USA Today has a report on the companies on the S&P 500, more than 10% of which paid no federal taxes.
A surprising number of companies in the Standard & Poor’s 500, 57, have found ways to pay effective tax rates of zero, according to a USA TODAY analysis of data from S&P Capital IQ…
The news comes months after after the Government Accountability Office released a report showing that companies in 2010 reported an average effective tax rate of 12.6%, well below the 35% federal corporate tax rate.
This includes some large corporations you would certainly recognize, like Verizon and Bristol-Myers Squibb. Here’s one way they do it:
This is part of a long-term shift in the tax burden from corporations to individuals. In 1955, 27.3% of federal revenue came from corporate income taxes; today it’s 8.9%, with two-thirds of all corporations paying no income taxes at all and some of the largest and most profitable companies actually getting taxpayer money transferred to them rather than paying in. As a percentage of GDP, in 1955 corporate taxes were 4.3%; today they are 1.3%. Personal income taxes, on the other hand, have gone from 58% of federal revenue to 81.5%.
One of the favorite ways for companies to slash their tax bills is by setting up foreign subsidiaries to make raw materials and components in countries with low tax rates. The companies’ U.S. operations then purchase these parts from the foreign units at well above cost. By doing this, the overseas unit makes a large profit, which then escapes U.S. taxes, as long as it stays in the foreign country, Yee says. Transfer payments are used at Bristol, Forest Labs, Agilent Technologies, Eaton and Lam Research, he says. Many companies are likely waiting for a U.S. tax-holiday, giving them a chance to bring the cash to the U.S. tax-free, Yee says.