Fair share? Corporations in ‘race to the bottom’ in taxes owed (Tulsa World)

Original at http://www.tulsaworld.com/opinion/article.aspx?subjectid=214&articleid=20111211_214_G1_CUTLIN655628

By JULIE DELCOUR Associate Editor

Oklahoma and every state that struggled mightily through recent recessionary times, might have had a far easier time had major corporations paid their fair share of state income taxes.

But they did not, and that tax avoidance cost states an estimated $42 billion over three years, according to a new report, “Corporate Tax Dodging in the Fifty States, 2008-2010.” The report is a product of the Washington-D.C.-based Institute on Taxation and Economic Policy and Citizens for Tax Justice in conjunction with the Oklahoma Policy Institute.

This crucial analysis, which probably will be roundly ignored by state leaders, arrives at a time when state governments are trying to repair damage from years of layoffs and cutbacks in services.

For the three-year period, the 265 companies studied by report authors, paid state income taxes equal to only 3 percent of their U.S. profits of $1.33 trillion. “Far too many have managed to shelter half or more of their profits from state taxes,” said Matthew Gardner, executive director of ITEP.

The average state corporate tax rate is 6.2 percent – 6 percent in Oklahoma. Sixty-eight of the corporations managed to pay no state income taxes on profits during at least one out of the three years but made $117 billion in pretax profits in those no-tax years.

Four Oklahoma companies were among those examined. These energy-related corporations indisputably are good community partners, large employers and pay other types of taxes – gross production, property, sales and royalty taxes.

But here’s how they stacked up, according to the report, on state corporate income taxes: In Oklahoma City, Chesapeake Energy paid an effective tax rate of negative 2.1 percent; Devon Energy paid 0.6 percent. In Tulsa, Williams paid 1.0 percent and Oneok paid 1.1 percent.

Had the 265 corporations paid the average state corporate tax rate on profits, their corporate state income tax bill would have totaled $82.6 billion. Instead, they paid only $39.9 billion. “Thus, these 265 companies avoided $42.7 billion in state corporate income taxes over those three years,” the report concluded.

For years, the long-term decline in the state corporate income tax, the report claims, has had three root causes: “the trickle-down impact of federal corporate tax cuts, ill-advised tax ‘incentives’ intentionally enacted by state lawmakers and unintended tax shelters created by companies armed with creative accounting staffs.”

OK Policy Director David Blatt points out that the latest findings “are yet another example of a tax base that is increasingly full of holes.” Blatt should know; he’s spent years analyzing Oklahoma’s tax structure and how it often enriches the rich at the expense of others.

“These loopholes create distortions in the economy, since large, multi-state corporations have more resources to pursue tax avoidance strategies and gain an advantage over small business,” he said.

No matter how the findings are interpreted it’s obvious that the tax burden to support state government is not shared fairly.

State lawmakers certainly have done their part in helping corporations with the artful dodge. “More than half the states continue to offer investment tax credits against their corporate tax more than 30 years after the U.S. government abandoned its investment credit after concluding it was ineffective in stimulating investment,” the report points out.

Yet lawmakers continue to enact tax subsidies requested by corporations, most of which don’t produce the promised economic results, Gardner said.

Compounding the problem is that federal tax breaks further reduce state corporate income tax revenues since states almost always accept corporations’ federal tax numbers.

“And most insidious, is that multi-state corporations themselves devote their money and legal firepower,” Gardner said, “to coming up with tax avoidance schemes.”

The report does not quantify how much Oklahoma might be losing due to tax avoidance strategies by both state-based and out-of-state corporations. Figures in the report, Gardner said, are aggregate for taxes paid to all U.S. states by each corporation. It is impossible from available numbers to determine specific tax amounts paid by corporations to individual states.

But it’s not chump change.

Two years ago, Republican Gov. Mary Fallin won the governorship on a platform of making Oklahoma more business friendly. But how friendly cam state government afford to be when it is struggling to make up for the largest downsizing in Oklahoma history? State education, health care, infrastructure, all are in need – great need.

Some people, Gardner concluded, have studied the wide variety of corporate state-tax avoidance strategies and believe that the state corporate income tax is beyond repair.

“But the truth is that states have lots of tools in their arsenals to revitalize this still-important – and progressive – source of revenue.”

But will they use those tools? State taxpayers can continue to tolerate this situation, or they can call upon their elected representatives to take steps to address it. The problem of fair taxation won’t fix itself.


Oklahoma Policy Insititute (OK Policy) advances equitable and fiscally responsible policies that expand opportunity for all Oklahomans through non-partisan research, analysis, and advocacy.

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