Few big companies pay anything close to 35 percent federal tax rate
Paccar had an effective U.S. tax rate over the 2008-10 period of -30.5 percent, the third-lowest among the 280 companies studied, according to a report by the advocacy group Citizens for Tax Justice and the Institute on Taxation and Economic Policy.
Seattle Times business reporter
Read the report: Citizens for Tax Justice: www.ctj.org
A report on corporate taxation released Thursday calls out Bellevue-based truck maker Paccar and more than two dozen other major corporations for paying no net federal income taxes over the past three years, despite being profitable each of those years.
Paccar had an effective U.S. tax rate over the 2008-10 period of -30.5 percent, the third-lowest among the 280 companies studied, according to the study by the advocacy group Citizens for Tax Justice (CTJ) and an affiliated group, the Institute on Taxation and Economic Policy (ITEP).
The report also called Boeing one of the nation's largest corporate recipients of government tax subsidies, with nearly $3.6 billion in the 2008-10 period.
The report comes as the nationwide Occupy movement has focused attention on corporate influence on government, and as the congressional supercommittee searches for a consensus plan to reduce the yawning federal budget deficit.
While the statutory federal corporate income-tax rate, 35 percent, is one of the highest in the world, few companies pay anything close to that. Of the 280 companies analyzed by CTJ and ITEP, only 72 had effective U.S. three-year tax rates above 30 percent.
The two groups did not accuse companies of outright cheating on their taxes. On the contrary, they reported, "the loopholes and tax breaks that allow low-tax corporations to minimize or eliminate their income taxes are generally quite legal."
The report pegged Boeing's effective U.S. tax rate over the past three years at -1.8 percent.
In a statement, Boeing said it had made "substantial investments" in manufacturing capacity and new-product development that were "incentivized specifically by federal tax laws ... to help stimulate the economy and create and maintain new jobs." The company has added more than 10,000 workers this year, including more than 7,000 in Washington state.
Ulrich Kammholz, Paccar's assistant treasurer, declined to comment on the report, other than to point out that the company's cash tax payments were $452 million in 2008, $67.3 million in 2009 and $82.9 million last year.
However, neither Kammholz nor Paccar's regulatory filings say anything about how much of that cash was paid to foreign countries as opposed to the United States or specific states, or how much of those payments was based on current-year profits.
A review of Paccar's filings does suggest some reasons why its U.S. effective tax rate has been so low.
For one thing, most of Paccar's revenue and pretax income is generated overseas. Over the 2008-10 period, just 37.6 percent of Paccar's revenue — and 15.7 percent of its taxable income — was domestic; the company paid foreign tax at an effective rate of 24.8 percent.
The company also benefited from the research-and-development tax credit and a deduction for the value of exercised stock options. The report estimates that those two provisions reduced Paccar's U.S. taxes by an aggregate $13 million and $11 million, respectively, over the three-year study period.
Companies with negative effective tax rates can get refunds on taxes paid in previous years, by "carrying back" excess deductions or credits.
The study looked at the "current" portion of each company's income-tax expense — what it owes (or is owed) under the tax laws each year.
But because tax laws and accounting standards have different rules on when income should be recognized, much of a company's tax expense may be listed as "deferred" until some point in the future. Paccar, for instance, recorded a $202.7 million income-tax expense for 2010; $46.3 million of that was deferred.
The study found widely varying tax rates among companies in the same industry. Nordstrom, for instance, had a three-year effective tax rate of 37.1 percent, while the corresponding rate for competitor Macy's was just 12.1 percent.
Matthew Gardner, co-author of the report, said such disparities "raise questions about whether the tax system is interfering with the workings of the economy," by giving some firms an unfair edge over their rivals.
And some large companies, including Microsoft, were excluded from the study because the researchers found the way they allocated pretax income between the United States and overseas "obviously ridiculous."
Microsoft, for instance, runs much of its business through operations centers in Ireland, Singapore and Puerto Rico, where taxes are lower. That's why the company reports more than two-thirds of its pretax income as "international," even though more than half its sales occur in the United States.
The maneuver allowed Microsoft to slice nearly half off the statutory 35 percent tax rate.
Gardner also said policymakers should require companies to disclose more information about the taxes they actually pay, rather than accounting-based data that may obscure more than enlighten.
"It's pretty disturbing just how little the public or Congress knows about who is paying, how much they're paying and to whom," he said. "No matter what you want to do with reform, better disclosure is something Congress should be talking about."
Drew DeSilver: 206-464-3145 or email@example.com