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Originally published March 27, 2013 at 8:34 PM | Page modified March 28, 2013 at 9:36 AM

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U.S. tax burden dives for Boeing, Microsoft, most others in Dow

A Washington Post analysis found that in the late 1960s and early 1970s, companies in the current Dow 30 routinely cited U.S. federal tax expenses that were 25 to 50 percent of their worldwide profits. Now, most are reporting less than half that share.

The Washington Post

A lighter tax burden for many in Dow 30

Of the 30 companies that constitute the Dow Jones industrial average, all but eight have seen significant decreases over the years in their U.S. tax expenses as a percentage of their worldwide pretax profits, according to a comparison of each company's oldest available tax information with its most recent data.

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Procter & Gamble, the Cincinnati-based company behind Pampers diapers and Tide detergent, reported a federal tax burden in 1969 that was 40 percent of its total profits, a typical rate in those days.

More than four decades later, P&G is a very different company, with operations that span the globe. It also reports paying a very different portion of its profits in federal taxes: 15 percent.

The world’s biggest maker of consumer products isn’t the only one.

Boeing, Microsoft and most of the other 30 companies that make up the Dow Jones industrial average have seen a dramatically smaller percentage of their profits go to U.S. coffers over time.

A Washington Post analysis found that in the late 1960s and early 1970s, companies in the current Dow 30 routinely cited U.S. federal tax expenses that were 25 to 50 percent of their worldwide profits. Now, most are reporting less than half that.

At first blush, the decline in corporate taxation could be a result of simple math. The top U.S. corporate tax rate — the 35 percent that companies complain about — is actually down from 48 percent in 1971.

But that’s only part of the story.

A major factor is that profits earned abroad, which in theory are subject to the same U.S. tax rate, often are taxed much more lightly, and companies are earning more overseas than ever.

Of the 25 companies in the Dow 30 that break down their pretax income between domestic and foreign sources, 14 earned more money overseas than they did in the United States in the most recent annual filings available.

Any dollar earned abroad is not taxed by the U.S. government until it flows back to the parent company. A J.P. Morgan report estimates that there is $1.7 trillion of foreign earnings being held untaxed overseas by more than 1,000 U.S. firms.

Companies have also found ways to shift their income across national boundaries, roving from country to country in search of the lowest tax burden.

Ed Kleinbard, a tax professor at the University of Southern California, has dubbed these movable earnings “stateless income.”

The trend has revolutionized company tax planning, especially in businesses that rely on intellectual property.

The Senate Permanent Subcommittee on Investigations found that from 2009 to 2011, Microsoft was able to shift offshore almost half its net revenue from U.S. retail sales, or roughly $21 billion, by transferring intellectual-property rights to a Puerto Rican subsidiary.

As a result, the subcommittee found Microsoft saved as much as $4.5 billion in taxes on products sold in this country.

William J. Sample, Microsoft’s corporate vice president of worldwide tax, said in response that the company complies with tax rules in all the places it operates, paying billions each year in total taxes.

In 2012, Microsoft reported a tax expense that was the lowest-ever percentage of its total income, according to available data. The figure was 10 percent in 2012, compared with 33 percent in 1987, the oldest year for which information is available.

And it’s not just tech firms enjoying lower rates.

Of all the Dow 30 firms, 22 have seen a drop of more than 10 percentage points between the oldest year in which data are available and the most recent year.

McDonald’s, the world’s biggest restaurant chain, reported a U.S. federal tax expense in 1973 that was more than 37 percent of its total profit that year, compared with 14 percent in 2012.

Boeing’s share of income paid in taxes fell by 23.2 percentage points between 1969 and 2012.

None of this has stopped companies from coming to Washington, D.C., and making their case that they are paying way too much in taxes. And they are getting a full hearing as some top lawmakers move to overhaul the corporate tax code.

The current system represents the worst of two worlds: It charges a relatively high rate, yet many companies don’t pay it.

One of the strangest things about the corporate tax debate is that it is nearly impossible to figure out the amount companies are actually paying.

Nowhere is there a straightforward number showing how much in federal taxes a firm pays to the U.S. Treasury every year.

Instead, firms list a “current tax provision” number that is an accountant’s estimate used to calculate earnings, but that is not meant to equal the size of the company’s U.S. federal tax bill.

After doing its analysis, The Washington Post contacted every company in the Dow 30 and asked to see the actual figures paid to the federal government every year. No company provided the information.

Tax experts say the publicly available numbers offer the closest look an outsider can get at what a company pays.

And while many companies hold their money overseas, a number of executives have said they would be willing to bring some of that money back if the U.S. tax rate were not so high.

Some momentum is building for changes to the code, driven mainly by Rep. Dave Camp, R-Mich., chairman of Ways and Means.

Camp has said he is interested in lowering the top corporate rate to 25 percent. He also favors exempting 95 percent of overseas earnings from U.S. taxation when that income is brought back to the United States.

These signals have sent U.S. firms scrambling to lobby for tax-law changes that would benefit their industries.

But what helps one group of companies can very well hurt another. As a recent report from the law firm K&L Gates warned business clients: “If You’re Not At the Table, You’re On the Menu.”

It is not just the United States trying to figure out how to tax multinationals.

Worldwide, there is an increasing tension between businesses that have gone more global and national governments that still have to find a way to raise revenue to pay for domestic services.

In the United Kingdom recently, Starbucks faced massive protests and parliamentary hearings when reports showed the Seattle-based company had paid almost no taxes in the past three years, despite revenue of more than $600 million in 2011.

Starbucks had not broken any law but eventually agreed to pay $30 million to make peace.

“[Countries] want the jobs, they want the investment, so they put in incentives to do that,” said Doug Shackelford, a tax professor at the University of North Carolina. “Companies take advantage, and then [politicians] get mad that they don’t pay the taxes. It’s a little hard to have it both ways.”

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