The Corporate Tax Hall of Shame

by Will Ashworth | August 2, 2012 11:40 am

Have you herd of NerdWallet[1]? It’s a personal finance site that gives recommendations about the best credit cards to own and other finance-related issues we’re all concerned about.

Hidden among its many pages of information is the NerdWallet Tax Rate Transparency Tool[2], a useful guide for researching how much tax large American companies pay to the U.S. government. If this tool doesn’t open your eyes to the government’s obvious bias toward large corporations — nothing will.

Here are five egregious examples, drawn from NerdWallet, of publicly traded companies playing fast and loose with your tax dollars.

First up is Apache (NYSE:APA[3]), an independent energy exploration and production company based in Houston with a market cap of $34 billion. In 2011, Apache earned $8.1 billion in total pretax income, yet it paid less than 1% of that total, or $64 million, in actual taxes to the U.S. government. But it reported a tax rate of 43%.

Why the big discrepancy? Let me explain.

The U.S. statutory rate for large corporations is 35%. On $8.1 billion that’s an income tax of $2.83 billion. However, add to that number several overseas tax expenses, including an increase in the U.K. tax rate, and the effective rate becomes the 43% Apache reported, or $3.5 billion.

Where the problem lies is Apache earned $2.37 billion in the U.S. in 2011, yet it paid just $64 million in tax. At the 35% statutory rate it would have paid $830 million. It didn’t because it has $1.6 billion in federal and state net operating loss carry forwards. I presented Apache first not because it’s the most egregious example — it’s not — but to demonstrate how complicated the tax system is. Apache paid more than its fair share outside the U.S. Unfortunately, that doesn’t help the U.S. government.

Next up is Exxon Mobil (NYSE:XOM[4]), the second-largest company in the S&P 500 by market cap. We know Exxon is a global business. However, is it fair that it only paid 2% of its $73.3 billion in pretax income to the U.S. government in 2011?

It’s not if you consider that its pretax income in the U.S. was $11.5 billion. Thirty-five percent of that is $4 billion, but it paid just $1.5 billion, or 13%, of its U.S. pretax income. I’m sure Washington spent a fair amount assisting with the Exxon Valdez disaster in Alaska back in 1989, yet the company is still doing its best to hide from Washington.

It seems telecom companies are especially tight with the taxes they pay to the U.S. The NerdWallet tool shows that in 2011, Verizon (NYSE:VZ[5]) paid 2% of its $10.5 billion in pretax income and AT&T (NYSE:T[6]) actually got a refund on its $6.7 billion in pretax income.

As far as I can tell, AT&T doesn’t break out its domestic pretax income from its foreign income, so I’ll assume the foreign amount is negligible. Right there on page 58 of AT&T’s 10-K is a current federal benefit of $420 million. Subtract the $23 million in current state, local and foreign tax expenses, and it pocketed $397 million on $6.7 billion in pretax income. That’s some trick.

As for Verizon, its current provision for federal income tax is $193 million on $9.7 billion in domestic pretax income. It, too, pretty much got a free ride from Washington in 2011.

General Electric (NYSE:GE[7]) is a very interesting example because of its complexity. According to its 10-K, it files over 6,500 income tax returns in 250 jurisdictions around the world. It’s constantly in tax litigation or being audited by the IRS, so its situation is very fluid and always changing.

That’s not very comforting for investors trying to pin down exactly what GE contributes to the federal coffers. Page 147 of its 10-K informs us that its current federal tax expense in 2011 is $1 billion, which, as the tax rate transparency tool points out, is 5% of its $20 billion in global pretax income.

However, based on GE’s U.S. earnings before tax, which were $10.2 billion, the number is more like 10%. That’s still far too low for a company that brags about creating jobs in America[8] when it’s actually killing them: The Wall Street Journal suggests GE’s U.S. employment has dropped by 3,000 people[9] in the last three years.

The company’s $1 billion investment — ironically the same amount as its current federal taxes — to grow its appliance manufacturing here in the U.S. is welcome news, but until it pays more taxes in the U.S. instead of elsewhere, how much of a contribution is it really making to America’s future?

I could go on for days highlighting companies that aren’t paying their fair share of taxes, but that wouldn’t solve anything. You can check out NerdWallet tool for yourself.

What I will say is that it’s quite clear Washington favors large corporations and the wealthy over everyday folk. You can criticize Warren Buffett all you want for his ideas about taxing the rich, but at least Berkshire Hathaway (NYSE:BRK.B[10]) pays a decent amount of tax[11] in this country — the five mentioned above unfortunately can’t say the same.

As of this writing, Will Ashworth did not own a position in any of the stocks named here. 

  1. NerdWallet:
  2. NerdWallet Tax Rate Transparency Tool:
  3. APA:
  4. XOM:
  5. VZ:
  6. T:
  7. GE:
  8. creating jobs in America:
  9. dropped by 3,000 people:
  10. BRK.B:
  11. decent amount of tax:

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