Amid ongoing debate in Washington about corporate tax reform, some of the largest companies in California are paying well below the required income tax.
Of the largest 25 companies in the state, measured by revenue, roughly half reported they paid close to the full tab or more for last year. But more than a third reported a tax rate of less than 25 percent – well below the required 35 percent U.S. income tax rate for corporations. (For a full list, see below.)
While these companies are all likely complying with U.S. tax laws, various loopholes make it possible to skirt the country’s official corporate income tax rate.
Amgen of Thousand Oaks and Sempra Energy of San Diego have the lowest rate – 13 percent. Amgen, a biotech company, hasn't reported a tax rate above 20 percent in the last three years. David Polk, a spokesman, confirmed that the company's low rate was due primarily to foreign earnings invested abroad indefinitely, as reported in the company’s annual report. As of Dec. 31, 2010, those earnings invested abroad amounted to approximately $17.2 billion.
Sempra Energy reported lower earnings than the previous year, but their tax rate shrank even more significantly. Their reported income tax rate of 13 percent was less than half of what they paid in 2009. The lower rate in 2010 was primarily due to higher income from operations in countries where tax rates are lower, said Sabra Lattos, a spokeswoman for the company.
Amgen and Sempra Energy's reported income tax highlights a frequent criticism of the U.S. corporate tax code – much of the income from companies headquartered in the U.S. is never collected by the federal government.
“Residents of California paid $440 to make up for the taxes that are avoided by corporations and wealthy individuals through the use of offshore tax havens,” according to a recent report by The California Public Interest Research Group. The group calculated the estimate by dividing what the state would have received from income that was instead shifted to offshore tax havens – $11.9 billion per year – by the number of filers in the state.
Besides Amgen and Sempra, eight other companies – including eBay, Hewlett-Packard, Google, Northrup Grumman, and Apple – reported a tax rate of less than 25 percent.
Most companies do not provide detailed tax information. Although some information is available in companies' annual reports to shareholders, these numbers don't necessarily reflect what a company will actually pay in taxes.
“Companies have two separate sets of books: one for their tax returns and one for what they report on their financial statements," said Alan Auerbach, professor of economics and law at UC Berkeley. "Since the tax returns are confidential, we don't really know.”
Changes to California's state corporate income tax system may be coming in the next few months. Gov. Jerry Brown has proposed repealing a $1 billion corporate tax break that went into effect in January. The state Department of Finance estimates that corporate tax receipts are expected to provide 12.2 percent of General Fund revenues in 2010-11.