How A lot Earnings Tax Did Washington State's Largest Companies Pay?

Paul Roberts / The Seattle Times

How Much Income Tax Do Washington State's Largest Public Corporations Pay?

As many of us ponder our tax returns (this year's filing deadline has been extended to May 17), it can be telling how much – or how little – some of our largest corporate neighbors have reported on income taxes.

Which local body had the largest income tax bill last year? Based on the public filings of the top 10 Washington publicly traded companies through 2020, it was Microsoft, based in Redmond, which reported a U.S. federal income tax of $ 3.5 billion in fiscal 2020. Seattle-based timber giant Weyerhaeuser had the highest percentage of its U.S. income toward taxes: 21.2%.

Which of these companies paid the least? Nordstrom and Expedia both reported no U.S. federal income taxes for 2020, partly due to losses during the pandemic.

Corporate taxes have long been a political focus. Policy makers and experts argue over whether US corporations are contributing too much or too little to pay for defense, Medicare, social security, and other parts of the federal budget.

The "too much" camp won in 2017 when Congress passed the Tax Cuts and Jobs Act, which lowered the highest statutory corporate tax rate from 35% to a flat rate of 21%.

In April, however, the Biden administration proposed raising the corporate tax rate to 28% to cover a $ 2.3 trillion infrastructure plan. And many proponents of tax reform want to fill various loopholes that sometimes make companies pay less of their income in taxes than individual taxpayers, who are currently taxed at a maximum rate of 37%.

In reality, companies rarely pay the statutory tax rate. Instead, like any taxpayer, businesses can use tax deductions, credits, and other methods to minimize their federal income tax. For example, you can deduct state or foreign income taxes. They also enjoy tax advantages that individuals do not have, such as: B. Deductions for Share-Based Compensation for Employees.

As a result, some companies have an "effective" tax rate – income tax as a percentage of profit – that is less than the statutory tax rate of 21%.

Effective tax rates can help explain "how much (tax) revenue goes to the federal government to fund programs," says Crystal Finkelstein, tax expert and associate professor at the University of Washington's Foster School of Business.

Effective tax rates are also relevant as policymakers are considering deep reforms of a corporate tax system that would require companies to contribute a smaller portion of the federal budget than before.

In 1952, the proportion of federal income from corporate taxes was around 32%, according to the Tax Policy Center. According to the center, it was 9% as of 2019.

The list of companies below, sorted from largest to smallest based on their 2020 earnings, shows reported earnings, taxes and effective tax rates in 2020.

It also comes with major limitations.

First, these tax figures come from the companies' public filings with the US Securities and Exchange Commission at the end of the year. As such, they are based on the earnings estimates that companies computed at the end of their fiscal year (which for most – but not all – companies ends on December 31st).

By the time companies fill out a non-public tax return with the U.S. Treasury Department or other tax authorities, estimates may have changed, says Finkelstein.

Equally important, there are also critical timing differences between the way the SEC and the IRS handle taxes and other financial information.

A key difference concerns the timing of tax deductions, which companies can use to reduce their taxable income. For example, a company planning to deduct the cost of new equipment is typically required by SEC rules to spread that "depreciation" deduction in its SEC filings over five to seven years.

However, tax law could allow the same company to make the entire deduction in a single fiscal year, reducing the amount of cash it actually pays to the U.S. Treasury Department for that year, Finkelstein says.

Such timing differences can cause the amount of taxes companies report to the SEC to fluctuate sharply from one year to the next, she says.

Over time, these two sets of tax numbers usually catch up, and the tax numbers on the SEC filings can provide "a reasonable approximation" of the taxes companies actually pay over a period of years, says Thomas Gilbert, associate professor of the Finance at the Foster School.

But "just looking at a year can be very misleading," adds Gilbert. "In any given year, the tax liability on the (SEC filings) seems tiny or gigantic."

In this context, there are several ways to measure a company's effective tax rate.

