New Study: Utah One of Many States with Business Tax Loopholes, Even as Education Funding Remains Below Pre-Recession Levels

10 May 2017 Published in Press Release Archive

For Immediate Release: Wednesday, May 10, 2017

Contacts:   Matthew Weinstein, Voices for Utah Children, , 801-364-1182

Jenice R. Robinson, Institute on Taxation and Economic Policy, 202.299.1066 x 27 or

 

New Study: Utah One of Many States with Business Tax Loopholes,

Even as Education Funding Remains Below Pre-Recession Levels

As Utah struggles to find enough revenues for our public education system and other vital needs, dozens of highly profitable Fortune 500 companies doing business in the state are paying less than the state corporate income tax rate, thanks to large loopholes and generous tax giveaways, reports a new study. 

3 Percent and Dropping by the Institute on Taxation and Economic Policy examined 240 Fortune 500 companies that were profitable every year between 2008 and 2015. The list includes scores of companies doing business in Utah, from Century Link and Walmart to Wells Fargo and JP Morgan Chase (see partial list below). The study found that as these companies push state government for more tax breaks, they already are exploiting existing loopholes to avoid state income taxes. In fact, several of these companies paid absolutely nothing in state income tax in one of more of the years studied, in spite of ample profits, including Dish Network, AT&T, Verizon, Yum Brands (Taco Bell, Pizza Hut, KFC, etc.), Exxon Mobil, Wells Fargo, JP Morgan Chase, Century Link, and others.

Matthew Weinstein of Voices for Utah Children commented, “This summer the Legislature is studying how to reform Utah’s tax code to ensure that it is up-to-date and generates the revenue our state urgently needs to invest in our children.  This study demonstrates that we shouldn’t just look at the personal income tax and sales tax. What about the corporate income tax and closing some of these loopholes?  Average working- and middle-class Utahns shouldn’t have to pay more so that large, profitable corporations can pay less than their fair share.”

Some of the report’s key findings:

·         Over the study period, more than half of the profits from Fortune 500 corporations escaped state taxes entirely.

·         In total, the 240 companies avoided $126 billion in state corporate income taxes over the eight-year period.

·         Despite profits, 92 of the 240 companies managed to pay no state income tax at all in at least one year from 2008 to 2015. Forty-nine of these companies enjoyed multiple no-tax years.

·         In 2015 alone, 24 companies paid no state income tax. Another 131 (over half of the companies in our sample) paid less than half the weighted-average statutory state corporate tax rate that year.

The report comes at a time when Utah lawmakers have seriously considered restoring the full sales tax on food, which would disproportionately burden lower-income families. They have also considered legislation every year to extend two corporate tax breaks that would further erode the corporate income tax base, costing the Education Fund up to $225 million annually, depending on the details:

1)      Extending the sales tax exemption for manufacturing inputs to manufacturing inputs lasting less than three years. (2016: HB180 fiscal impact = $84 million. 2017: SB197 fiscal impact = $87 million.)

2)      Extending single-sales-factor (SSF) corporate income tax apportionment to all businesses. (2016: HB61 fiscal impact = $138 million for optional SSF. 2017: HB377 fiscal impact = $20 million for mandatory SSF.)

Both of these proposals were considered in depth by the Legislature’s Tax Review Commission during the 2016 interim. Following months of study, the TRC declined to recommend either proposal.

“The first step in any state’s corporate tax reform should be ensuring corporations are actually paying taxes,” said Meg Wiehe, director of state tax policy at the Institute on Taxation and Economic Policy.  “At a time when public services that ordinary people rely on face inadequate funding, we shouldn’t be having a conversation about lowering taxes on profitable corporations, which only means the rest of us have to pay more. We should be talking about how to strengthen the corporate income tax so that companies making a healthy profit pay their fair share.”

To view the study, go to: http://itep.org/itep_reports/2017/04/3-percent-and-dropping.php   

Eleven Ways Utah Can Close Corporate Tax Loopholes

(two of which are already on the books)

Category

Policy Name (and # of states with this policy)

Definition

Status in Utah

Decouple from federal loopholes

Bonus Depreciation (most states have decoupled)

Bonus Depreciation allows companies to deduct the cost of investments in machinery and equipment faster than they would otherwise be able to. Congress has repeatedly extended these measures, currently through 2019.

NO

Utah is one of ~15 states that have not decoupled even partially.*

QPAI (23 states have decoupled)

Qualified Production Activities Income is an unnecessary 2004 federal tax giveaway intended to compensate manufacturers for the loss of an export subsidy.

NO

Utah is one of 22 states that have not decoupled.

