April 15 is Tax Day, and if recent trends are any indicator, large corporations will pay only about half of the statutory 35 percent corporate rate in income taxes.

Citizen Works Communications Director and tax expert Lee Drutman had this to say:

When corporations pay less, it means that ordinary citizens are forced to cover more of the tax burden. At a time of rising budget deficits and vanishing social services this is simply unacceptable.

Ordinary citizens don’t have high-priced accountants and lawyers to tell them how to avoid paying taxes. They don’t have high-priced lobbyists who can help them get special exceptions and loopholes written into the tax code. Most people don’t have the resources to set up a post office box in Bermuda to avoid taxes, let alone even afford a vacation then.

It is a basic issue of fairness. Corporations depend on so many of the basic services government provides. A system of courts and law enforcement. Roads and infrastructure. An educational system. They need to pay their fair share to provide for these basic services.

The following is a summary of studies in the past year describing the extent to which corporations avoid paying federal and state taxes and some of the strategies that they have used.

FEDERAL TAXES

• In 2002 and 2003, 275 of the biggest U.S. corporations sheltered more than half of their profits from taxes, reporting $739 billion in profits to shareholders but only $363 billion in profits to the IRS, according to Citizens for Tax Justice (CTJ). According to CTJ, the 275 corporations paid an effective tax rate of 17.2 percent in 2002 and 2003, less than half of the effective corporate tax rate of 35 percent. That’s down from 26.5 percent in 1988, 21.7 percent in 1998, and 21.4 percent in 2001.
  
  Additionally, of the 275 companies CTJ analyzed, 82 either paid no taxes or received a tax refund in at least one of the last three years. In 2003 alone, 46 companies paid zero or less in federal income taxes. These 46 companies, almost one out of six of the companies in the study, reported U.S. pretax profits in 2003 of $42.6 billion, yet received tax rebates totaling $5.4 billion.
  
  Between 2001 and 2003, 28 companies paid negative federal income tax rates over the entire three-year period. These companies, whose pretax U.S. profits totaled $44.9 billion over the three years, included, among others: Pepco Holdings (–59.6% tax rate), Prudential Financial (–46.2%), ITT Industries (–22.3%), Boeing (–18.8%), Unisys (–16.0%), Fluor (–9.2%) and CSX (–7.5%), the company previously headed by current Treasury Secretary John Snow.



• U.S. corporations shifted $75 billion of their profits into tax havens in 2003, depriving the IRS of between $10 billion and $20 billion in expected tax revenue, according to a study in Tax Notes, a tax trade journal. According to the study’s author, Martin A. Sullivan, corporations exploit legal loopholes and tax credits to avoid paying taxes by shifting income into subsidiaries located in no-tax or low-tax countries, such as Bermuda. Sullivan, a former Treasury Department economist, based his study on Commerce Department data.
  
  The profits that U.S. multinational companies reported from their foreign subsidiaries have grown 68 percent since 1999, reaching $149 billion in 2003, according to a separate study published by Tax Notes earlier in the month found that. However, the data does not show any commensurate growth of actual economic activity in those tax havens. The implication is that multinationals are merely sheltering more income in tax havens.
  
  In 2003 U.S. corporations had an estimated $650 billion sheltered offshore, more than 40 percent of which was in the manufacturing sector, according to a 2003 J.P. Morgan Chase study,. Companies are waiting for the U.S. to lower the tax rate on repatriated earnings, which some in Congress have proposed to do.



• More than 10,300 individuals and 207 Fortune 500 companies have used tax shelters, accounting for a total tax revenue loss of nearly $129 billion, according to a recent GAO report. The report found that 114 of the Fortune 500 companies and 4,400 individuals using tax shelters obtained the services from an accounting firm.
  
  Accounting firm KPMG's revenue from its Tax Services Practice rose from $829 million in 1998 to $1.2 billion in 2001, accord to a recent Senate Permanent Subcommittee on Investigations report. The report also documented how accounting firms such as Ernst & Young and PricewaterhouseCoopers, banks such as Deustche Bank and Wachovia Bank, and law firms such as Sidley Austin Brown & Wood "developed, implemented, and mass-marketed cookie-cutter tax shelters used to rip off the Treasury of billions of dollars in taxes," as Sen. Norm Coleman (R.-Minn.), the committee's chairman, put it.
  
  In 2003, corporate revenues represented only 7.4 percent of federal tax receipts, the second-lowest level on record, according to the Congressional Budget Office. Sixty years ago, corporations paid half of the U.S. tax bill.

STATE TAXES

• Large corporations are paying only about a third of what they owe in state taxes, according to separate study by Citizens for Tax Justice and its Institute on Taxation and Economic Policy. Instead of paying $67.1 billion on $1 trillion of profits reported to shareholders, 252 large companies paid $25.4 billion in state taxes between 2001 and 2003.
  
  Additionally, of the 252 companies, 71 paid no state income tax in at least one year, and 25 paid no tax in more than on year. Some companies, such as Toys "R" Us, AT&T, Boeing, Eli Lilly, Merrill Lynch, and ITT Industries, paid no net state income tax over the full three-year period. In 2003 alone, 35 companies paid no state income tax. Another 138 of the companies paid less than half the statutory state corporate tax rate that year.



• Corporate tax shelters cost states as much as $12.4 billion a year in lost state revenues, according to the Multistate Tax Commission.