Sunshine for California: Shining Light On Corporate Tax Secrecy (2006)

• In California...over half of profitable corporations paid no more than $800 minimum (the $800 minimum franchise tax), including 46 corporations with over $1 billion in 2001 receipts.

• A study of 252 Fortune 500 companies between 2001 and 2003 found that they paid state taxes at only a third of the statutory rates and 71 of them paid no state taxes at all during at least one of these years....

Taxpayers pick up the tab when corporations avoid their taxes. The personal income tax is expected to provide 53.2 percent of revenues in the 2006-07 California state budget, up from 35.4 percent in 1980-81. Corporate tax receipts are meanwhile expected to provide 10.9 percent of General Fund revenues in 2006-07, down from 14.6 percent in 1980-81.

Corporations routinely report significantly lower incomes to California tax authorities than they do to their own shareholders; and they do so without any explanation for these differences.

Corporations have a strong incentive to overstate their income to shareholders and to underreport income on their tax forms. The California Franchise Tax Board (FTB) calculates that corporations would contribute an additional $1 billion to $1.5 billion a year to the California state budget if they paid taxes on the income numbers that they tout to their shareholders.

• Investors cannot assess the financial health of corporations that aggressively avoid taxes, defer their tax liabilities, or inflate profit claims to shareholders.

California could have been spared great pain if tax authorities had compared Enron’s reported $3.625 billion in profits reported to their shareholders between 1996 and 2000 to the $76 million reported to the IRS during this period. Studies show that the book-tax gap is a reliable predictor of tax evasion as well as poor future investment returns.

http://www.calpirg.org/home/reports/report-archives/more-reports/more-reports/sunshine-for-california-shining-light-on-corporate-tax-secrecy-for-healthier-state-budgets-investments-and-markets

State law prohibits tax officials from disclosing the identity of corporations that do not pay taxes
in California. Studies based on corporate annual reports and securities filings have identified
publicly traded corporations that pay no federal income taxes.

Since corporations are not required to disclose where they pay state corporate taxes and how much they pay, it is not possible to use this information to identify corporations that pay no California corporate income taxes.

California-based corporations that paid no federal income taxes between 2001 and 2003
include Walt Disney, Fluor, Health Net, Ingram Micro, and Computer Sciences.3

Computer Sciences reported US profits of $1.29 billion and received $31 million in federal tax rebates during the three year period studied. Ingram Micro received tax rebates in two of the three
years.


What About the Alternative Minimum Tax?

The AMT was designed to ensure that profitable businesses paid at least a minimum level of tax on their income. However, over time, the goal of the AMT has been undermined as lawmakers allowed certain preferences to reduce the amount corporations would pay under the AMT.

Preferences that enable corporations to reduce what it would owe under the AMT include the Research and Development Tax Credit; Low-Income Housing Tax Credit; various Enterprise Zone, Local Agency Military Base Recovery Area (LAMBRA), and targeted tax area credits; and Natural Heritage Preservation Tax Credit.

http://www.cbp.org/pdfs/2004/0409allgain.pdf