Major U.S. Firms Pay Little or Nothing in State Taxes,
According to New National Study

Many of the nation’s largest, most profitable companies, including those based in New York State, are paying little or nothing in state and local income taxes, a new study shows.

Major corporations headquartered or doing significant business in New York paid less than 3% of their profits in corporate income taxes between 2001 and 2003, the report said.

Some of the biggest and richest paid nothing to the states and localities that provide the basic services required to do business.

The study, released today by Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP), looked at the 252 Fortune 500 companies that reported profits in all three of the years studied (2001, 2002 and 2003). The 252 firms examined also disclosed state and local corporate tax payments in filings with the U.S. Securities and Exchange Commission.

Of these 252 corporations, 71 paid no state income taxes in one or more of the three years studied, and 17 had average effective state and local corporate income tax rates of 0% -- or less -- for the entire three-year period.

On average over the three years, these 252 firms' net state income tax payments were only 2.3% of their total US profits, or about one-third of the 6.8 percent average statutory state corporate tax rate in the United States during this period.

"Unfortunately, current SEC rules only require publicly-traded firms to disclose their state and local income tax payments on a 50-state aggregate basis, so we do not know how much these firms are paying to New York or any other state," said Frank Mauro, Executive Director of the Fiscal Policy Institute. "But we do know that the decline in state corporate income tax payments is affecting New York along with the other states."

Using data on total corporate income tax payments form the U. S. Bureau of the Census, the report estimates that New York State's corporate income tax collections declined from 0.43% (a little more than four tenths of one percent) of Gross State Product in 1988-89 to 0.25% (or, one quarter of one percent) of Gross State Product in 2002-03.

Some of the best known American corporations paid little or nothing in state and local corporate income taxes during this period. Merrill Lynch, for example, paid no state and local income from 2001 to 2003, yet they amassed $8.8 billion in pretax US profits during the 3-year period. AT&T with $13.4 billion in profits during this period actually got money back from the states to the tune of $81 million over this period.

"These companies may have paid some taxes to some states with those payments being offset by tax rebates from other states but we will never know as long as we do not have state-level corporate income tax disclosure," said Ron Deutsch, the Executive Director of SENSES, the Statewide Emergency Network for Social and Economic Security. During the Reagan Administration, the US Treasury Department tried to get corporations to agree to a 50-state spreadsheet disclosure format but little has been done on this issue in recent years. "It is time that our federal and state leaders get back to resolving this important matter," said Deutsch.

"This study confirms what we have said for the last several years, New York’s corporations are not paying their fair share of taxes to support the public services they use and all New Yorkers need,” said Roger Benson, President of the Public Employees Federation. “Overall most of the major corporations headquartered or doing significant business in New York paid less than 3% of their profits in corporate income taxes between 2001 and 2003.”

Companies based in New York that received a rebate on their state and local corporate income taxes during 2001 through 2003 include MetLife (a $17 million rebate in 2002 and a $4 million rebate in 2001 despite over $2 billion in profits in 2002 and over $2.9 billion in profits in 2001), Avon (a $3 million rebate in 2002 despite $271 million in profits), and Con Edison (a $6 million rebate in 2002 despite over $1 billion in profits). NY-based companies that paid no state and local corporate income taxes in at least one year covered by the study despite having millions in profits include IBM, Pfizer, Time Warner, ITT industries, L-3 Communications, Dover, and the New York Times. The companies have not disclosed whether they paid any corporate income taxes to New York during those years

“The study’s results are alarming but not surprising,” said Mark Lapidus of New Yorkers for Fiscal Fairness, who noted that over the last two years his organization had asked many of these companies to disclose the amount of taxes they paid in New York and none of the major corporate tax evaders cited in the study provided any information.

“The study makes clear it is time to close New York’s corporate tax loopholes to stop these corporate tax evaders,” Mark Dunlea of the Hunger Action Network. “It is a crime that these profitable companies pay little or no taxes when community organizations that provide services to the most vulnerable New Yorkers have to beg year after year for the money they need to provide these needed services.”

Dunlea also echoed the call for corporate income tax disclosure. "This study proves that New York State should enact Assemblyman Jim Brennan’s legislation requiring the disclosure of corporate tax liability in New York. Federal disclosure laws allow us to know which profitable companies are not paying federal income taxes, and which profitable companies pay no net state income taxes generally. We need a state disclosure law so we can learn which companies are getting off the hook and which are paying their fair share” Somewhat in frustration over what is going on, Dunlea concluded that “profitable corporations doing business in New York are stiffing New York taxpayers.”

The CTJ/ITEP study is available at www.ctj.org. A summary of the corporate tax loophole closures that New York should enact into law is also attached.