Thriving companies get tax breaks

Coronavirus funds meant to stabilize economy miss target

Corporations across America have booked more than $7 billion in savings using tax breaks that Congress passed as part of its plan to stabilize the U.S. economy through the coronavirus crisis, according to an Orlando Sentinel review of investor filings.

The corporate tax breaks have steered hundreds of millions of dollars to companies that are thriving during the COVID-19 pandemic — including a drug manufacturer that said the virus boosted its quarterly sales by $75 million and a company making N95 masks for the federal government. Even the tech platform Grubhub Inc., where orders rose while millions of Americans sheltered in place, scored at least $6.8 million in savings.

The tax breaks have also rewarded some companies for mistakes they made long before the novel coronavirus emerged. They have helped other companies send more money to their investors through richer dividends and faster stock buybacks. And in at least one case, the tax savings are passing from a smaller business to a bigger one: The struggling women’s clothing retailer Francesca’s Holdings Corp. has filed for a $10.7 million tax refund but will immediately give the money to banking giant J.P. Morgan Chase & Co., according to the terms of a loan agreement between the two companies.

Trinity Industries Inc., which makes freight and tank cars for railroads, expects to get $303 million in refunds. Wearable-tech company Fitbit Inc. reported a $145 million tax benefit. Amneal Pharmaceuticals Inc., which makes the anti-malarial drug hydroxychloroquine that has been championed by President Donald Trump, expects a $110 million refund in the second half of the year.

To be sure, the tax breaks have provided an important cushion for scores of businesses that have been hit hard by the COVID-19 pandemic and the historic economic downturn it has caused — from airlines and hospital systems to restaurant, hotel and amusement park chains. Oil and gas companies, which have also been crushed by collapsing oil prices, have reported some of the biggest tax savings of all.

But if the goal was to throw another coronavirus lifeline to

corporations, Congress “probably could have done a little better job in terms of targeting,” said David Hasen, a University of Florida professor of tax law.

“The government could have just as easily handed out cash,” Hasen added. “It might have been more effective to do it that way from an economic perspective. But there’s long been an aversion to the idea that governments give handouts. This is economically identical, but the optics are better for the government.”

The business tax breaks attracted little attention during the rushed debate in March over the federal government’s sweeping “CARES Act,” the $2 trillion economic rescue bill that included everything from bigger unemployment benefits to business grants and loans. But the breaks are now the subject of a new battle on Capitol Hill. Democrats, who control the U.S. House of Representatives, want to scale back the breaks. Republican leaders — including President Trump — and business lobbyists want to expand them instead.

Defenders say the tax breaks are infusing corporations with money that they can spend to keep people employed during the sharpest economic downturn since the Great Depression.

“The tax benefit does gives us a little more leeway … so that we can maintain our staff levels a bit more at the same time that we work through this pandemic,” James Cracchiolo, the chairman and chief executive officer of wealth-management firm Ameriprise Financial Inc., told analysts during the company’s quarterly earnings earlier this month.

Ameriprise, which records show was one of many companies that lobbied Congress on the CARES Act, said it expects to get a tax benefit of as much as $220 million thanks to the legislation. The company also increased its quarterly shareholder dividend by 7 percent — to about $140 million in total.

All of the other big

CARES Act programs to help businesses come with conditions — such as grants that must be spent paying workers or loans that impose limits on stock buybacks, dividend payments and executive compensation.

The money companies claim through the tax breaks come with no such strings attached. Stericycle Inc., the medical waste disposal company, expects to get $100 million in tax refunds by the end of the year yet still furloughed 2,300 employees.

Discount airline Allegiant Travel Co. will get $172 million in payroll-support grants and has applied for up to $276 million in additional loans through an airline industry bailout fund included in the CARES Act. But Allegiant, which lobbied Congress on the CARES Act, also expects to get at least $194 million more in tax refunds through the CARES Act tax breaks — money that doesn’t have to be spent on wages or repaid.

Greg Anderson, Allegiant’s chief financial officer, called the CARES Act tax breaks an “efficient mode of increasing liquidity.”

$7 billion — and growing: Corporate tax payments are confidential, so it is impossible to say exactly how much the CARES Act tax breaks have saved companies so far. But to get a sense of the scope, the Orlando Sentinel examined the firstquarter earnings reports for hundreds of publicly traded companies. The newspaper reviewed both financial documents filed with the Securities and Exchange Commission and transcripts of earnings conference calls held with Wall Street analysts.

The CARES Act included a host of tax breaks. To the extent possible, the Sentinel excluded from its calculations tax savings reported by companies from breaks that are only short-term timing shifts or are from new tax credits directly related to the pandemic.

The Sentinel focused instead on savings corporations are reporting from three big corporate income tax-breaks: One that lets them immediately write off the costs of building renovations, another that lets them claim bigger tax deductions related to their debt, and a third that expands their ability to use losses — whether actual losses or paper losses reported only for tax purposes — to obtain refunds on taxes paid in the past or wipe out future tax payments.

Altogether, the Sentinel found more than 200 publicly traded companies that have reported more than $7 billion in cumulative tax savings. More than 20 reported savings of at least $100 million. More than 110 reported savings of at least $10 million.

The reported savings include a mixture of cash refunds that corporations have already applied for with the IRS and projected future savings.

The true amount of savings is higher. The $7 billion doesn’t include tax savings for privately held companies. And many publicly traded companies say they have saved money through the CARES Act tax breaks without disclosing how much or say that it’s too soon to know how much they’ll ultimately save.

