Crossposted on my blog.
In a recent (May 17) post on BMG I was challenged to name names of corporations which had paid little or no corporate income tax in Massachusetts. In light of the importance of this issue, given the hearing on Tuesday (May 22 at 4 PM in the Gardner Auditorium) of the new Commission that is studying corporate tax issues, I thought a separate post was in order.
More below the fold.
So far as I know, Wisconsin is the only state that discloses corporate tax return information. See this interesting analysis of taxes paid (or, not paid) by Wal-Mart in that state, and also nationally.
In any case, Massachusetts does not make that information publicly available, so we can only infer information about the Bay State from things we learn in national studies. The best report I have been able to find is a couple of years old. I’m sure not all that much has changed in that time, although there are significant changes afoot. A one-page update by the Institute on Taxation and Economic Policy shows that New York and West Virginia have recently joined the list (now up to 20) of states that require combined reporting so as to reduce the most egregious forms of corporate tax avoidance. The list also shows that 7 states (including Massachusetts) are considering this reform, and for 4 states it is irrelevant because of the nature of their tax system, leaving a minority of 19 states that have not joined the bandwagon. A glance at the list of states that do require combined reporting suggests that combined reporting may already (or at least may soon) account for the majority of corporate revenues in the country, since the list includes the states of California, Texas, and New York; and several other large states are considering moving that way.
I have posted the following, along with a link to the full report on my blog:
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Corporate Tax Avoidance In the StatesThis press release details the main conclusions of a report prepared by the Citizens for Tax Justice and the Institute on Taxation and Economic Policy covering the 252 largest corporations in America which had fully disclosed their state and local tax payments for the years 2001, 2002, and 2003.
Some highlights:
o 71 of the 252 companies managed to pay no state income tax at all in at least one year from 2001 through 2003
o Some companies, such as Toys R Us, AT&T, Boeing, Eli Lilly, Merrill Lynch, and ITT Industries, paid no net state income tax over the full three-year period.
o In 2003 alone, 35 companies paid no state income tax.
o Since fiscal 1989, total state corporate income taxes have fallen by an average of almost 40 percent as a share of the economy.
o As a result, individual taxpayers and purely in-state (usually smaller) businesses are paying a heavy price, in the form of higher taxes, reduced public services and unfair competition.
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Discuss
28 Comments . Leave a comment below.Was your earlier point that Corps weren't paying any Mass tax or no US State taxes in total?
Because in the study you link to, on page 25, the Massachusetts companies listed all pay corporate tax:
John Hancock-$12 milllion Boston Scientific-$4 milllion Gillette-$39 million State Street-$112 million BJ's Wholesale Club-$21 million TJX-$138 million
Only Reebok was listed as a non-taxpayer. Say, wasn't Governor Patrick on the Board of Directors of that company?
Anyway, prior to 2003, Reebok wasn't a Massachusetts domicile. Reebok was a dog of a company, whose downward financial spiral ended in the same year the company moved its headquarters to Massachusetts in 2003--the year the study concluded. I'm not sure that it's valid to include Reebok as a Massachusetts company for 2000-2003.
Okay, let's leave out Reebok. Fine. On page 21 of my copy of the report (page 23 in the pdf file, and page 25 in your copy, evidently), John Hancock is listed as paying 0.5% of its profits as taxes during this 3-year period. Sure, they paid $12 million in taxes {that's nationally, btw, and we don't know how much of that, if any, was paid in Massachusetts}, as you aver, but they made $2.4 BILLION in profits. You think this is fair?
But I think you (intentionally?) miss the point -- tax avoidance is not just about businesses domiciled in Massachusetts, but about any company that profits from doing business in the state.
What about Merrill Lynch, for example? They paid NO state income taxes in the 3 years covered by this report. I have to believe they had profitable operations in Massachusetts, given that they made $8.8 billion dollars in profits during that period.
What about Sara Lee? NO state income taxes paid in 2003 despite having made profits in excess of $1 billion. Don't you think some of that profit was derived from sales in Massachusetts?
What about Pfizer? NO state income taxes paid in 2001; profits of $4.1 billion. IBM, NO state income taxes paid in 2001, profits of $5.6 billion.
In fact, 71 of America's largest corporations paid NO state income tax (anywhere, let alone in Massachusetts) during at least one of those 3 years.
