of discounted rates. But not the company profits. Many economists are calling for the abolition of corporate taxes.
In any event, there will be international pressure to continue to reduce corporate tax rates. As one company drops rates, another follows in order not to see business flow away to other nations. This will continue.
It is not the taxes that are the issue – it is the expenditure. Despite the massive US tax take, there is still a $1 trillion dollar a year deficit – or around 6000 a worker deficit. No matter what the tax take, it will never be enough.
Llpoh–“It is not the taxes that are the issue – it is the expenditure. Despite the massive US tax take, there is still a $1 trillion dollar a year deficit – or around 6000 a worker deficit. No matter what the tax take, it will never be enough.”
until the fsa is disbanded,especially the middle class fsa,we wll go further & further into the hole–
add to that the military/intelligence black holes,i do not see a future for this country–about the only thing we have in our favor is that the rest of the world is just as …up–
You can put me in the camp that says “government granted” entities should not exist at all! A corporation is an entity that is created solely by the government so the owners can dodge personal responsibility for the entity’s action.
Fuck that.
none ya biz is exhibit A as to how low IQ troglodytes have infiltrated TBP.
Without the insulation of risk from personal assets, who the fuck would invest in a business? If the “joint and severally” liability laws applied to shareholders, who the fuck would ever own shares, as you could be sued for the entire liability even if you owned but one share.
It allows for the raising of capital, to allow for large scale projects that otherwise would not be possible. Without insulation from liability, capital could not be raised. And boy howdy, would that ever be a problem.
None ya biz has all the business and economic acumen of a fruit fly.
“obtained a rebate …,” were they really receiving net payments from the treasury or just lowering their tax liability–
They really got a refund. Sorta like EARNED INCOME CREDIT for corporations! Joe Blow Plumbing business can’t qualify for that shit because he is not a huge corporation that is if he is incorporated at all.