Ars Technica: Big ISPs dwell in tax-break heaven, according to corporate tax study
media mentionBy Matthew Lasar
A scathing new report on corporate tax breaks is out, and telcos and media companies figure prominently. Authored by Citizens for Tax Justice and the Institute on Taxation and Economic Policy, the survey focuses on 280 corporations that it concludes paid, on average, far less than the 35 percent corporate income tax tithe.
“Over the three years covered by our study, the average effective tax rate for all 280 companies was only 18.5 percent,” charges Corporate Taxpayers & Corporate Tax Dodgers, 2008-2010. “For the past two years, 2009 and 2010, the effective tax rate for all 280 companies averaged only 17.3 percent, less than half of the statutory 35 percent rate.”
AT&T, Comcast, and Verizon Communications appear in the study. The last company places number 19 in the survey’s list titled “30 Corporations Paying No Total Income Tax in 2008-2010.”
Below is an excerpt from that roster, highlighting the top two cited corporations, followed by Verizon at 19th place. Yes, those are minus signs next to those 2008 through 2010 tax estimates.
Company ($-millions) 08-10 Profit 08-10 Tax 08-10 Rate
1. Pepco Holdings $882 $-508 -57.6%
2. General Electric 10,460 -4,737 -45.3%
19. Verizon 32,518 -951 -2.9%
“These companies generated so many excess tax breaks that they reported negative taxes (often receiving outright tax rebate checks from the US Treasury), totaling $21.8 billion,” the report charges. “These companies’ ‘negative tax rates’ mean that they made more after taxes than before taxes in those no-tax years.”
Verizon is hardly up there with General Electric, which the report says generated an eye-popping negative 45.3 percent tax rate from 2008 through 2010, but it identifies the wireless giant’s estimated minus 2.9 percent largesse as part of a general corporate trend.
The survey also includes a list titled “25 Companies with the Largest Total Tax Subsidies in 2008-10.” According to that lineup, AT&T generated almost $14.5 billion, Verizon $12.3 billion, and Comcast $2.12 billion in tax breaks during those years. The estimated total tax breakage for all the companies is $114.8 billion.
We pay our share
According to the compilation, Verizon deployed a combination of depreciation and amortization to win its tax breaks, along with a “reverse Morris trust” (property spin off) transaction that saved it about $1.5 billion in federal and state taxes.
“Over a number of years, the company has deferred approximately $2.0 billion in taxes as the lessor in leveraged leasing transactions of commercial aircraft, power generating facilities, real estate, and other assets unrelated to their core business,” the survey adds
We contacted Verizon about these assertions. The company strongly disputes Citizens for Tax Justices’ numbers and reasoning. Verizon spokesperson Bob Varettoni called the “union orchestrated” document “deceptive and politically motivated.”
Verizon “pays its fair share of taxes,” Varettoni responds:
Verizon paid out $1.79 billion in taxes over 2008-2010, and reported earnings of $5.25 billion over this same period. In addition, Verizon has annually invested $16.5 billion in technology infrastructure. This investment has created and sustained jobs, so U.S. economic development policy allows for the payment of some taxes to be deferred. The CTJ treats deferred taxes as non-existent, it does not account for the $1.79 billion in taxes Verizon paid out over the past three years despite deferrals, and it incorrectly calculates earnings for Verizon to include income belonging to Vodafone, Verizon’s partner in Verizon Wireless.
We also contacted AT&T and Comcast. “We don’t agree with and can’t validate the Citizens for Tax Justice calculations with regard to AT&T’s tax subsidies and tax rate,” AT&T spokesperson Butler McCall told us, adding that between 2008 and 2010, AT&T “invested more in the United States than any other public company.” McCall put the total investments at $57.9 billion—”and we’re on track to invest $20 billion for full-year 2011.”
The AT&T statement acknowledges that the telco has benefited from bonus depreciation rules that let it deduct more of its capital expenses, “but these rules were put in place by the Congress and the president to spur investment in the US economy, and we’ve done just that.”
AT&T estimates its effective tax at 32.9 percent in 2009 and 48.3 percent in 2008. “In 2010, we had a tax benefit, but this was due to a settlement with the IRS over taxes paid in prior periods,” McCall adds. “I’d also note that through the first three quarters of 2010, we recognized an income tax expense of $5.6 billion, for an effective tax rate of 34.1 percent YTD.”
Comcast did not reply to our query.
Gaming the system
The CTJ report places the telecommunications sector at an effective corporate tax rate of 8.2 percent from 2008 through 2010. In contrast, the survey calculates the “Industrial machinery” sector’s rate at negative 13.5 percent, and the “Computers, office equipment, software, data” sector at a far higher 27.1 percent.
“Only two industries, Retail & Wholesale Trade and Health Care, paid an effective tax rate of 30 percent or more over the full three-year period,” the assessment contends.
In general, how do these corporations generate the breaks claimed in this survey? Offshore tax sheltering is one means. Citizens for Tax Justice and the Institute for Taxation and Economic Policy cite three other ways:
Accelerated depreciation: Current tax laws let companies deduct their capital investments much faster than their actual rate of wear and tear. In early 2008 Congress and the Bush administration created a “50% bonus depreciation” provision that allowed for a much higher rate of corporate write off. The Obama administration extended and even expanded the provision.
“These changes to the depreciation rules, on top of the already far too generous depreciation deductions allowed under pre-existing law, certainly did reduce taxes for many of the companies in our study, probably by tens of billions of dollars,” CTJ and ITEP assert.
Stock options: Everyone knows that big corporations give their executives stock options—the opportunity to buy company stock at a great price in the future. But these firms can also deduct the difference between what employees pay for the stock and its actual market worth.
Of the report’s cited 280 corporations, 185 filed “excess stock-option tax benefits.” These saved them $12.3 billion over three years. Apple gleaned $1.5 billion in this manner, the survey estimates.
Industry specific tax breaks: General Electric, which owns 49 percent of NBC Universal, has a financial services branch. A tax break attached to this sort of activity allows companies to “pay no taxes on foreign (or ostensibly foreign) lending and leasing, apparently while deducting the interest expenses of engaging in such activities from their U.S. taxable income.” According to the survey, in its 2010 Annual Report GE cited the impending repeal of this provision as one of the “risk factors” it faces.
“If this provision is not extended, we expect our effective tax rate to increase significantly after 2012,” the GE annual report notes.