New Report Shows Major, Profitable Corporations Paying No State Corporate Income Taxes

By Jason Bailey
December 7, 2011

Report: “Corporate Tax Dodging in the Fifty States, 2008-2010

Yum! Brands among Major, Profitable Corporations Paying No State Corporate Income Taxes

Profiled in New Report Showing Corporate Tax Avoidance Costs All States $42 Billion Over Three Years

A comprehensive new study that profiles 265 consistently profitable Fortune 500 companies finds that Louisville-based Yum! Brands paid no net state corporate income taxes over the last three years while reporting over a billion dollars in profits to its shareholders.

The finding is included in “Corporate Tax Dodging in the Fifty States, 2008-2010” a report released today by the Institute on Taxation and Economic Policy (ITEP) and Citizens for Tax Justice (CTJ) in conjunction with the Kentucky Center for Economic Policy. The report finds a total of 68 companies that paid no state corporate income tax in at least one of the last three years. Twenty of them averaged a tax rate of zero or less during the 2008-2010 period, including Yum! Brands.

“The report’s findings are troubling. At a time of record corporate profits, many large corporations are avoiding paying their fair share for the public services from which they benefit,” said Jason Bailey, Director of the Kentucky Center for Economic Policy. “By deepening Kentucky’s budget woes, corporate tax avoidance directly harms our ability to provide quality education, improve health and build a foundation for a strong economy.”

“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. Matthew Gardner, Executive Director at the Institute on Taxation and Economic Policy and the report’s co-author, identifies three chief causes for why 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. 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.”

Shoring up corporate taxes is an important part of needed tax reform in Kentucky. Bailey notes that there are widely recognized policy changes Kentucky could make to stop further erosion of corporate tax revenues, including the following:

  • Requiring combined reporting, under which a parent company and its subsidiaries are treated as a single corporation for state tax purposes. Combined reporting eliminates most of the advantage of shifting profits into Delaware, Nevada and other low- or no-tax states. 23 states have put in place combined reporting, and Kentucky could gain $27 to $54 million in additional revenue from combined reporting according to a Legislative Research Commission analysis.
  • Decoupling from the Qualified Production Activities Income deduction, which is a federal tax loophole that provides a tax break for business activities in the United States. Kentucky partially allows the deduction for state taxes despite the fact that it provides no incentive for business investment or location in Kentucky as opposed to another state.
  • Enacting a throwback rule, which prevents taxable income of multi-state corporations from falling between the cracks by assigning income that is not taxable in any state to the home state where the goods are produced. Twenty-five other states have such a rule.
  • Creating a process by which business tax incentive and tax subsidy programs are periodically analyzed for their effectiveness by a legislative committee and expire unless renewed by the legislature.

“Corporate Tax Dodging in the Fifty States, 2008-2010” follows up on “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010” which was published in November by Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP). The two groups released their first major study on the federal income taxes that large, profitable American corporations pay on their U.S. pretax profits in 1984. 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/.

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The Kentucky Center for Economic Policy is a non-profit, non-partisan initiative that conducts research, analysis and education on important policy issues facing the Commonwealth. Launched in 2011, the Center is a project of the Mountain Association for Community Economic Development (MACED). 

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).