Even with pretax profits, many big companies pay zero US tax
Property market sees signs of improvement this year: expert Tax system needs to raise more tax revenue: group
NEW YORK, April 12, (AP): Just as President Joe Biden is pushing to raise taxes on companies to help pay for his infrastructure plan, a report from a Washington policy group is highlighting how many firms pay zero despite making big pretax profits.
More than 50 of the largest US companies paid nothing in federal income taxes last year, with many getting rebates, even though they reported almost $40.5 billion in pretax profits as a group, according to the Institute on Taxation and Economic Policy. The group believes the tax system needs to raise more tax revenue.
The 55 companies named in the report issued Friday cross many industries, from agriculture to high tech, and they include such big names as Nike and Duke Energy. The report says the companies took advantage of breaks that were preserved or expanded under president Donald Trump’s 2017 overhaul of the tax code, as well as the economic rescue package that Washington passed last spring.
Under the 2017 tax cut, the rate on corporate profits is 21%. But companies can use many tools to avoid taxes, such as writing off expenses related to the stock options they give their CEOs and other executives.
Companies can also use a suite of available tax credits by making investments that the US government is trying to encourage, similar to how individuals can get tax breaks for saving in a retirement fund or making their home more energy efficient.
At Duke Energy, one of the nation’s largest utility owners, the company recorded $110 million in tax credits last year for producing renewable energy
through wind facilities, for example. That and other credits helped the Charlotte, North Carolina-based company net a $281 million rebate for federal income taxes last year, after reporting $826 million in pretax US income from continuing operations.
“Lawmakers developed these tax policies to encourage corporate taxpayers to make investments in economic growth, infrastructure and renewables,” Duke spokesperson Catherine Butler said.
She said federal tax rules allowed Duke to delay some cash payments for taxes into the future, but not eliminate them. The company had about $9 billion in deferred tax liabilities at the end of 2020, which Butler said will become future tax payments over time.
Nike, meanwhile, used a federal tax credit meant to encourage corporate research and development. The athletic apparel giant also took tax benefits related to share-based compensation for its fiscal year that ended on May 31. Altogether, it received $109 million in federal tax rebates after reporting total
pretax income of $2.9 billion for the year.
Officials at Nike, which is based in Beaverton, Oregon, could not be immediately reached for comment.
“Most CEOs of large, publicly trade corporations are not going to risk prison to get out of paying taxes when Congress provides them with so many legal ways to do so,” said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy.
The $2.2 trillion rescue package that Washington approved last spring to ease the pain caused by the pandemic opened more avenues for companies to limit their federal tax bills. The law allowed corporations to takes losses reported in 2018 through 2020 and use them to reduce tax liabilities from earlier years, even ones where income was taxed at higher rates.
“When President Trump signaled his intention to cut corporate taxes in 2017, he and Congress had an opportunity to pare back the many loopholes that have allowed companies to avoid tax on much of their income since the early 1980s,” the authors of the report, Wamhoff and Matthew Gardner, wrote. “But now, with three years of data published on the effective tax rates paid by publicly traded companies, it is clear that the Trump law has not meaningfully curtailed corporate tax avoidance and may even be encouraging it.”
Corporations altogether paid nearly $243 billion in total tax receipts in 2019, down 30% from five years earlier.
One of every three corporations with more than $1 billion in assets paid zero in federal income taxes from 2013 through 2017, according to a report prepared last year by the staff of the House of Representatives’ joint committee on taxation. For smaller companies, with less than $1 billion in assets, two out of three companies have zero federal income tax liability in a given year.
In 2019, corporate taxes made up 3.9% of total US tax revenue, according to the Tax Foundation, a group that wants tax policies that lead to greater economic growth. That compares with an average of 9.6% across the economies in the Organization for Economic Cooperation and Development.
That figure could rise if Biden can push through the changes to corporate taxes he’s suggested to help pay for his $2.3 trillion plan to renew the nation’s infrastructure.
