Taxes

Some Corporations Pay a Lot More Taxes Than Others

Why do companies pay such wildly different amounts? Check the overseas earnings.

What's "fair," anyway?

Photographer: David Ryder/Getty Images

Here's a ranking you don't see all that often: the 20 U.S. publicly traded corporations with the biggest income tax bills.

The Biggest U.S. Corporate Taxpayers

Income tax expense, trailing 12 months

Source: Bloomberg

It amounts to a pretty fair who's who of corporate America's giants, with some interesting absences. Of the top 10 companies in the Fortune 500, which is based on revenue, McKesson Corp., General Motors Co. and Ford Motor Co. fail to make this list. Of the top 10 companies ranked by market capitalization, Amazon.com Inc., Microsoft Corp. and Facebook Inc. are missing from the ranks of top taxpayers.

Marketing guru Scott Galloway ran some numbers on Amazon's taxpaying earlier this month and had this to say:

The most disturbing stat in business? Since 2008 Walmart has paid $64B in corporate income tax, while Amazon has paid $1.4B. This is despite the fact that, in the last 24 months, Amazon has added the value of Walmart to its market cap. The most uncomfortable question in business, in my view, is how do we pay our soldiers, firefighters, and teachers if a firm can ascend to $460B in value (#5 in the world) without paying any meaningful corporate taxes.

Amazon's corporate income tax bill is so small, though, because its corporate income (aka profit) is so small. Wal-Mart's pretax income since 2008 has totaled $209 billion, Amazon's less than $11 billion. So while Amazon's rise to fifth-biggest market cap in the world on the strength of such small earnings is a fascinating and perhaps disturbing phenomenon, it doesn't necessarily signal a problem with our system of corporate taxation.

Other disparities in tax burdens might signal problems, though. So here are those top-20 taxpayers, ranked by their effective tax rates, which I calculated over three years because one-year rates can sometimes be pretty anomalous:

High Rates and Low Ones

Effective tax rate, past three fiscal years

Source: Bloomberg

Let's also look at some major corporations that didn't make the top taxpayers list -- the six mentioned above plus nine others that I encountered high in the market-cap rankings:

High Rates and Low, Continued

Effective tax rate, last three fiscal years

Source: Bloomberg

Measured this way, Amazon appears to be the model corporate income taxpayer. In fact, its 93.3 percent effective rate seems profligately generous, given that the statutory top income tax rate for corporations in the U.S. is 35 percent, 39.1 percent if you factor in state income taxes. That's the highest corporate rate of any G-20 country, according to a report issued earlier this year by the Congressional Budget Office. Measure by effective tax rates, 1 though, and the U.S. falls to fourth-highest among the G-20.

The prominent U.S. corporations facing low effective tax rates share some key characteristics. General Motors' super-teeny-weeny tax rate is a unique product of the government bailout that rescued it in 2009 -- its total reported income tax expense since then is negative $33.6 billion. Most of the other low-rate corporations are either in technology or pharmaceuticals. These companies tend to have lots of overseas earnings, which lowers the effective rate because, as noted, the U.S. statutory corporate rate is among the highest in the world. Their businesses also tend to be built around intangible assets, which can be moved around the world to the lowest-tax jurisdictions at the stroke of a pen. 2

The corporations that face high tax rates, on the other hand, tend to have U.S.-focused businesses and more reliance on the tangible. They have far less ability to shift operations to where the taxes are lower.

This differing tax treatment does not seem to have been the product of a conscious policy choice. It doesn't seem quite fair, either, even if the corporations that benefit from it do happen to be among the world's most innovative and valuable. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. This isn't exactly the same as the effective tax rates discussed elsewhere in this column, which are simply corporations' reported income tax expense divided by their pre-tax income. The CBO's measure "the percentage of income from a marginal investment -- that is, an investment that pays just enough to make the investment worthwhile -- that must be paid in corporate income taxes."

  2. All this income is then still supposed to be taxed at the U.S. rate minus any foreign taxes paid, but only when it is repatriated to this country. As a result, these corporations tend to keep a lot of income overseas.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net

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