Some of the Washington area’s biggest public companies paid little to no state income taxes by using a myriad of tax breaks and other tactics, according to a research report released last week.
Citizens for Tax Justice and the Institute on Taxation and Economic Policy examined 265 profitable Fortune 500 companies, nine of which are based in the area, and found 68 reported paying no state taxes in at least one of the past three years. Some even wound up with negative tax rates by exploiting the tax codes.
CSC, a Falls Church-based technology firm, netted $939 million in profits from 2008 through 2009, but had a negative 17.8 percent tax rate. District-based utility Pepco Holdings took in $779 million during the same period, and carried a negative 13.2 percent rate.
“The accelerated deduction of [Pepco’s] capital investments and significant cash contributions the company made to the employee pension retirement plan are the primary reasons for [Pepco’s] negative rate,” said Pepco Chief Financial Officer Anthony Kamerick.
“It is important to recognize that we paid many other taxes — real estate taxes, payroll taxes, personal property taxes, delivery taxes, use taxes and gross receipts tax” to the tune of $1.2 billion between 2008 and 2010, he said.
Officials from CSC did not respond to requests for comment.
According to the study, the average state corporate tax rate is 6.2 percent. Maryland has a 8.25 percent corporate tax rate, Virginia’s is 6 percent and the District’s is 9.9 percent. The report data only calculates how much companies paid in total, not individual, state taxes.
The 265 companies included in the report earned a combined $1.33 trillion in domestic profits over the past three years, but managed to pay only an average 3 percent in state taxes across the country. Researchers say these companies reduced their state taxes by some $42.7 billion during that period.
Lawmakers routinely enact tax breaks to lure companies from other states and promote economic development, while corporations have become deft at finding tax shelters, said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy.
The report arrives amid an ongoing debate about corporations paying their fair share in federal taxes. The authors of the study issued a report in November looking at the same corporations’ federal tax activity, with similar findings.
“These reports highlight the damage corporate tax loopholes are doing and hopefully will get lawmakers talking about ending give-aways,” Gardner said. “Our revenues aren’t keeping pace with our investments at the national level, and we need more money to pay for the vital public services we all say we want. ”