How much state taxes are getting outsourced?

Despite the fact that the top Fortune 500 companies had record high pre-tax U.S. profits over the last few years, 68% of the most consistently profitable Fortune 500 managed to pay no state income tax in at least one of the last three years; 20 of the companies had a rate of zero or less over the last two years, and 16 managed to have multiple no-tax years.
According to a new study by the advocacy group Citizens for Tax Justice and the Institute on Taxation and Economic Policy, half of the Fortune 500 companies’ tax avoidance techniques have cost states over $42 billion over three years. Had the corporations paid the 6.2 % average state corporate tax rate on the $1.5 trillion in U.S. corporate profits, states would have received over $80 billion of tax revenue over the last two years rather than the $40 billion they received.

According to Matthew Gardner, executive director at the Institute on Taxation and Economic Policy, “Our report shows these corporations raked in a combined $1.33 trillion in profits in the last three years, and far too many have managed to shelter half or more of their profits from state taxes,” Furthermore, in perhaps a little of a populist rant, “They’re so busy avoiding taxes, it’s no wonder they’re not creating any new jobs.”
In 2009 alone, out of the Fortune 500 companies, 32 paid no state income tax, 105 paid half of the average statutory state corporate tax rate that year, meaning that half of their profits were 100% tax free.

While I do not claim to be an expert of corporate taxation, I find it odd that the article did not mention offshore earnings being taxes. In other words, a big reason of why a lot of these companies paid less than the 6% average statutory state corporate tax rate was because they paid foreign income taxes on their offshore earnings and received foreign tax credit. In other words, these companies are paying taxes, just to different jurisdictions outside of the US.
What do you guys think?


About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

One comment

  1. I am not at surprised by this finding. Corporations spend thousands of dollars higher tax advisers to edify them on ways to legally avoid paying taxes. This is not a new MO of corporations it start at the time of their incorporation. These big companies look for states to incorporate in to insure they are have the best tax and operational benefits.While I agree that corporations are paying offshore taxes as opposed to state taxes, research has proven that these businesses would have weighted these taxation options and would have adopted the one that was more beneficial (minimized tax liability)to them. That the nature of doing business.

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