The Truth About Corporate America's Biggest Tax Dodgers

A new study reaches some surprising conclusions.

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Rally about income equality
Tish Wells/MCT via Getty ImagesDemonstrators at the U.S. Capitol last month protesting income inequality, minimum wage and ending tax breaks for wealthy corporations.
A few new research reports are asking if some of America's biggest corporations are also some of our biggest tax dodgers.

Last month, U.S. Public Interest Research Group released a report accusing U.S. corporations such as General Electric (GE) and Pfizer (PFE) of using offshore tax havens to evade $184 billion in income taxes last year. According to U.S. PIRG, General Electric has been particularly flagrant in its use of tax havens to dodge U.S. taxes, racking up an average tax rate of negative 11 percent (meaning we, the tax-paying taxpayers, actually paid GE a refund) from 2008 to 2012, "despite being profitable all of those years." Without disputing the facts of the findings, it's worth pointing out that U.S. PIRG isn't accusing GE -- or anyone else, really -- of doing anything illegal. (Just maybe a wee bit immoral.) Still, if a company of as high a profile as GE can get away with this kind of legalized tax evasion, it's worth asking just how widespread this practice is, and how often companies get away with it?

WalletHub Attempts an Answer

Fortunately, a separate study -- this one from online financial community WalletHub -- recently did some digging and attempted to answer this question.

Mining 2012 annual report data for the S&P 100, WalletHub came to several conclusions that may surprise you.

Mining 2012 annual report data "on company profits, withholding practices and tax payments on the state, federal and international levels" among the nation's 100 biggest companies -- the S&P 100 -- WalletHub came to several conclusions that may surprise you.

For instance, in taking U.S. corporations to task for overuse of offshore tax havens, it seems U.S. PIRG hit the nail on the head. WalletHub's report notes that by doing business internationally and taking advantage of disparities in tax rates, S&P 100 companies are generally able to pay about 30 percent lower tax rates on their international taxes than on their U.S. taxes.

Certain tech companies are especially adept at this game, with Apple (AAPL) and Google (GOOG), for example, working the international tax system to pay up to 80 percent lower taxes on profits earned abroad than those profits would be taxed at here in the U.S.

Of course, the fact that U.S. companies work the system to shield their profits from taxes whenever possible isn't news. And while tech companies seem to play this game better than most, it's not just the techs who are winning the game of tax dodgeball.

In 2012, The New York Times reported that the average American taxpayer pays about 24.7 percent of income annually for federal, state, and local income taxes. Yet WalletHub reports that no fewer than 28 companies in the S&P 100 paid less than 24.7 percent in overall taxes in 2012. A further three companies paid no taxes at all that year, due to their earning no taxable profits. Six more companies received tax refunds.

In other words, as a percentage of income at least, more than one American company in three is paying a lower tax rate than the average mom-and-pop taxpayer pays.

The Big Surprise

So far, so bad. But here's the good news: Just as with individual taxpayers, corporate taxpayers' tax rates tend to fluctuate from year to year. Sometimes, they get off scot-free. Other years, they take some pretty big tax hits. But overall and over time, it turns out that corporations really do appear to be paying their fair share.

Don't believe it? Focusing on just one notable example, and a perpetual bugaboo of the "corporations are tax cheats" theorists, it turns out that America's oil companies are actually some of the most generous taxpayers on the planet.

Five of the top 10 companies cited in WalletHub's survey as paying the highest taxes as a percentage of their profits were oil companies. Namely, Exxon Mobil (XOM), Chevron (CVX), Occidental Petroleum (OXY), ConocoPhillips (COP) and Apache (APA). Exxon paid a 39.4 percent effective tax rate in 2012 -- and the others all paid 40 percent and up. This was pretty good news for U.S. taxpayers as a whole, because, as it turns out, two of these companies were Nos. 1 and 3 for the most profitable companies in the S&P 100 that year. Exxon Mobil earned about $44.9 billion in 2012, and Chevron earned more than $26.2 billion.

The Upshot

When you get right down to it, though, while some corporations win at the tax minimization game, and others, like the oil companies, don't, on the whole it turns out that America's biggest companies really are paying their fair share.

Between federal, state, local, and international taxes, the average percentage of corporate profits paid out as taxes by America's top 100 companies was 26.9 percent. That's more than 2 full percentage points more than the rest of us pay.

Motley Fool contributor Rich Smith owns shares of Apple. The Motley Fool recommends and owns Apple and Google (A and C shares), and owns shares of General Electric.



