55 CORPORATIONS PAID $0 IN FEDERAL TAXES ON 2020 PROFITS
By Institute on Taxation and Economic Policy.
April 7, 2021 | EDUCATE!
Above photo: Tyko Kihlstedt.
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At least 55 of the largest corporations in America paid no federal corporate
income taxes in their most recent fiscal year despite enjoying substantial
pretax profits in the United States. This continues a decades-long trend of
corporate tax avoidance by the biggest U.S. corporations, and it appears to
be the product of long-standing tax breaks preserved or expanded by the 2017
Tax Cuts and Jobs Act (TCJA) as well as the CARES Act tax breaks enacted in
the spring of 2020.
The tax-avoiding companies represent various industries and collectively
enjoyed almost $40.5 billion in U.S. pretax income in 2020, according to
their annual financial reports. The statutory federal tax rate for corporate
profits is 21 percent. The 55 corporations would have paid a collective
total of $8.5 billion for the year had they paid that rate on their 2020
income. Instead, they received $3.5 billion in tax rebates.
Their total corporate tax breaks for 2020, including $8.5 billion in tax
avoidance and $3.5 billion in rebates, comes to $12 billion.
This report is based on ITEP's analysis of annual financial reports filed by
the nation's largest publicly traded U.S.-based corporations in their most
recent fiscal year. All data presented here come directly from the income
tax notes of these reports. Some companies with unusual fiscal years have
not yet filed such reports. Some publicly traded corporations paid nothing
on profits in their most recent fiscal year but are not included in this
report because they are not part of the S&P 500 or Fortune 500.
No-Tax Corporations Continue A Decades-Long Trend
For decades, the biggest and most profitable U.S. corporations have found
ways to shelter their profits from federal income taxation. ITEP reports
have documented such tax avoidance since the early years of the Reagan
administration's misguided tax-cutting experiment. A widely cited ITEP
analysis of an eight-year period (2008 through 2015) confirmed that federal
tax avoidance remained rampant before the TCJA.
Now, with most corporations reporting their third year of results under the
new corporate tax laws pushed through by President Donald Trump in 2017, it
is crystal clear that the TCJA failed to address loopholes that enable tax
dodging-and may have made it worse.
The companies avoiding income taxes in 2020 represent very different sectors
of the U.S. economy:
Food conglomerate Archer Daniels Midland enjoyed $438 million of U.S. pretax
income last year and received a federal tax rebate of $164 million.
The delivery giant FedEx zeroed out its federal income tax on $1.2 billion
of U.S. pretax income in 2020 and received a rebate of $230 million.
The shoe manufacturer Nike didn't pay a dime of federal income tax on almost
$2.9 billion of U.S. pretax income last year, instead enjoying a $109
million tax rebate.
The cable TV provider Dish Network paid no federal income taxes on $2.5
billion of U.S. income in 2020.
The software company Salesforce avoided all federal income taxes on $2.6
billion of U.S. income.
The U.S. income, current federal income tax and effective tax rates in 2020
for all 55 of the zero-tax companies are shown in the following table.
Source: Institute on Taxation and Economic Policy analysis of Securities and
Exchange Commission filings of publicly traded corporations Created with
Datawrapper.
Companies' Low Tax Rates Rely On A Variety Of Familiar Tax Breaks
The Securities and Exchange Commission requires publicly traded companies to
disclose U.S. pretax income, federal and state income tax paid on that
income, and any significant factors affecting tax expense. For this reason,
we can generally describe the tax breaks used by these 55 companies to get
their tax expense to zero.
More than a dozen used a tax break for executive stock options to sharply
reduce their income taxes last year. These include Advanced Micro Devices,
Archer Daniels Midland, Booz Allen Hamilton, Charter Communications, Nike,
and Salesforce.com. This tax break allows companies to write off
stock-option related expenses for tax purposes that go far beyond expenses
they report to investors.
At least half a dozen companies used the federal research and
experimentation (R&E) credit to reduce their income taxes in 2020. These
include HP, Nike, Jacobs Engineering, Advanced Micro Devices and Ecolab.
Tax breaks for renewable energy are part of the tax avoidance scheme for
several companies, including Qurate Retail, Xcel Energy, DTE, and Duke
Energy.
A provision in the Tax Cuts and Jobs Act allowing companies to immediately
write off capital investments-the most extreme version of accelerated
depreciation-helped several companies reduce their income tax substantially.
Consolidated Edison, Williams, PPL and Sealed Air all used depreciation tax
breaks to substantially reduce current income tax expense, as did at least a
dozen other companies.
