In October, South Carolina Governor Nikki Haley suggested that gradually repealing the state’s corporate income tax should be a priority for lawmakers in 2012. Haley’s idea was alarming, but hardly surprising: in the past year, governors in Arizona and Florida have proposed similar plans, and lawmakers in a number of other states have moved to enact expensive new corporate tax breaks or reduce the corporate tax rate. Noticeably absent from the policy debates in these states, however, has been any discussion of whether businesses in each of these states are currently paying the corporate income tax to begin with.
This report uses data from the annual financial reports filed by some of the biggest and most profi table Fortune 500 corporations to shed light on this question—and to identify strategies for ensuring that state corporate income taxes will continue to play an important role in state tax systems going forward.
A November 2011 study by Citizens for Tax Justice and the Institute on Taxation and Economic Policy, Corporate Taxpayers and Corporate Tax Dodgers, showed that at the federal level, many profitable Fortune 500 corporations have been able to sharply reduce their corporate income tax bills, oft en reducing them to zero—or less—in years when they were quite profitable.
Since then, we’ve taken a hard look at what many of these same corporations paid in state income taxes nationwide over those three years, which we report here.
Of the 280 profitable Fortune 500 corporations included in our November federal study, 265 fully disclosed their state and local income tax payments.1 Here are some of the key facts that these companies’ annual reports reveal:
• Between 2008 and 2010, these 265 companies paid state income taxes equal to only 3.0 percent of their U.S. profits. Since the average statutory state corporate tax rate is about 6.2 percent (weighted by gross state product), that means that over this period, fully half of their profi ts escaped state taxes entirely.
• 68 of the 265 companies managed to pay no state income tax at all in at least one year from 2008 through 2010, despite telling their shareholders they made almost$117 billion in pretax U.S. profits in those no-tax years. 16 of these companies enjoyed multiple no-tax years.
• Some companies, such as DuPont, Goodrich, International Paper and Intel, paid no net state income tax over the full threeyear period.
• In 2009 alone, 32 companies paid no state income tax. Another 105 of the companies paid less than half the weighted-average statutory state corporate tax rate that year, meaning that fully one half of the companies in our sample paid less than half the average state tax rate.
• Perhaps most striking, if these 265 corporations had paid the 6.2 percent average state corporate tax rate on the$1.33 trillion in U.S. profi ts that they reported to their shareholders, they would have paid $82.6 billion in state corporate income taxes over the 2008-10 period. Instead, they paid only $39.9 billion.
Thus, these 265 companies avoided a total of $42.7 billion in state corporate income taxes over the three years. The companies in our survey operate all over the country. But they don’t disclose their profi ts and taxes on a state-by-state basis—so the findings of this report don’t tell us conclusively whether specific companies paid any income tax in specific states. Tables at the end of this report sort the tax data for all 265 companies not only alphabetically and by tax rates, but also by the location of each company’s headquarters. On the next page, we give details about the 68 firms that paid no state income tax in at least one year from 2008 through 2010.