In their SEC filings, many companies report an aggregate tax rate that includes all federal, state, and international taxes as a percentage of global profits.

The total interest rate can also include other tax factors, such as: B. Updates to previous estimates, settlement of previous tax disputes and the effects of new tax laws, and deferred income taxes, which are taxes that are reported but not actually paid for in later years.

According to a study by the Organization for Economic Co-operation and Development, the average effective income tax rate for U.S. companies in 2019 was 24.6%.

Some tax policy experts prefer a narrower US-only effective tax rate, US income tax as a percentage of a company's US income, which is often less than the overall tax rate. In 2018, the effective tax rate averaged 11.3% only in the United States. This comes from an analysis of 379 profitable US companies by the Washington-based Institute for Taxes and Economic Policy (ITEP), which examines the tax returns of the largest American companies.

Matt Gardner, tax expert and senior ITEP executive, says that a US-only effective tax rate allows a company to compare its tax burden with the statutory corporate tax rate of 21%.

In the list below, the effective US tax rate is calculated using the ITEP formula, which breaks down US publicly reported pre-tax income (minus current reported state income tax that is deductible) into current US reported income tax.

Amazon

Though the Seattle-based retail and cloud computing services giant is known for its aggressive tax cut strategies – it reported no federal income tax in 2017 and 2018, despite billions in profits in both years – the company reported a relatively big 2020 tax burden, too thanks to a strong pandemic-related profit increase compared to 2019.

In 2020, Amazon reported $ 1.8 billion in federal income taxes (and approximately $ 600 million in state income taxes) on $ 20.2 billion in U.S. income.

According to the ITEP formula, Amazon's effective U.S. income tax rate for 2020 was 9.4%.

Amazon's effective tax rate for 2020 was 11.8% based on the figures in the SEC filings.

Like all corporate taxpayers, Amazon benefits from a variety of tax deductions. A key point for Amazon and other technology companies is that they can deduct part of the value of restricted stock units or company shares that are included as part of employee compensation – just as companies can deduct the cost of regular salaries. (Employees who receive restricted units of stock pay income tax on them.)

"Amazon's taxes, which are publicly reported, reflect our continued investment, employee compensation and current US tax laws," a spokesman said in a statement.

Costco

Costco's sales and profits have also increased over the past year. This can be seen in taxes for fiscal 2020 (which ended Aug. 30): The Issaquah-based retailer reported US income taxes of $ 616 million on US income of approximately $ 4.2 billion .

This resulted in an effective US income tax rate of 15.5%.

Costco's total effective income rate for 2020 was 24.4%. This partly reflects the company's relatively high government and foreign tax liabilities and the high amount of deferred income taxes.

"Costco pays taxes in every country it operates in and is conservative in its tax positions," said a Costco spokesman.

Microsoft

In its fiscal year 2020, which ended June 30, the tech company reported a federal income tax of $ 3.5 billion on U.S. income of $ 24.1 billion, which is a U.S. only effective tax rate of $ 15 billion. 1% corresponds.

The company's total effective tax rate in 2020 was 16.5% – reflecting a total reported tax charge of $ 8.8 billion on global profits of $ 53 billion.

In 2020, Microsoft reported nearly $ 1.2 billion in tax savings from deducting stock-based compensation.

And like other manufacturers of "intangible" products such as software and other intellectual property that can be easily manufactured in multiple locations, Microsoft has also reportedly made tax savings by moving some income-generating operations to countries with lower corporate tax rates, including Ireland and Puerto Rico .

Some of Microsoft's tax strategies have been reportedly challenged by the Internal Revenue Service.

Microsoft confirmed the Times' characterization of its public tax data but declined to provide additional comments.

T-Mobile

In 2020, Bellevue-based T-Mobile, the second largest wireless operator in the country after Verizon, reported $ 17 million in income tax on US revenue of $ 3.5 billion, which is an effective tax rate in the USA of 0.5%.

