Major, Profitable Corporations Pay Little in State Income Taxes
Many consistently profitable corporations pay little or no state income tax, depriving state residents of the resources needed to support public education, a solid transportation system, and safe communities. A new report by Citizens for Tax Justice and the Institute on Taxation and Economic Policy profiles 265 Fortune 500 companies, and determines that 68 of them paid no state income tax in at least one year from 2008 through 2010. The companies reported almost $117 billion in pretax profits in those no-tax years. The New York Times covered the report this morning.
How is it that some large corporations are able to legally avoid paying state income tax? The report lays out three ways. First, state lawmakers continue to enact tax subsidies requested by corporations, even when those subsidies aren’t tied to job creation. Second, federal tax breaks enacted in the past decade further reduce state corporate income tax revenues since states generally accept corporations’ federal tax numbers. Third, multi-state corporations devote considerable money and legal firepower to finding as many tax loopholes as possible.
Large corporations with headquarters in Wisconsin also pay little in state income tax. Here are some examples of companies based in Wisconsin, and the effective state income tax they paid in all states between 2008 and 2010:
- Rockwell Automation, with $670 million in profits over this period, paid a state income tax rate of -2.5 percent. That is, it received more in credits than it paid in taxes. The result: taxpayers were on the hook for $17 million paid to Rockwell Automation. Keep in mind that Rockwell Automation made significant layoffs in Wisconsin during this period.
- Harley-Davidson, with $1.6 billion in profits in those years, paid a state income tax rate of 2.0 percent.
- Kohl’s, with $4.8 billion in profits in those years, paid a state income tax rate of 3.6 percent.
Wisconsin is taking steps to further reduce the amount of taxes paid by large corporations. Chief among these is a tax cut for manufacturers that will reduce their tax rate to essentially zero when the cut is fully phased in, at a cost to taxpayers of $875 million over the next ten years.
Large corporations have been very successful at minimizing the amount of state income taxes they pay. Unfortunately, they have been aided in their efforts by state legislatures. The result is that the middle class pays more for public investments in our schools and communities, and corporations pay less.