For instance, troubled airplane manufacturer Boeing Co., which lobbied Congress on the CARES Act, says it is benefiting from the CARES Act income tax breaks. But the company didn’t disclose how much it expects to save, and a company spokesman wouldn’t say. But other companies are more detailed. Oil refiner Marathon Petroleum Corp. recorded a $411 million income tax benefit as a result of the CARES Act. That’s one of the largest tax savings any company has reported so far.

With oil prices depressed and stay-at-home orders sapping demand for fuel, Marathon reported a $9.2 billion loss for the first quarter. But the company also raised its dividend by 9 percent and paid out nearly $400 million to shareholders. It plans to pay another $400 million to shareholders in June.

A spokesman for Marathon, which lobbied Congress on the CARES Act, declined to comment.

‘We benefited from the pandemic’: While Marathon and many other companies are struggling, the coronavirus pandemic has been profitable for some businesses. Some of them are saving millions in taxes, too. For instance, drug manufacturer Endo International Plc estimated that COVID-19 actually increased its first quarter sales by roughly $75 million — more than 10 percent — partially from people stocking up on their prescriptions.

Yet even as sales jumped, Endo disclosed a $137.3 million income tax benefit from the CARES Act.

First quarter earnings also jumped at The Hain Celestial Group Inc., a manufacturer of organic foods and personal care products like deodorant. But the company expects to get a $48.4 million income tax refund thanks to the CARES Act.

“Yes, we benefited from the current pandemic. But it’s important to note that we were on track to deliver promised improvements based on our performance in the first two and half months of the quarter before the pandemic really changed behavior,” Hain Celestial President and CEO Mark Schiller told analysts on the company’s earnings call earlier this month.

The company also said it spent $60 million buying back shares in March and April.

The chief executive at cable and internet provider Altice USA Inc. told analysts that his company doesn’t expect to pay any significant federal income taxes until 2022 thanks to the CARES Act. The company — which reported “record demand” for its broadband service as people sheltered in place and lobbied Congress on the CARES Act — also said it would increase its share buybacks to take advantage of stock market volatility.

Few companies were better positioned for the pandemic than Owens & Minor Inc., a Fortune 500 supplier of medical equipment like surgical drapes and gloves.

In March, Owens & Minor was one of five suppliers chosen by the U.S. Department of Health and Human Services to produce a combined 600 million N95 respirator masks. Earlier this month, President Trump delivered a speech at one of the company’s facilities in Pennsylvania, an important swing state.

Shortly before Trump’s visit, Owens & Minor revealed to its investors that it had filed for a $13 million income tax refund under the CARES Act.

The company expects elevated demand for its personal protective equipment to continue for the rest of the year. Owens & Minor, President and CEO Edward Pesicka told analysts, “has a bright long-term future.”

A big bonus: The most lucrative corporate tax break in the CARES Act is the provision that allows companies that lose money — whether in real life or only on their tax returns — to take those losses back in time in order to get refunds on taxes they paid in years when they were profitable. The CARES Act lets companies use losses they incurred in 2018 or 2019, or losses they incur this year, to get refunds on taxes paid as far back as 2013.

Congress has used this “carry back” mechanism in past economic downturns, because it is viewed as a way to quickly get money to struggling companies.

But the tax break is far more valuable this time around. That’s because in late 2017, President Trump and the then-Republicancontrolled Congress cut the federal corporate income tax rate from 35 percent to 21 percent.

Assurant Inc. shows just how generous this is.

The big financial company, which sells insurance plans and extended warranties for everything from cars to cell phones and lobbied Congress on the CARES Act, reported a tax loss in 2018, according to its executives. It had been planning to use those losses to reduce its tax payments over the next few years.

Under the current 21 percent tax rate, those losses were expected to reduce Assurant’s future tax bills by about $107.1 million.

But after the CARES Act, Assurant decided instead to carry those losses back to 2013 when the corporate tax rate was still 35 percent. The company now expects to get a $186.4 million tax refund — nearly $80 million in extra tax savings.

In some cases, companies are getting a bonus for mistakes made in the past.

In 2018, for instance, insurance company CNO Financial Group Inc. lost money after it took a $660 million charge to offload some of its exposure to troublesome long-term care insurance policies that covered things like nursing home and prescription drug costs.

The company had been planning to carry those losses forward and expected they would reduce its future tax payments by $65 million. But after the CARES Act, CNO will carry those losses back to higher tax years instead for a $99 million refund — an extra $34 million in savings.

The CARES Act “lines up perfectly with our circumstance,” CNO Chief Financial Officer Paul McDonough told analysts during the company’s quarterly earnings call.

Earlier this year, AmerisourceBergen Corp., the drug wholesaler that is one of the world’s biggest companies, decided to shut down an unprofitable, problem-plagued drug-compounding business that it had bought in 2015. The company took a huge loss on the move, but at least it would get to recoup a portion of those losses through lower tax payments in the future.

At the time it announced the decision, AmerisourceBergen said it expected the move would generate a tax benefit of between $500 million and $600 million.

But then the CARES Act passed and allowed the company to carry some of those losses back to higher tax years. AmerisourceBergen now says the shutdown will yield a $675 million tax benefit — an increase of roughly $125 million.

A spokeswoman for AmerisourceBergen would not comment. The company increased its quarterly dividend payment earlier this year and announced this month that it will spend another $500 million buying back stock. The company also lobbied Congress on the CARES Act.