Thanks for taking the time and effort to delve into the entrails of this report, but, for now, leaving aside these details, please tell me what philosophical principle leads you to the conclusion that it's okay for corporations to not contribute their fair share toward the upkeep of the infrastructure of this state, an infrastructure that they not only benefit from, but depend upon?
Corps don't have money trees. Corporate tax increases come from i) higher prices to consumers ii) lower salaries to employers or iii) lower returns to sharesholder. There is not 4th choice.
You say corps should pay their fair share, but whose pocket should it come from? The consumer, the employee or the shareholder. I say, either of those groups can spend the money more effectively than the government.
Simple philosophy really.
There's a sub-pocket you missed: executive compensation. Why do executives need so much more money today than they did 20 years ago? Maybe because they have plenty to pay it.
I don't know why execs are paid more now than they used to be, but a higher corp tax probably won't affect exec comp.
Corps don't have money trees...
Flesh and blood persons don't have money trees, either.
Artificial persons (a/k/a corporations) make use of facilities provided and maintained by government--roads and other parts of the transportation system, courts, schools (which educate their future workforce), police and fire departments and so forth, just as do flesh and blood persons. Indeed, it is highly likely that they make use of at least the courts and probably also the transportation system at least as much as, if not more than flesh and blood persons. Indeed, in some cases government builds and maintain special portions of the transportation systems especially for corporate facilities.
As far as I'm concerned, it is legitimate to ask artificial persons to pay for it via taxes.
Your comment makes no sense.
Corporate tax increases come from i) higher prices to consumers ii) lower salaries to employers [sic, employees?] and/or iii) lower returns to sharesholder. (bolded added)
So? The money is going to come from somewhere. If government has to raise taxes on flesh-and-blood persons to pay for things that benefit artificial persons, they will have less money to buy things produced by those artificial persons. If the flesh-and-blood persons buy less, either the employees will have lower salaries, or there will be fewer of them. And there will be lower returns to shareholders.
So the effect of taxing artificial persons is not really as simple as you seem to believe it to be.
Please consult with John Edwards (presidential candidate) This poster boy of avoiding paying the government a dime cites as his defense, "it's all perfectly legal".
I believe President Clinton, Sen John Kerry, VP Al Gore, Harry Reid and Nancy Pelosi as well as every Republican in congress is like minded. So when you say it ain't fair (what is?) please lump all of the well heeled progessives in the democrat party,as well as many republicans of the congress in your condemnation of those who allegedly are failing to pay their "fair share". BTW what is a fair share? How about stockholders maximizing their return on their investment in these publicly held companies. I wonder how much the MTA, the teamsters, IBEW, et al have invested in these companies?
Fair question. Why does Citizens for Taxes report that Merrill Lynch pays no state tax.
Quite possibly, because Citizens for Taxes are a bunch of doofuses who apparently can't read financial statements.
Look at the most recent posted Company's 10K. Scroll down to Footnote 15 and note the company's state/local income tax expense was $276 million, $50 million, and $73 million for 2006, 2005 and 2004 respectively.
So, for the most recent 3 years they paid $399 million, or as you would say, rounded down to the nearest -0-, they paid -0- in tax.
Or maybe you have trouble reading years. 2001, 2002, and 2003 does not equal 2004, 2005, and 2006. Could you dig up the 10K's for those years and report what ML paid to MA in income tax. (Bonus points for telling us what fraction of the $8.8B was earned in MA during those years. The Brahmins on Beacon Hill must still have a few bucks on account with ML.)
Merrill Lynch 2001, 2002 and 2003 state taxes wer 11 million, 70 million and 38 million. I figured more recent years were more meaningful, but you guys seem to like history. link then go to the income tax footnote
Original post said: hey, look at the big bad corps that paid -0- in state taxes. Zero!
Then, the backpeddling starts. Ok, ok, so they paid $456. Ok, maybe they paid more than $456, but it wasn't enough.
Then you start: Sara Lee state taxes are only .3% of book profits worldwide. That's close enough to zero. And you got the years wrong. And how much of that is Mass? But, but, but, but....
Urban Myth: US corps pay zero in state taxes.
How the hell do I know if it's 'fair'. The Government in its infinite wisdom chose to give the insurance business a preferential rate. That's why John Hancock's tax bill is so low.
I don't hear anyone squarking about raising insurance company rates.
And yet, the company reported state income tax expense in its 2003 10K of $14 million.
Now, I'll suppose you'll claim that $14 mill on $1 billion isn't fair.
