News release from Tennesseans for Fair Taxation:
Knoxville, Tennessee – A comprehensive new study that profiles 265 consistently profitable Fortune 500 companies finds that International Paper, with global headquarters in Memphis, Tennessee, paid -1% overall in state corporate income taxes in 2008-10. The company reported $1.6 billion in gross earnings in its 2010 Annual Report, with $25.3 billion in assets.
These are among the findings in “Corporate Tax Dodging in the Fifty States, 2008-2010” released today by the Institute on Taxation and Economic Policy (ITEP) and Citizens for Tax Justice (CTJ) in conjunction with Tennesseans for Fair Taxation. The report finds a total of 68 companies that paid no state corporate income tax in at least one of the last three years and 20 of them, including International Paper, averaged a tax rate of zero or less during the 2008-2010 period. The corporate income tax rate in Tennessee is 6 percent.
Tennessee-based companies Eastman Chemical, Community Health Systems, AutoZone, FedEx, and Dollar General were also named in the report for having corporate tax rates of less than 3% overall from 2008-10. By contrast, because of Tennessee’s reliance on the sales tax and tax on food, low-income Tennesseans pay almost 12% of their income in taxes. Tax avoidance practices by multi-state, multinational corporations also shift tax responsibilities onto locally owned and operated companies that manage to pay their taxes and create jobs for Tennesseans, and distort the way companies operate through the use of tax avoidance schemes.
“Tennessee has recurring budget cuts and lags behind our border states in vital public infrastructure investments because of our upside-down tax structure,” says Elizabeth Wright, executive director of Tennesseans for Fair Taxation. “Corporations based in our state like International Paper, with global operations and more than $1 billion in annual earnings, must be held accountable for contributing to the state infrastructures they benefit from and that make their profits possible.”
International Paper also spent $3.4 million in 2010 on lobbying efforts regarding the extension of energy-related tax credits and taxation of bonuses given to TARP recipients, according to the nonpartisan, nonprofit Center for Responsive Politics.
“Our report shows these 265 corporations raked in a combined $1.33 trillion in profits in the last three years, and far too many have managed to shelter half or more of their profits from state taxes,” said Matthew Gardner, Executive Director at the Institute on Taxation and Economic Policy and the report’s co-author.
“Corporate Tax Dodging in the Fifty States, 2008-2010” concludes that these 265 corporations cost states $42.7 billion in lost revenues in the last three years. Gardner identifies three chief causes state corporate tax revenues have been steadily declining for two decades. First, state lawmakers continue to enact tax subsidies requested by corporations, most of which don’t produce the promised economic results. Second, federal tax breaks enacted in the past decade further reduce state corporate income tax revenues since states generally accept corporations’ federal tax numbers and states, particularly Tennessee, benefit heavily from federally funded programs. Third, said Gardner, “and most insidious, is that multi-state corporations themselves devote their money and legal firepower to coming up with tax avoidance schemes.”
Tennessee’s corporate tax structure leaves the door wide open for companies like International Paper to take advantage of existing loopholes. The Tennessee Small Business Protection Act, sponsored by Sen. Beverly Marrero and Rep. Mike Stewart, would close one major loophole by implementing combined reporting for corporate taxation. Currently, Tennessee utilizes a separate reporting structure for companies not based in Tennessee. This allows states to shelter income in sham subsidiaries, reporting no profit in Tennessee and avoiding corporate tax responsibilities.
Solutions to corporate tax avoidance include:
· The Tennessee Small Business Protection Act would implement combined reporting, which effectively treats a parent company and its subsidiaries as a single corporation for state tax purposes. It eliminates most of the advantage of shifting profits into Delaware, Nevada and other low- or no-tax states.
· Decouple from federal tax loopholes, such as bonus depreciation, and other provisions that reduce the amount of taxable income corporations have to claim in their state tax filings.
· Increase disclosure, transparency and accountability. Corporations should be required to publicly report their in-state profits, as well as any subsidies or loopholes they are exploiting each year.
Because few states have transparency regarding business taxes, it is not possible to determine specific tax amounts paid by corporations to individual states; all figures in “Corporate Tax Dodging in Fifty States, 2008-2010” are aggregate for taxes paid to all U.S. states by each corporation.
The study is online at http://www.ctj.org/corporatetaxdodgers50states/
Tennesseans for Fair Taxation is a coalition of people and groups working to create a more fair, balanced, and sustainable state tax structure that will adequately invest in all of Tennessee’s diverse communities, residents, and public structures (www.fairtaxation.org).
Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a 501 (c)(3) non-profit, non-partisan research organization, based in Washington, DC, that focuses on federal and state tax policy. ITEP’s mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy (www.itepnet.org).
Citizens for Tax Justice (CTJ), founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).