That’s because the documents that publicly traded U.S. companies file with the Securities and Exchange Commission, which are the source of the numbers, lump all sorts of things together, making it impossible to tell how much federal income tax a company pays for a given year.
You can bet that unless something changes, no one in a position of authority will propose the obvious and simple solution to let us find out how much federal income tax individual companies pay for any given year to help support the system that gives their business a chance to succeed in our country.
What’s the solution, you ask? It’s simple: require companies that file information with the SEC to reveal information from two lines of their federal income tax returns. Those two lines are “taxable income” and “total tax.”
If we had the numbers from those two lines, we’d know how much federal income tax (if any) is paid for a given year by companies such as Facebook, Apple, Amazon (whose chief executive Jeff Bezos owns The Washington Post) and Alphabet (which owns Google) that are considered major tax avoiders, compared with the overall profits they report.
And we might be able to judge how the corporate tax cut that President Trump pushed through in 2017 is affecting them and other companies.
But absent that tax-return information, there’s no way for us to tell how much federal income tax individual companies pay for a given year, regardless of how much work people do trying to parse these companies’ financial filings.
No, this isn’t just me saying this. It’s the opinion of two of the best-known independent tax experts in the country, Bob Willens and Dave Zion, who have more than 70 years of combined history analyzing corporate tax information.
“For investors, trying to figure out taxes is like banging their head against a desk,” Zion of Zion Research Group, who has 23 years in the tax biz, told me. “It hurts!”
“I’ve been asked literally thousands of times by analysts how much tax a company pays for a given year, and I’ve had to tell them, ‘I have no idea,’ ” says Willens of Robert Willens LLC, who’s been at this for 48 years. “It’s virtually impossible to glean from the financial statements the amount of federal income taxes a company pays.”
Now, let me step back a bit, explain to you how this has come to be, and confess that for years, I made the same mistake that some of my journalistic colleagues are making by conflating numbers from footnotes in companies’ SEC filings with federal income taxes paid for the year the filing covers.
I came to realize that these numbers cover income taxes that companies pay in a given period, not for a given period. And they include state, local and foreign income taxes, as well as federal income taxes.
This means that if a company wins a tax case that stretches back years or loses such a case, it can get refunds or have to make large payments that skew an individual year’s numbers. There are other complications, as well.
I think that the major reason that no one has gotten corporations to show the federal income tax they pay for a given year is that there’s no constituency pushing for such disclosures.
Investors and analysts want to know what impact taxes have on a company’s financial statement because that helps determine a company’s earnings and presumably its stock price.
But there’s no pressure on companies to disclose year-by-year taxes to help us figure out how much a company is supporting — or not supporting — our country. That’s a social issue, but not an investment issue.
The simple solution — though not a real-time indicator — is to require companies with publicly traded securities to disclose the “taxable income” and “total tax” numbers from their corporate tax returns.
(It would be nice to require some other numbers, as well, but I’ll settle for those two.)
Companies could disclose that information in SEC filings, at minimal cost to themselves, soon after they file their tax returns. The returns are due April 15 for companies with calendar years, but in many cases, companies avail themselves of an automatic six-month extension and don’t file until October.
Even with a 10-month time lag, the information would be immensely helpful to those of us who’d like to find out which companies are helping support our country and which are getting free rides at our expense.
In addition, if in the first year these rules were in effect we required companies to file five years of numbers, we’d have data to build on.
There is some movement in both Europe and the United States to require more detailed tax numbers, but I wouldn’t bet on it producing the information we need.
For example, the Financial Accounting Standards Board is considering a proposal requiring companies to disclose separate quarter-by-quarter income-taxes-paid numbers for federal, state and foreign taxes. But even if that came to pass, which doesn’t seem imminent, we’d know the taxes paid in a given period, not for a period.
It would be nice if Congress or the SEC or someone with authority proposed that companies be required to disclose the tax return information I’m looking for.
Or maybe a few giant, nonpolitical institutional investors — index-fund-management firms come to mind — could push for such disclosures because it’s in both the public’s and investors’ long-term interests for accurate tax information to be disclosed.
But until and unless that happens, be prepared to read more stories with inaccurate numbers.