Filthy rich, owing no taxes
Illustration: Aïda Amer/Axios
Fortune 500 companies have begun to file their annual regulatory reports, and a pattern is emerging. After the Trump tax cut, an outsized number, led by giants like Amazon, GM and Halliburton, owe zero or very little in 2018 U.S. income taxes — or are actually due a refund.
Why it matters: Amid popular anger at establishment institutions, companies earning large profits and paying no taxes risk a serious public backlash.
- For years, tax hawks have railed about companies finagling statutes to whittle down their bill to Uncle Sam — to no effect.
- The difference now is the atmosphere of populist politics. "Rising global activism is forcing companies to reassess the balance of obligations between shareholders and stakeholder, and when highly profitable companies like Amazon pay zero taxes it undermines confidence in the broader system," Bruce Mehlman, a leading political and corporate lobbyist, tells Axios.
No one suggests that anyone is violating tax laws. But paying or not paying taxes becomes an issue when few ordinary people are afforded the chance to escape taxes, and there is less and less money to fix crumbling infrastructure and struggling schools.
By the numbers:
- GM is claiming a $104 million refund on $11.8 billion in 2018 profit.
- Goodyear is seeking a $15 million refund on $693 million in profit.
- Halliburton has claimed a refund of $19 million in U.S. income taxes on $1.6 billion in profit.
- Netflix filed for a $22.1 million refund on $845 million in profit.
- U.S. Steel is claiming a $303 million refund on $957 million in profit.
In a statement, Netflix said, "No cash refunds have been received related to the $22 million provision for income taxes referenced in our financial statements. Our financial statements show that we paid $131 million in cash taxes in 2018. We don't break out US versus foreign in that figure, but there were 2018 US income taxes paid."
- None of the other four companies responded to an email seeking comment.
After its HQ2 debacle in New York, Amazon has been under the most intense scrutiny of all — and now over its tax bill. In a report last week, the Institute on Taxation and Economic Policy said the e-commerce giant is seeking a $129 million refund on $11.2 billion in profit.
- It's Amazon's second straight year owing no tax: In 2017, Amazon filed for a $137 million refund on $5.6 billion in profit.
- Amazon is not a passive player in tax law, says the institute's Matthew Gardner, who researched and wrote the Amazon report. "Amazon in particular has shaped tax law in its own image. They made the laws by lobbying so persistently and effectively," Gardner tells Axios.
How they are doing it: Companies already were able to chip away at their effective tax rate when the top rate was 35%. The new rate of 21% approved under the Trump-backed legislation got them much lower, and then loopholes take effect.
- One windfall for companies cited by the institute is a new provision allowing for the immediate expensing of capital investments.
Some say the issue is overblown. Chester Spatt, a finance professor at Carnegie Mellon, tells Axios, "I don't think a company should be paying more taxes than it owes and in fact it has an obligation to its shareholders not to pay taxes it doesn't owe."
- "Is there reputational risk? Would I advise a company to pay a bunch of taxes to avoid that? Probably not. But messaging is kind of important. Companies need to be more sensitive to explaining."
Yet the optics for Amazon may be brutal. Richard Edelman, CEO of the global Edelman public relations firm, points to a PR blow suffered by GE in 2011 when it reported $14.2 billion in profit for the prior year, and filed for a $3.2 billion federal income tax refund.
- "Part of trust is transparency in how you do what you do and understanding that you have certain societal obligations," says Edelman, whose consultancy produces the Edelman Trust Barometer.
Editor's note: This piece was updated to include a comment by Netflix explaining its tax situation.
Correction: This story has been corrected show that Halliburton filed for a $19 million tax refund, not that it owed $19 million.