Notably, there is much we cannot know about factors reducing federal
effective income tax rates for these corporations. The Securities and
Exchange Commission only requires the disclosure of any tax provision that
individually has a significant effect on tax rates and companies routinely
take advantage of this limitation to combine the effect of different tax
provisions into a single line item. For example, Sealed Air, Seaboard and
Sanmina each disclose a substantial effect of "tax credits" on their income
tax expense-a disclosure that tells us little about which provisions of tax
law are involved. In the case of multinational corporations, it is often
unclear whether the tax credits mentioned reduce U.S. taxes or foreign
taxes.
How The CARES Act Creates Zero-Tax Corporations
Besides the standard array of tax breaks described above, the 2020 data
introduce a new factor driving down corporate tax bills: the CARES Act,
ostensibly designed to help people and businesses to stay afloat during the
pandemic. Some companies used a CARES Act provision to "carry back" 2018 or
2019 losses to offset profits they reported in prior years, resulting in a
rebate that reduced their 2020 taxes, in some cases to less than nothing.
Tax law previously allowed companies to carry back losses to offset profits
in two prior years. The TCJA bars companies from doing this (although it
still allows companies to carry losses forward to offset profits in future
years). However, the CARES Act temporarily restored companies' ability to
carry back losses and, incredibly, is more generous than the pre-TCJA rules.
The CARES Act loosened rules for the treatment of losses not just in 2020,
but also retroactively for losses reported in 2018 and 2019, which have
nothing to do with the pandemic. Even worse, it allows corporations to carry
back losses as far as five years. This means losses incurred in 2018, 2019,
and 2020 can offset income taxed at the higher 35 percent tax rate in effect
before 2018. Taxing profits at one rate while allowing losses to produce
savings at a higher rate is an invitation for companies to play games,
moving profits and losses around from one year to another on paper to reduce
their tax bills.
The limited disclosures made by these 55 companies suggest that this
opportunity is not lost on the leaders of profitable firms. These companies
enjoyed at least $500 million of tax breaks last year from the CARES Act
provision liberalizing loss carrybacks. In at least four cases (Mohawk
Industries, Telephone & Data Systems, Treehouse Foods and Westlake
Chemical), the CARES Act's temporary tax benefit for loss carrybacks exceeds
the full 21 percent tax liability these companies would have paid on their
pretax profits in 2020 if no tax breaks were available to them.
The total tax benefits these 55 companies enjoyed from the carryback
provisions are likely even larger. Several companies acknowledged
substantial CARES Act benefits but did not separate the effect of the
carryback changes. Other companies very likely chose not to disclose CARES
Act benefits because their size was not "significant" for financial
reporting purposes.
Not Just A Flash In The Pan: 26 Companies Pay Zero Federal Income Tax Over
The Entire TCJA Tax Era So Far
Corporate effective tax rates tend to be volatile, just as are corporate
earnings. Yet for many companies reporting paying no tax on their profits in
2020, this result is part of a longer-term pattern. As the table below
shows, 26 of the 55 companies were profitable tax avoiders for the
three-year period during which the TCJA has been in effect. These 26
companies were profitable in each of the three years (2018, 2019 and 2020)
and their total corporate federal income tax over that period was zero or
negative.
Duke Energy paid, on balance, no federal income taxes on a total of $7.9
billion over the first three years of the TCJA.
FedEx achieved the same zero tax result on almost $6.9 billion of U.S.
income during the past three years.
And Nike has paid no federal income tax in the TCJA era on $4.1 billion of
U.S. pretax income.
All told, these 26 companies reported $77 billion in pretax U.S. income in
the first three years of the TCJA, and collectively enjoyed a tax rebate of
$4.6 billion.
Source: Institute on Taxation and Economic Policy analysis of Securities and
Exchange Commission filings of publicly traded corporations Created with
Datawrapper.
Conclusion
When President Trump signaled his intention to cut corporate taxes in 2017,
he and Congress had an opportunity to pare back the many loopholes that have
allowed companies to avoid tax on much of their income since the early
1980s. But now, with three years of data published on the effective tax
rates paid by publicly traded companies, it is clear that the TCJA has not
meaningfully curtailed corporate tax avoidance and may even be encouraging
it.
Fortunately, the policy remedies Congress shunned in 2017 remain available
today. By paring the tax breaks identified in this report, or by
re-introducing some form of a "minimum tax" requiring profitable companies
to pay at least some tax in any profitable year, Congress and President
Biden could take a major step toward a fairer and more sustainable tax
system.
Another ITEP report explains in more detail how corporations avoid taxes,
why this is a problem and what Congress can do about it.
The authors of this report would like to thank ITEP tax interns David
Crawford and Devin Douglass for their work tabulating data for this
analysis.
