Profits, But No Tax Bill

Eleven S&P 500 companies reported profits for calendar 2014 but will be paying no corporate income taxes.
Katie Kuehner-HebertMarch 6, 2015
Profits, But No Tax Bill

Nearly a dozen profitable U.S. companies are paying no corporate income taxes for 2014.

A USA Today article on Wednesday said that 11 companies in the Standard & Poor’s 500 had an effective tax rate of zero or close to zero, despite having reported a profit for the year (real estate investment trusts with pass-through accounting and companies reporting a loss were not included).

Goodyear Tire earned $687 million before taxes, but claimed a $1.8 billion tax credit, enabling the company to report net income of $2.5 billion for 2014. Accounting rules enabled Goodyear to take credit for setting aside more money than it actually needed for taxes, even though it was able to spend the excess.

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The company’s pension for the United Steelworkers also reached “full funding,” so the company has projected a profit for 2015, while at the same time boasting that it has enough tax credits to likely pay “no significant federal income tax” over the next five years.

Other companies paid no taxes for 2014 by completing a so-called “tax inversion,” moving their headquarters to another country with more favorable tax rules. For example, Eaton moved its head office “to the tax haven of Ireland several years ago, [and] is showing the benefits at tax time,” USA Today wrote. At the same time, the company reported an income tax benefit of $42 million, mostly due to litigation settlements.

“Interestingly, keeping taxes low hasn’t translated into victory for investors,” the newspaper wrote.

“The 11 stocks, on average, are up 11.9% over the past year, trailing the 14.2% increase by the Standard & Poor’s 500 during the same period. That might be explained by the very unique situations that resulted in some of these companies’ extraordinarily low effective tax rates. These stocks also lagged in early and mid-2014 when the tax issue was on the front burner.”

The nine other companies are TE Connectivity, Tyco, Masco, Royal Caribbean, Wynn Restors, Darden Restaurants, Level 3, FirstEnergy, and Cabot Oil. USA Today culled its data from S&P Capital IQ.