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136 Comments

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dgsweeney

The author doesn't know the difference between tax evasion and tax avoidence. One is a crime; the other is a requirement.

May 27 2014 at 4:22 PM Report abuse rate up rate down Reply
DAVE

You all left out the unfamiliar company but reconize its media name: Oce' Canon Corporation,
one of the biggest rip off of American tax dollars company in the world. Besides if you are seeking employment and think your bad marked MVR may keep you from being hired - Think again, they prefer you have a few DUI's before being considered a modeled employee.
Oce' Canon is the place to work in 2015.

May 21 2014 at 6:02 AM Report abuse rate up rate down Reply
fballou757

Corporations do pay income taxes. But should they be forced to pay domestically? United States corporate citizens pay the highest corporate tax rates in the world? Consider the fact that corporations treat taxes as a cost of doing business. Prices charged corporate customers, retail, wholesale and industrial, include such taxes. Thus, one effect of taxation of corporate income is to make American companies less competitive. By shifting production to foreign operations American companies achieve a more competitive posture, because such shifts reduce their costs of doing business. Lower tax rates are just part of their savings. Placing production facilities closer to foreign markets reduces transport costs and may produce other savings associated with production. By reducing corporate income tax rates Congress could impel businesses to rethink some of their foreign operations, bringing a portion to the homeland, thus adding to federal revenues and to local property taxes. A better idea: Congress should eliminate all corporate income taxes. Corporations would then compete on a new playing field, where competitors could maintain gross margins or slightly increase them by returning their tax savings to their customers. This move would make American companies more competitive everywhere. Many of those jobs that have been outsourced would return to America, increasing employment and reducing demand for government expenditures on welfare. An even better solution: Congress should eliminate the IRS by eliminating personal income taxes totally. This move would eliminate a source of major corruption (just read the news about IRS abuses of power) and taxing consumption, via a single national tax on purchases could support needed Federal taxes, and would encourage savings. Citizens would then be free to choose to work long hours to increase their personal well being and would be encouraged not to waste their new found wealth but to save for even higher living standards.

May 20 2014 at 12:52 PM Report abuse rate up rate down Reply
1 reply to fballou757's comment
true_liberal1

Corporations do not PAY income taxes. No corporation has ever PAID an income tax, or ever will.

Corporations COLLECT income taxes. Those who PAY the income taxes that corporations COLLECT are known as employees, customers, and shareholders.

May 20 2014 at 6:48 PM Report abuse rate up rate down Reply
1 reply to true_liberal1's comment
true_liberal1

The dumb ones want corporations to COLLECT more taxes because the dumb ones are too stupid to recognize it is they who PAY the taxes corporations COLLECT.

May 20 2014 at 7:48 PM Report abuse rate up rate down
dopey.obamite

Gotta go.

May 20 2014 at 12:16 AM Report abuse -1 rate up rate down Reply
dopey.obamite

Clark rates were cut to same rates...not a cut. Only gullible people believe that.

May 19 2014 at 11:46 PM Report abuse -2 rate up rate down Reply
2 replies to dopey.obamite's comment
clark8642

Rates were cut from where they were to where they had been under the temporary tax cuts which had expired. So repeal the law. Make my day and reduce our deficit. CBO is gullible?

May 19 2014 at 11:56 PM Report abuse +1 rate up rate down Reply
dopey.obamite

Semantics. Show me where rates were different in 2013 than in 2012, with the exception of the 39.6 for individuals over $400,000k.

I was against the damned thing beign signed without cuts to begin with.

May 20 2014 at 12:11 AM Report abuse -2 rate up rate down Reply
dopey.obamite

clark, can you name a single dem house or senate member who will actually cut spending?

The dem house leader is on record saying the cupboard is bare....there is nothing left to cut....meanwhile, they keep shaming and guilting the repub leadership into agreeing to more and more and more spending. My God....look at the demonization of the sequester alone.....out of a $3.6 trillion budget?

May 19 2014 at 11:41 PM Report abuse -2 rate up rate down Reply
1 reply to dopey.obamite's comment
clark8642

I apologize if I have led you to believe that Congress, House and Senate, comprised primarily of Democrats and Republicans, is capable of the heavy lifting involved with spending cuts. Neither party has the political will to do so. Hence my opposition to tax cuts before spending cuts. The easy part, tax cuts, gets passed while spending cuts do not. Well sometimes they vote for small cuts but they are usually back loaded and easily modified when constituents complain.

