Report: Charter paid no U.S. income tax in 2020
STAMFORD — The company that provides Spectrum-branded cable, phone and internet services to more than 30 million customers was one of at least 55 U.S. corporations that paid no federal corporate income taxes last year, according to a new report by the nonprofit Institute on Taxation and Economic Policy.
Stamford-based Charter Communications incurred a bill of $903 million in 2020 federal income taxes. But postponing payments and using tax breaks allowed it to avoid paying any of those taxes last year — and it instead ended up receiving a $7 million federal income-tax rebate.
Corporate taxes are attracting renewed scrutiny in light of President Joe Biden’s unveiling last week of his $2.3 trillion American Jobs Plan, which would institute major changes including a hike in the corporate tax rate to help fund the infrastructure-focused legislation.
The treatment of Charter and the 54 other companies “continues a decades-long trend of corporate tax avoidance by the biggest U.S. corporations, and it appears to be the product of longstanding tax breaks preserved or expanded by the 2017 Tax Cuts and Jobs Act, as well as the CARES Act tax breaks enacted in the spring of 2020,” ITEP’s Matthew Gardner and Steve Wamhoff wrote in the report.
In response to an inquiry from Hearst Connecticut Media, Charter provided a statement summarizing its taxes.
“As a result of legacy net operating losses (NOLs), Charter’s tax burden was decreased. Our investments in technology and infrastructure — which total nearly $40 billion over the past five years alone — also resulted in a decreased tax burden, as well as taxes being deferred for future payment,” the statement said. “Charter does currently pay income tax in most state and local jurisdictions. Charter expects to be a meaningful federal cash taxpayer in 2022.”
The company did not comment in response to a follow-up inquiry about how much it anticipated paying in federal income taxes this year.
Charter’s federal income tax bill of $903 million for last year was derived from a federal corporate tax rate of 21 percent on its pretax income of $4.3 billion in 2020.
Its $7 million federal rebate illustrated the impact of the provisions it used to defer and reduce its tax expenses, which were summarized in its 10-K annual report submitted to the U.S. Securities and Exchange Commission. The rebate compared with a $6 million payment in federal income taxes in 2019 and a $23 million contribution in 2018.
Continuing a frequent practice of tax deferrals, Charter postponed the payment of $536 million in 2020 federal income taxes. It had deferred $358 million in 2019 and $204 million in 2018.
Among its tax breaks, it recorded a reduction of $290 million tied to “excess stock compensation.” Charter comprised one of more than a dozen companies that used a tax break for executive stock options to “sharply reduce” their income taxes last year, according to ITEP. Other firms who used that break to help avoid paying federal income taxes last year included Advanced Micro Devices, Archer Daniels Midland, Booz Allen Hamilton, Nike and Salesforce.com.
Charter also reduced its income tax expenses with $35 million in federal credits and a $33 million deduction for “tax rate changes.”
The company noted in its 10-K “numerous tax provisions” in the CARES Act and Families First Coronavirus Act, which were passed in 2020. But it said the legislation “currently has no material impact to income tax expense.” It did not specify how much, if any, it received in tax benefits from those measures.
Charter and the 54 other companies cited in the ITEP report would have cumulatively contributed $8.5 billion for the year had they paid the 21 percent rate on their 2020 income — but they instead received a total of $3.5 billion in tax rebates, according to ITEP.
No other Connecticut-headquartered companies were cited in the report by the Washington, D.C.-based ITEP, which is a nonpartisan group. The study summarized ITEP’s analysis of annual financial reports filed by the largest publicly traded U.S.-based corporations in their most recent fiscal years.
At the state level, Charter paid $168 million in income taxes last year, compared with $113 million in 2019 and $47 million in 2018.
In the past year, Charter has grown significantly amid the surge in remote working and online learning sparked by the coronavirus pandemic. Its 2020 revenues rose some 5 percent year over year to about $48 billion. In the fourth quarter of last year, it served a total of about 31 million residential and business customers in 41 states — up nearly 7 percent from the same period in 2019.
Ranking No. 71 on the 2020 Fortune list, Charter comprises one of Connecticut’s largest corporate employers, with about 1,300 based in Stamford. It is planning to open later this year a new headquarters in the new 500,000-square-foot building at 406 Washington Blvd., next to the downtown Metro-North Railroad station. It is now based a few blocks away at 400 Atlantic St.
To support its growth, Charter has received from the state a total of $18.5 million in loans and grants and could earn up to $23 million in tax credits, according to data from the state Department of Economic and Community Development.
While the American Jobs Plan focuses on spurring economic recovery through massive infrastructure investments, Biden and many Congressional Democrats have also framed it as a tool for tackling corporate tax avoidance.
“Some of the biggest, most profitable corporations in America (I’m looking at you, Amazon) have paid $0 in federal corporate income taxes,” Sen. Elizabeth Warren, D-Massachusetts, said in a tweet on March 31. “I’ve pushed for a tax on the book profits of these giant corporations, and the Biden-Harris #AmericanJobsPlan includes a version of this.”
To help pay for the infrastructure spending, the American Jobs Plan calls for increasing the corporate tax rate from 21 percent to 28 percent. The current level was instituted through the 2017 Tax Cuts and Jobs Act; the corporate rate was previously 35 percent.
“The lower the tax rate, the easier it is for companies to use these tax breaks to get down to zero. Biden’s plan to increase the tax rate would make it harder to avoid all taxes,” ITEP’s Gardner said in an interview Tuesday. “But increasing the tax rate will not be the main solution to ending tax avoidance. What we really need to do is broaden the tax base. We need to get rid of loopholes and get rid of tax breaks.”
Among other changes, the American Jobs Plan plan would levy a 21 percent minimum tax on American companies’ foreign income.
Charter declined to comment on the American Jobs Plan, instead referring to a statement by internet and television association NCTA, of which it is a member. The statement did not mention the prospective tax changes, but cited other issues.
“The White House has elected to go big on broadband infrastructure, but it risks taking a serious wrong turn in discarding decades of successful policy by suggesting that the government is better suited than private-sector technologists to build and operate the internet,” NCTA CEO and President Michael Powell said in the statement. “This shift is encouraged by mistakenly lumping in our successful modern digital networks with our decaying roads, bridges, waterways and electric grids.”