The truth about GE’s tax bill

There is hot debate over General Electric’s taxes in places ranging from the front page of the New York Times to the blogosphere to, of all places, “The Daily Show.” In the days since the Times touched it off, what started out as something resembling a conversation has degenerated into posturing, name-calling and shrieking. So, did GE really not pay any income taxes on a $5.1 billion U.S. profit last year? Is it getting a tax refund?

We’re going to try to answer these questions. We’ll also show you some things that we’ve learned about GE that few people outside the company and the insular world of tax techies know. The Times, of course, made GE and its tax gamesmanship a national issue with its agenda-setting piece March 25. (By the way, they beat us on the story; we’d been working on it for months.) Unfortunately, for all its good work, the article has created at least one major misperception: that GE paid no U.S. income taxes last year and is getting a $3.2 billion refund from the Treasury.

The paper’s own headline writers had that impression. “GE Turns the Tax Man Away Empty-Handed” read the headline on early editions, including in Washington edition, the version politicians and the D.C.-based media and commentariat see. “G.E.’s Strategies Let It Avoid Taxes Altogether” was the original head on nytimes.com, the version the blogosphere reads.

What is a ‘tax benefit’?

Those headlines are based on the article’s opening paragraphs, which discuss GE’s 2010 financial results. “Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.” That seems to say that GE is getting a tax refund for 2010 — but the words “tax benefit” are ambiguous, and the article never explains them or mentions them again.

By the time a revised (and accurate) headline got slapped on the later-edition print issues — “At G.E. on Tax Day, Billions of Reasons to Smile” — the idea that GE paid no U.S. income taxes and was getting a big refund was firmly implanted.

GE made a muddled situation worse by putting complicated, technical and lawyerly rebuttals on its Web site, tweeting them, tripping over itself and then proving unable to explain itself in public exchanges with the likes of Henry Blodget, proprietor of the widely followed Business Insider blog. Or in conversations with reporters.

Now, we’ll give you brief answers to the main questions, but you’ll have to bear with us afterward for the full explanation.

Did GE get a $3.2 billion tax refund? No.

Did GE pay U.S. income taxes in 2010? Yes, it paid estimated taxes for 2010 and made payments for previous years. Think of it as your having paid withholding taxes on your salary in 2010 and sending the IRS a check on April 15, 2010, covering your balance owed for 2009.

Will GE ultimately pay U.S. income taxes for 2010? After much to-ing and fro-ing — the company says it hasn’t completed its 2010 tax return — GE now says that it will.

Doing the math

Why should you care about this? Because we all have a stake in how it plays out. Thanks to the uproar over GE, we now risk ending up with legislation that targets GE but produces all sorts of unintended consequences.