The joy of earning billions…and paying no taxes!

By April 18, 2019Finance, Politics
The Hutch Report

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.