Net Operating Loss (NOL) Carryback (28 states have decoupled)

NOL Carryback allows companies to use current-year income losses to offset profits from earlier years. While virtually every state allows companies to carry losses forward, in accordance with federal rules, most states have decoupled from the federal provision that allows companies to rewrite history by carrying their losses back two years.

NO

Utah is one of 17 states that have not decoupled.

State Corporate Income Tax Policy Options

Combined Reporting (25 states)

Combined reporting requires reporting profits of the entire national corporate structure, which eliminates most of the tax benefits of trying to dodge state taxes through various scams and schemes that artificially shift profits into low-tax states like Delaware or Nevada.  

ALREADY ON THE BOOKS IN UTAH

Include Tax Havens in Combined Reporting (7 states)

With so many states adopting combined reporting within the U.S., many companies have moved on to artificially shifting profits abroad, and most states have not caught up.

NO

Utah still allows companies to hide profits in overseas tax havens like Ireland and the Cayman Islands.

Throwback Rule (25 states)

Eliminates “nowhere income” that arises from states where the company lacks nexus.

ALREADY ON THE BOOKS IN UTAH

3-Factor Formula (8 states)

The traditional corporate income tax formula is based on three factors, equally weighted: property, payroll, and sales in the state.

NO**

Economic Nexus (0 states)

States need to assert new standards of nexus that go beyond the outdated requirement that a company have physical presence in order to be subject to the corporate income tax. In 2011, the U.S. Supreme Court declined to consider overturning a decision by the Iowa Supreme Court that allowed the state of Iowa to tax fast-food giant KFC, which avoids having a traditional “physical presence” in Iowa by leasing its secret recipe and logo to independent franchisees based in the state.

NO

Alternative Minimum Corporate Tax (13 states)

Like the AMT on the personal income side, ensures that high-profit companies always pay a minimum tax so as to reduce incentives to game the system and ensure that they always have “skin in the game.”

NO

(Utah’s $100 annual minimum corporate franchise tax is too low to count as an AMT)

Corporate Disclosure (0 states)

Require corporations to disclose publicly the amount of state corporate income tax they pay and the major factors determining that liability, including “nexus” thresholds, income-division rules, the definition of taxable profits, and/or tax credits. Several states now require disclosure of a limited number of tax breaks claimed by specific companies. In dozens of states, companies claiming specific tax breaks must disclose how much they received, and how many jobs they have created in exchange for these tax breaks.

NO

Tax Expenditure Transparency (40 states)

The vast majority of states now require “tax expenditure reports,” which provide a complete list of the corporate tax breaks allowed under state law along with an annual cost estimate for each tax provision.

NO

Utah publishes a list of sales tax exemptions, which are one category of tax expenditure.

*   Source: https://www.bnasoftware.com/resources/articles/state-conformity-with-federal-depreciation-rules

** Currently, Utah gives the option of either the traditional three-factor corporate income tax or three-factor with double-weighted sales to companies in the sectors of mining, manufacturing, natural gas distribution, information, finance and insurance, and transportation and warehousing. In 2013, these companies made up 63% of the ~6,000 corporate filers paying above the $100 minimum, and they paid about 60% of all corporate income tax (roughly evenly divided between the two methods). The other 37% were subject to mandatory single sales factor (SSF) apportionment, and they paid the other 40% of that year’s corporate income tax. (In addition, in 2016 HB 61 made computer and electronics manufacturers the only sector allowed single sales factor as an option, which was expected to reduce corporate income tax revenue by $2.7 million for 313 filers, but the Legislature did not require any report on how much it actually cost or whether it achieved its intended benefit of an increase in high-paying jobs.) In 2016, the Tax Review Commission studied the proposal to allow the option of single sales factor for the entire corporate income tax sector, which it was estimated would cost the state $138 million or over a third of all corporate income tax revenue. Following months of study, the TRC declined to recommend the change.

 

State Income Taxes (nationally) for Major Corporations Doing Business in Utah, 2008–2015, in millions of dollars

Company

Eight-Year Total 2008-2015

Profits

State Income Taxes Paid to All States*

State Income Tax Rate

DISH Network

$11,583

$125

1.1%

AT&T

$143,247

$1,623

1.1%

Loews

$11,185

$130

1.2%

Archer Daniels Midland

$11,354

$174

1.5%

Molina Healthcare

$903

$14

1.5%

Yum Brands (KFC, Taco Bell, Pizza Hut, etc)

$3,281

$55

1.7%

Raytheon

$21,404

$367

1.7%

Aetna

$23,019

$455

2.0%

Darden Restaurants (Olive Garden, etc)

