The current United States tax code allows some of the largest corporations in the country to pay no federal corporate income tax.
In fact, at least 55 of America’s largest companies paid no federal corporate income tax on their 2020 profits, according to the Institute on Taxation and Economic Policy. Companies include names such as Whirlpool, FedEx, Nike, HP and Salesforce.
“If a large, very profitable corporation is not paying federal income tax, then we have a real fairness problem on our hands,” Matthew Gardner, senior fellow at the Institute on Taxation and Justice, told CNBC. economic policy (ITEP).
Additionally, it is completely legal and within the confines of the tax code that corporations could end up paying no federal corporate income tax, costing the US government billions of dollars in lost revenue.
“[There’s] a bucket of tax breaks to companies that are deliberately in the tax code…. And overall, they cost the federal government about $180 billion every year. And for comparison, corporate taxes bring in about $370 billion in revenue a year,” Chye-Ching Huang, executive director of the NYU Tax Law Center, told CNBC, citing research from the Tax Foundation.
CNBC has reached out to FedEx, Nike, Salesforce and HP for comment. They either declined to provide a statement or did not respond before publication.
The 55 companies cited by ITEP would have paid a collective total of $8.5 billion. Instead, they received $3.5 billion in tax refunds, collectively draining $12 billion from the US government, according to the institute. Figures do not include companies that paid only some, but not all, of these taxes.
“I think the fundamental problem here is that there are two different ways companies account for their profits,” Garrett Watson, senior policy analyst at the Tax Foundation, told CNBC. “The amount of profit that companies can report for financial purposes can be very different from the profit that they report [for tax purposes.]”
Certain tax expenditures, which come in many different forms, are used by some businesses to take advantage of rules that allow them to reduce their effective tax rate.
For example, Gardner’s research on Amazon’s taxes from 2018 to 2021 showed US pretax income of $79 billion. Amazon collectively paid $4 billion in federal corporate income tax over those four years, which equates to an effective annual tax rate of 5.1%, according to Gardner’s ITEP report, or approximately a quarter of the federal corporate tax rate of 21%.
Amazon told CNBC in a statement: “In 2021, we reported $2.3 billion in federal income tax expenses, $5.2 billion in other federal taxes, and more than $4 billion in state and local taxes of all types. We also collected an additional $22 billion in sales taxes for US states and localities.“
A controversial form of federal tax expenditure is profit shifting. Foreign corporate income tax – between 0% and 10.5% – can encourage the transfer of profits to tax havens.
For example, Whirlpool, an American company known for manufacturing home appliances in the United States and Mexico, was named in a recent case involving US and Mexican taxes.
“[Whirlpool] did that by having the Mexican operation owned by a Mexican company with no employees, and then having that Mexican company owned by a Luxembourg holding company that had an employee,” Huang told CNBC. “And then he tried to pretend that ‘because of the combination of US, Mexican and Luxembourg tax rules…he was trying to take advantage of the disconnect between all of those tax systems to avoid tax and all of those countries and the court said, no, that’s going too far .”
Whirlpool defended its actions in a statement to CNBC: “The case before the Sixth Circuit was never to try to avoid US taxes on profits made in Mexico. This tax dispute has always been about when those profits are taxed in the United States. In fact, years before the original Tax Court ruling in 2020, Whirlpool had already paid US tax on 100% of profits earned in Mexico. Simply put, the IRS thought Whirlpool should have paid those U.S. taxes sooner.”
Watch the video above to find out how the nation’s most profitable companies maneuver through the complicated tax system and what policy solutions can close some loopholes.