A proposal to raise the corporate tax rate to 28% may not make much of a difference for the companies using tax credits and other tools to avoid paying any tax. But Biden’s plan to enact a 15% minimum tax on the income that corporations report to their investors, known as book income, could force some zero-tax corporations to start paying, depending on how it’s done.
Republicans in Congress have also already resisted corporate tax increases, saying they would hurt the US economy.
LOS ANGELES, April 12, (AP): After a horrible 2020 that saw many tenants fall behind on rent or go belly up, commercial property landlords are seeing signs of improvement this year, including a jump in hiring by restaurants, bars and retailers.
Still, the work-from-home and online shopping trends are expected to permanently reshape demand for office and retail space, says Hessam Nadji, CEO of Marcus & Millichap, a commercial real estate financing and advisory company.
Nadji recently spoke to The Associated Press about the state of the commercial real estate industry and its prospects for a comeback as the economy slowly emerges from the pandemic.
Question: 2020 was a rough year for commercial real estate, especially retail. How is that sector looking now?
Answer: We’ve seen a big surge in retail related confidence, both in what landlords are reporting in rent collections as well as buyers, who are now willing to look at shopping centers they weren’t willing to look at before. So retail is seeing this more immediate kind of pop in confidence and reopening benefits, especially when it comes to restaurants, bars and entertainment. Retail is feeling the healing cycle begin and it’s very encouraging.
Q: Will the surge in online shopping be a drag on retail space demand?
A: The e-commerce adoption and e-commerce prevalence has permanently been boosted by the pandemic. Experiential retail -- movie theaters, fitness related retail, yoga -- those were the best performing parts of retail, pre-pandemic. And post-pandemic, experiential retail is going to have a big boost because people are tired of being at home. Where you’re really going to feel the pain are things like furniture, department stores and other commodity goods that are so much easier to obtain through e-commerce.
Q: Are employers going to need less office space now that many employees have shown they can work well from home?
A: Office is probably impacted on a longer-term basis more than any other property type because companies have learned you can manage a workforce remotely, and people have learned they don’t have to commute to work every single day. On both the worker side and the employer side there’s an embracing of at least a partial virtual solution to employment. Is it going to be 50-50? Is it going to be 70% in office, 30% virtual? That’s anybody’s guess. My speculation would be 70% to 80% favoring coming into the office, but 20% to 30% becoming a permanent, virtual component of how we manage ourselves and our companies.
Q: How soon will we see this take shape and be reflected in vacancy rates?
A: In the next four or five years as current leases roll over, that’s when that’s going to show up. I don’t think there’ll be a massive change in the dynamics of office spaces five, six years from now, but I do think there’s a permanent effect for those who lived through the pandemic and learned from it.
Q: How has the pandemic affected your company? A: Commercial real estate was in great shape, prepandemic. So it was all about the shock the pandemic created by the occupancies, especially in retail and hotels, plummeting and therefore investors really pulling back to see how bad it was going to get. We saw confidence return fairly quickly in the third quarter of last year and then really build up to, for us, a record fourth quarter.
Q: How are some of the other commercial property categories doing?
A: Fundamentals are holding up very solidly in selfstorage. There’s strength in the industrial market, because of the modern warehouse distribution needs that major online retailers have and a lot of the old industrial product became functionally obsolete. So, there’s been a lot of new building that’s being absorbed very rapidly. Industrial vacancies are very low and rent growth is very high, despite the fact that we’ve built a record amount of new business in industrial. We’re seeing the most pain of course in hotels, shopping centers. Senior housing is going to take a while to recover as well, because of all the health issues and concerns people have putting their elderly parents now in care facilities.
Q: Do you expect the outlook for commercial real estate to improve now that the economy is reopening?
A: I’m fairly confident that unless there are additional waves or bad experiences that really take the wind out of the vaccination and normalization of the economy, improvement is not only going to continue it’s going to gain a lot of steam as we go into the second half of the year.