But that's not the point. You've pointedly claimed that the companies that don't pay Mass state tax are "legion" and so far, based on your examples, that's just urban myth.
Are you claiming that any of the paltry $14M was paid to Massachusetts? It don't say in the 10K. If it does please tell me the page number. I'd say compared to the %5.3 that this corpus pays, that the less than %0.2 that dear Sara paid in 2003 is close enough to ZERO!
Yet again. Seems that Pfizer reported to SEC state tax expense of $51 mill in 2001, $226 in 2002, $340 in 2003, $108 in 2005 and $205 in 2006. Here's the SEC filings link. Look at the 10Ks., then send an e-mail to Citizens for Taxes and tell them that either Pfizer is lying to the SEC or else, Citizens for Taxes sucks.
Or else you can cling to their data and the Patrick 'close the loophole' mantra.
Sorry, I couldn't find your tax numbers (what page?), but would you care to explain page 66 of the 10K-exhibits to us. After all, they only made $4B, they were probably having trouble making their mortgage payments.
[BTW, what's with the Jim Jones crap? We are just trying to level playing field for the great game of taxation. Don't you think that if a corporation makes money in MA that it should be paying tax on that income at the 5.3% rate? Sounds right to me.]
And one I would entirely endorse:
Sounds right to me too. Adopt combined reporting and lower the existing rate from 9.5% to 5.3% across the board. I'd be 100% with that. I don't, however, see that as the Governor's suggestion.
...A corporation will have subsidiaries in several states, some in lower tax states and some in higher tax states, and maybe Mexico (NAFTA illustration). The corp will have its subsidiaries in the higher tax states manufacture parts for a product, sell the parts to its subsidiaries in the lower tax states (or Mexico) for assembly prior to final sale on the open market.
The corporation will establish the inter-subsidiary sale price, of course, and will allocate a lower-than-market sale price. That will obviously depress the subsidiary's income in the high tax states for tax purposes. When the subsidiary that does the assembly sells the assembled product on the open market, it will realize revenue whose profit will be taxed at the lower tax rate of the state (or Mexico).
Combined corporate reporting means that the corporation and its subsidiaries will provide information to the taxing officials to determine whether the inter-subsidiary sale prices are lower than market prices for similar goods. That's all it does. There are other examples, of course, but that's a significant one.
BTW, if you notice, I did not specifically mention income taxes. That's because, for much commercial property, property taxes are based on the presumed income of the commercial activity related to the property, so-called "present value" of the presumed revenue stream to the facility in question. If the parent corp artificially lowers the sale price from one facility (high-tax) to another facility (low tax), the reduced revenue stream will also result in a reduced property tax.
There's already a statute makes sure the inter-company pricing is arms-length.
Internal Revenue Service statute 482. 482 says inter-company pricing must be at arm's length for stating Federal taxable income. Mass adopts Federal taxable income as the starting point for determining Mass excise tax.
Please play by the rules. Where does one find "Internal Revenue Service statute 482" or did you just make this up?
You find it in the Internal Revenue Code, under Section 482.
The regs. may be useful too.
There ya go. Full text IRC sec. 482, from Lexis. Emphasis mine, giving the Secretary of Treasury (i.e. through the power of the IRS) to adjust the inter-company pricing appropriately to reflect income.
Are you telling me that the IRS does not make this section of the Code publicly available?
In any case, can you explain to me what this has to do with the taxes that corporations pay in Massachusetts? My accountant tells me that Massachusetts is notorious for having tax rules and regulations that are NOT tied to the federal code.
IRC section 482
Because Federal income tax is the starting point for calculating Mass income tax, as in, start with Federal taxable income and make some adjustments.
He was trying to get rid of you and your questions.
Link
And, of course, some will go up, and some will go down. The question is, will the total be allocated more fairly, and I think the answer is "yes." In addition, since the other purpose is to raise more revenue by cracking down on tax avoidance schemes, on average, the tax payments will go up. If they don't, then perhaps our tax rate is too low.
...26 USC (United States Code) section 482. The entire USC can be found through http://www.findlaw.c... or http://www4.law.corn... The latter is more convenient--just plug in the title (26) and the section (482) and the section pops up. Title 26 is the tax code. Title 18 is the criminal code. Title 28 is the civil procedure code.
...reporting at the state level, not the federal level, and the issue is largely income tax, not excise tax. I would presume that the referencing that IRS would be interested in combined reporting at the federal level for federal income tax issues, but why would they care about combined reporting at the state level?
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