Out of State Corporations Fighting to Keep Tax Loophole Are Top U.S. Tax Dodgers, Says Consumer Watchdog
Apr 18, 2012, 05:07 ET
Companies With Major Sales in California Can Game Current System to Pay Lower Taxes Than Many In-State Businesses
SANTA MONICA, Calif., April 18, 2012 /PRNewswire-USNewswire/ -- Three of the five global corporations behind a coalition aimed at protecting $1 billion a year in California tax loopholes are among the nation's top tax evaders, said Consumer Watchdog. They are:
- International Paper Co., whose outlandish deductions and credits gained through Congressional earmarks left it with less-than-zero federal taxes on $198 million dollars in 2010 profit. The company's refund of $249 million exceeded its profits.
- Procter and Gamble, described by Fortune Magazine as in a class with GE when it comes to tax manipulation. It structured more than $6 billion in sell-offs since 2002 to avoid billions in federal tax and hundreds of millions in state taxes.
- GM, which is still partly owned by taxpayers and paid only $570 million in federal taxes on a net profit of $9 billion—a 6% corporate tax rate. That made it one of the lowest-taxed among high-profit corporations, according to Forbes Magazine.
The other two members of the deceptively named "California Employers Against Higher Taxes" are bailout recipient Chrysler and Kimberly Clark, which Wisconsin researchers found was evading state taxes. (See details on all members below)
"The real business of this coalition is to protect global corporations' unfair and lucrative tax loopholes that deprive Californians of good schools and services," said Judy Dugan, research director of Consumer Watchdog. "It's especially galling coming from tax evaders or automakers that abandoned their plants and employees in California, took billions in taxpayer bailout money and in Chrysler's case, kept $4 billion of it as a gift."
The out-of-state coalition was recently organized to fight proposed legislation that would eliminate a two-tiered system in California, passed in 2009 over consumer objections, that allows national corporations to pick which California tax calculation they use. By picking one or the other based on how much profit they made in California, companies can evade millions of dollars in state corporate taxes. A 2009 study by the state legislative analysts' office found the system unfair to many in-state companies, confusing and subject to corporate gaming.
LAO report: http://www.lao.ca.gov/reports/2010/tax/single_payer/single_payer_052610.aspx
"It's like letting children pick which parent they'll obey, or companies to pick which regulator will oversee them," said Dugan. "Obviously they'll go for the most lenient."
The current legislative plan (Perez, AB1500) would shift California to the system used in all major states--a single tax calculation that is primarily dependent on the amount of sales a company made in California. Consumer Watchdog said it does not support any particular proposal to fix the loophole, as long as it stops the gaming of the state tax code.
The aim of the "California Employers" is obvious in their corporate histories:
International Paper: A study by the Institute for Policy Studies found that in 2010 the company paid zero taxes on $198 million in profits, and in fact ended up with a $249 million credit. At the same time, CEO John Faraci got a 75% pay hike to $12.3 million. The company's tax deductions came from two subsidiaries in tax havens and from large deductions and credits for its longtime use of a waste byproduct at paper mills, known as "black liquor," for fuel. The company lobbied heavily for this boondoggle, even though it did not reduce International Paper's use of fossil fuels. Conservationist and environmental groups cried foul, but the company prevailed. While the company has several locations in California, they are mostly low-paid box-making facilities and warehouses. It is trying to sell but could also close a pulp plant with higher-paying industrial jobs in Port Hueneme.
Bloomberg on "black liquor" earmark: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=abDjfGgdumh4
IPS study: http://www.ips-dc.org/blog/john_faraci_international_paper_corporate_tax_dodger
Chrysler: The automaker took $13 billion in federal taxpayer bailout money in 2009. It kept $4 billion as a gift in its Chapter 11 bankruptcy proceedings. Another $3.5 billion that was counted as Chrysler payback was actually a loan to the Italian company Fiat in a complicated deal. Most galling, Chrysler's bankruptcy deal gave it a free pass on liability for defects in pre-2009 vehicles. For instance, a California family badly injured in fire that destroyed their Jeep vehicle was banned from seeking any accountability for or damages from Chrysler. Chrysler's only significant presence in California is its franchise auto dealers, many of which were shut down by the company in its bankruptcy. Chrysler's auto assembly plant in Los Angeles, which once made 40,000 vehicles a year, closed in 1971.
Liability cancellation: http://professional.wsj.com/article/SB10001424052702304450004577277802983129074.html?mod=googlenews_wsj&mg=reno64-sec-wsj
Fiat loan: http://washingtonexaminer.com/politics/beltway-confidential/2011/05/truth-behind-chrysler%E2%80%99s-fake-auto-bailout-pay-back/145552
Procter and Gamble: The global corporation is also a giant in tax avoidance. It evaded $2 billion in U.S. federal taxes and hundreds of millions in state taxes since 2002 through complex manipulation of its more than $6 billion in sell-offs of brands. The buyers also evaded taxes at least temporarily and perhaps permanently. Procter and Gamble has subsidiaries and some plants in California, but its U.S. jobs are concentrated near its Ohio corporate headquarters.
Tax evasion: http://finance.fortune.cnn.com/2011/10/19/procter-gamble-tax-avoidance/
GM: Taxpayers shoveled nearly $60 billion into bailing out General Motors, and are still on the hook for up to $27 million, depending on the future price of GM stock. And in 2011, GM paid only $570 million in federal taxes on a net profit of $9 billion—a 6% corporate tax rate. Taxpayers also still own at least a quarter of the company, which puts its opposition to fair taxation in California in a darker light. As for being a "California Employer," GM exited its last auto plant in the state, a joint venture with Toyota in Fremont, in 2009.
Kimberly Clark: State researchers in Wisconsin found that Dallas-based Kimberly Clark paid Wisconsin state taxes in only three of the 10 years from 2000 through 2009, despite a large corporate presence in the state. At the same time, its CEO pay soared 339%, from $2.6 million to $12.4 million. The current tax system makes it easier for the Kleenex giant to do the same in California.
Consumer Watchdog is a nonprofit, nonpartisan consumer advocacy organization with offices in Santa Monica and Washington, DC
SOURCE Consumer Watchdog
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