Last night, the Oklahoma Council on Public Affairs released a statement attacking the credibility and integrity of Oklahoma Policy Institute and the Institute on Taxation and Economic Policy (ITEP). They claim that a “Number of the Day” we cited from a report by ITEP regarding Devon Energy’s effective state corporate income tax rates from 2008 to 2015 is “not based on facts.” However, OCPA apparently did not look at or understand the methodology of the ITEP report, which fully explains where the numbers came from and how they were analyzed to make the best possible estimate of effective state corporate income tax rates.
In essence, the ITEP report reversed “impairment charges” that companies claim based on long-term projected values of oil and gas. These charges are an accounting fiction that have no effect on current income taxes or a company’s cash flow. Impairment charges are widely recognized by investors as separate from earnings and actual expenses when evaluating a company’s profitability and overall health. When calculated correctly, Devon Energy paid $71 million in state corporate income taxes over an eight-year period in which they recorded more than $21 billion in profits, for an effective tax rate of 0.3 percent.
Beyond the technical details of this analysis, it simply defies credibility for OCPA to be pleading poverty for Devon Energy when discussing a period that included major oil boom years, the construction of the Devon Tower, and dividend payments to stockholders in every quarter. Certainly those years included both ups and downs reflecting the price of oil and gas, which is why we shared the effective tax rate paid across those years rather than for a single year.
OCPA also ignores the context in which this Number of the Day was presented. Devon Energy and some other members of the oil and gas industry have defended their large gross production tax break in Oklahoma by insisting that they pay numerous other taxes, including more than one-fifth of the state’s corporate income taxes. However, as a report by former Tax Commissioner Jerry Johnson and former director of the Office of State Finance Michael Clingman points out, these projections are dramatically overstated and do not match real data from the Oklahoma Tax Commission, which shows the industry paid just 9.7 percent of corporate income taxes in 2013 and 1.2 percent in 2015.
To be clear, we are not claiming that Devon Energy has done anything illegal. They have simply taken advantage of the numerous tax breaks and legal accounting strategies to pay a far lower effective rate than most individuals and smaller businesses are able to obtain.
It’s true that the Number of the Day reflected Devon Energy’s profits and effective state corporate income tax rate across all states, not just Oklahoma. The financial data for individual state profits and tax payments are not public, so this is the best approximation that can be made using the data that is available. We acknowledge that our Number of the Day should have been worded better to make clear that this was Devon’s total state tax payment and not an Oklahoma-specific number. If Devon Energy is paying a significantly larger effective tax rate within Oklahoma, the company could resolve this debate by releasing their tax returns to prove differently.