In contrast, T-Mobile's effective income tax rate for 2020 was 22.3%, partly due to high state income taxes.

T-Mobile's low income tax liability in 2020 reflected several factors, including deductions for share-based payments and for investments in expanding the cellular network, as well as tax credits for research and development. T-Mobile also achieved tax savings through large net operating losses related to the 2020 merger with rival Sprint.

T-Mobile confirmed the characterization of its tax data by the Times.

Starbucks

The Seattle-based coffee giant was hard hit by the pandemic, with earnings in fiscal 2020 (which ended September 27) down 74% from 2019.

In fiscal 2020, Starbucks reported US income tax of $ 49.9 million on US profits of approximately $ 905 million, an effective tax rate of 5.8% in the US.

Starbucks officials stressed that the SEC tax numbers are not actual tax payments.

In a statement, the company stated that it actually paid more than $ 1.7 billion in global income taxes for fiscal 2020, "the majority of which was for US federal income taxes."

For comparison, Starbucks' effective tax rate for the US only for 2019 was 46.1%. Starbucks' effective income tax rate for fiscal 2020 was 20.6%.

Paccar

The Bellevue-based manufacturer of medium and heavy trucks reported $ 182.5 million in income tax on U.S. income of $ 1.1 billion at an effective tax rate of 16.9% in the U.S. only.

Paccar's effective income tax rate for 2020 was 21.7%, reflecting reported state and foreign income tax payments, according to SEC filings.

"PACCAR prides itself on being an outstanding corporate citizen who believes in paying their full tax liability under the law," the company said in a statement, adding that it benefits from research and development tax credits.

Nordstrom

The Seattle-based retailer posted a negative result during the pandemic, which is reflected in its income taxes.

In its fiscal year 2020, which ended Jan. 30, Nordstrom reported a federal "tax break" of $ 501 million on a US loss of $ 1.21 billion, an effective tax rate of 41.4 % in the US only corresponds to SEC filings. (Tax benefits are not necessarily refunds. Some are used to offset a company's ultimate tax burden.)

Nordstrom's total effective income rate for 2020 was 43.8%, representing a tax benefit of $ 538 million for a worldwide loss of $ 1.23 billion. This is evident from the SEC filings for 2020. (A company reporting a tax break on a loss uses a positive percentage for its effective tax rate.)

One factor contributing to Nordstrom's tax advantage: A provision under federal pandemic legislation known as the CARES Act allows companies to "carry back" their losses for 2020 to earlier years and use them as credit for income taxes due to the earlier, higher corporate tax rate was paid of 35%.

"We have adjusted our policies and procedures to ensure that we are complying with all applicable tax laws and regulations," said a Nordstrom spokesman in an email.

Expeditors International

The Seattle-based logistics and shipping company reported federal income tax of $ 37.6 million on income of $ 325 million in the US at an effective tax rate of 12.2% in the US.

Expeditors' total effective tax rate for 2020 was much higher at 27%, which was likely due in part to the fact that around two-thirds of its income was earned and taxed outside the US. (The company did not respond to questions about its taxes.)

Weyerhaeuser

The logging company reported US income tax of US $ 147 million on US income of US $ 723 million at an effective US tax rate of 21.2%.

Weyerhaeuser's global tax rate was 18.8%, which was partly due to the inclusion of deferred taxes.

Weyerhaeuser confirmed the characterization of the tax data by the Times.

Expedia

The Seattle-based online travel company was hammered along with the rest of the travel industry during the pandemic, and its tax burden appears to be showing the effects.

In 2020, Expedia reported a US income tax benefit of $ 31 million on a loss of $ 2.4 billion in the US, representing an effective tax rate of 1.3% in the US.

Expedia's global effective tax rate was 13.4%, representing a tax benefit of $ 423 million on a global loss of $ 3.2 billion. This is evident from data calculations in the SEC filings. Expedia declined to comment on its taxes.