May 19 2014 at 11:48 PM Report abuse +1 rate up rate down Reply
1 reply to clark8642's comment
dopey.obamite

Yes. It's the politics of it. It sucks. I hate it.

The average joe pays 10-13% effective rate. I'm for an across the boarr no deduction flat tax of like 12-13%.

Overseas holdings. Done
IRS. Done.
Politicizing of our taxation. Done.

May 20 2014 at 12:15 AM Report abuse -2 rate up rate down
dopey.obamite

Sorry for butting in...but weren't existing tax rates made permanent in 2013 for the bottom 98% of earners...not cut, but just extended?

May 19 2014 at 10:23 PM Report abuse -2 rate up rate down Reply
1 reply to dopey.obamite's comment
clark8642

The existing temporary tax rates expired at the end of 2012. The new law, passed in 2013, with the support, of the P resident and both parties, cut the permanent rates that had gone back into effect. Like I keep saying, if you think ATRA raised taxes then join me in voting for its repeal. But first you should read the CBO report on ATRA.

May 19 2014 at 10:28 PM Report abuse +1 rate up rate down Reply
1 reply to clark8642's comment
dopey.obamite

Cut from what to what?

May 19 2014 at 11:20 PM Report abuse -2 rate up rate down
theycallmeroy3

Clark, the Government had to borrow to pay the interest on the treasury notes. When describing budgets, its had to use the word surplus when it comes to SS. There's on-budget, off budget and unified budget. While I'll agree the deficit in the last 14 years isn't from SS, SS does add to the deficit. The trustee's reports on the net, and if you do a search asking the right question, you'll easily find solid credible evidence from the trustee's, and other sources which will explain in detail how that conclusion is validated.

May 19 2014 at 8:43 PM Report abuse rate up rate down Reply
2 replies to theycallmeroy3's comment
theycallmeroy3

excuse me, its hard to use the word surplus. Later.

May 19 2014 at 8:47 PM Report abuse rate up rate down Reply
clark8642

Social Security is adding to the budget deficit only if you feel that when the government shouldn't pay interest on the money borrowed from the program. If the government had not borrowed from the Social Security Trust it would have borrowed the money from the public and paid interest to the public. And yes Social Security will be running a deficit, even with interest it earns, in the next few years so action is needed but that action is unrelated to our current deficit. If you fixed Social Security tomorrow you would only make it possible for more borrowing from the program. Still, it should be fixed sooner rather than later so that we can all plan accordingly.

May 19 2014 at 9:02 PM Report abuse -1 rate up rate down Reply
bamy.demsjail2014

ashamed n embarrassed to be an american today ,fly your american flag upside down for the death of america ,untill this muslim clown is removed from our white house in handcuffs n show support n put all your stamps on your envelopes also upside down. !!

May 19 2014 at 7:48 PM Report abuse -5 rate up rate down Reply
1 reply to bamy.demsjail2014's comment
clark8642

Nonsense.

May 19 2014 at 8:06 PM Report abuse +1 rate up rate down Reply
bamy.demsjail2014

cut the size of government"~"cut the muslim clowns "out of control spending"~"cut all americans taxes"~"impeach obamit in 2014 along with his "record unemployment"~"n his record foreclosures for the last 5 years now. !!

May 19 2014 at 7:36 PM Report abuse -2 rate up rate down Reply
1 reply to bamy.demsjail2014's comment
clark8642

Any role for Congress in the country's chronic deficits? Any at all? And your federal income taxes were cut in January of 2013.

May 19 2014 at 8:07 PM Report abuse +1 rate up rate down Reply
2 replies to clark8642's comment
texastotenmom

the only thing obamit cut in 2013 were the 36,000 violent illegal immigrants he cut out n released out of our jails n into america to rob n kill all Americans that were slated for deportation . !!!

May 19 2014 at 8:26 PM Report abuse +1 rate up rate down
clark8642

Tim The federal income tax for every American actually paying federal income tax was cut in early 2013 by the American Taxpayer Relief Act of 2012. The President was wrong to support and sign the law which replaced the temporary Bush era tax cuts which had expired in 2012. The temporary payroll tax cuts which also expired at the end of 2012 were not replaced with permanent cuts. Check the CBO report for an analysis of the $4 Trillion ATRA tax cut.

May 19 2014 at 8:29 PM Report abuse rate up rate down