$3,617

$72

2.0%

Kroger

$16,592

$373

2.3%

Ross Stores

$8,869

$202

2.3%

Ryder System

$2,093

$48

2.3%

UnitedHealth Group

$63,370

$1,470

2.3%

Union Pacific

$45,687

$1,071

2.3%

AutoZone

$10,692

$263

2.5%

Wells Fargo

$189,703

$4,678

2.5%

CenturyLink

$8,826

$219

2.5%

United Parcel Service

$40,460

$1,018

2.5%

J.B. Hunt Transport Services

$3,635

$93

2.5%

Verizon Communications

$98,235

$2,538

2.6%

CSX

$21,580

$573

2.7%

Exxon Mobil

$62,145

$1,663

2.7%

Kellogg

$8,991

$242

2.7%

Southwest Airlines

$8,699

$240

2.8%

FedEx

$17,460

$483

2.8%

Procter & Gamble

$69,017

$2,028

2.9%

O'Reilly Automotive

$6,988

$206

2.9%

Windstream

$2,879

$85

3.0%

Omnicom Group

$4,900

$146

3.0%

American Express

$42,973

$1,299

3.0%

Macy's

$12,699

$384

3.0%

Kimberly-Clark

$11,031

$345

3.1%

GameStop

$4,299

$135

3.1%

Mosaic

$7,036

$222

3.2%

Wyndham Worldwide Corporation

$3,956

$125

3.2%

L-3 Communications

$7,863

$249

3.2%

Advance Auto Parts

$4,619

$147

3.2%

Humana

$15,012

$482

3.2%

PepsiCo

$27,277

$883

3.2%

Gap

$12,411

$407

3.3%

VF

$5,125

$169

3.3%

Anixter International

$1,315

$44

3.3%

Paccar

$5,642

$189

3.3%

Target

$33,203

$1,116

3.4%

Kohl's

$12,025

$405

3.4%

Walgreen

$27,225

$945

3.5%

Comcast

$67,346

$2,467

3.7%

Wal-Mart Stores

$145,059

$5,316

3.7%

CMS Energy

$4,845

$179

3.7%

H&R Block

$5,330

$207

3.9%

Discover Financial Services

$23,482

$944

4.0%

Charles Schwab

$13,344

$537

4.0%

Arrow Electronics

$2,703

$109

4.0%

Limited Brands

$9,324

$378

4.1%

U.S. Bancorp

$51,419

$2,088

4.1%

Dominion Resources

$20,065

$825

4.1%

Alliance Data Systems

$3,441

$142

4.1%

CarMax

$5,308

$222

4.2%

Visa

$31,393

$1,329

4.2%

Packaging Corp. of America

$2,998

$130

4.3%

Dollar General

$9,573

$417

4.4%

SAIC

$4,285

$191

4.5%

Home Depot

$50,955

$2,283

4.5%

Reliance Steel & Aluminum

$3,608

$162

4.5%

Best Buy

$10,158

$456

4.5%

Genuine Parts

$7,141

$322

4.5%

Franklin Resources

$12,311

$557

4.5%

Big Lots

$2,199

$100

4.6%

Dollar Tree

$5,603

$256

4.6%

Staples

$6,457

$296

4.6%

Bed Bath & Beyond

$10,610

$487

4.6%

Dick's Sporting Goods

$3,254

$150

4.6%

Waste Management

$11,061

$513

4.6%

Costco Wholesale

$14,518

$686

4.7%

Laboratory Corp. of America

$6,417

$308

4.8%

Nordstrom

$8,020

$392

4.9%

Oracle

$41,953

$2,097

5.0%

Goldman Sachs Group

$52,859

$2,648

5.0%

McDonald's

$22,508

$1,128

5.0%

Lowe's

$27,970

$1,428

5.1%

Discovery Communications, Inc.

$7,410

$378

5.1%

Owens & Minor

$1,432

$75

5.2%

Raymond James Financial

$4,013

$213

5.3%

Polo Ralph Lauren

$4,273

$227

5.3%

Coach, Inc.

$6,650

$357

5.4%

Altria Group

$50,165

$2,697

5.4%

Henry Schein

$3,310

$180

5.4%

J.P. Morgan Chase & Co.

$121,544

$6,775

5.6%

Quest Diagnostics

$8,336

$469

5.6%

Synnex

$1,301

$80

6.2%

Jacobs Engineering Group

$2,691

$167

6.2%

Emcor Group

$1,903

$120

6.3%

Whole Foods Market

$4,787

$387

8.1%

   * Companies report how much they pay in state income tax overall, but not how much they pay to each state.