In performing a quick review of SEC filings of large corps with an SEC State Location Code in Ohio, I found 21 large corps with Total Consolidated Pretax Income of more than $4 bil, for the most recent 12 years.
Below here is the effective state corporate income tax rates paid, which are computed by dividing the current state and local corporate income tax paid by the consolidated pretax income, both in total for the past twelve years for each of these 21 large Ohio Corps. These 21 large Ohio Corps below had a weighted average state and local corporate effective income tax rate paid of a modest 2.29%.
….……………………..................Current…………………......State
….……………………....................State...Consolidated..Effective
….……………………....................Tax……….Pretax………Tax Rate
….……………………....................Paid……..Income……….Paid
….……………….…....................(Millions of Dollars)
21. First Energy………………....1,047……...16,613………..6.30%
20. Macy’s…………………….........730……....12,318*………5.93%
19. Abercrombie & Fitch...........238….......4,600………..5.17%
18. Limited Brands….................564……...12,203………..4.62%
17. Sherwin Williams.................275….......6,837………..4.02%
16. Cintas…………………..............172…........4,850………...3.55%
15. Kroger…………......................641…......18,518*...…….3.46%
14. Keycorp…….........................335….....11,770……......2.85%
13. Cardinal Health...................488……..17,663…….......2.76%
12. Duke Energy Ohio/Cinergy..147..........5,997*..........2.45%
11. National City Corp…............497……..24,178……......2.06%
10. Parker Hannifin……………......161….......8,143……......1.98%
..9. American Electric Power.....276……..17,237…….....1.60%
..8. Fifth Third Bancorp……….....244……..15,467………...1.58%
..7. Procter&Gamble...............1,765…..120,702……......1.46%
..6. Owens Illinois Group..............69.........5,002*..........1.38%
..5. Eaton.....................................82……….8,539……......0.96%
..4. American Financial Group.....19……….4,635……......0.41%
..1. Nationwide Financial Svcs…....0……….4,805……......0.00%
..1. Cincinnati Financial................0**......6,984............0.00%
..1. The Progressive Corp..............0……...11,934……......0.00%
Total all 21………....................7,750…....338,995…….....2.29%
* Exclusive of large Asset Impairment Charges
** No mention of State Income Taxes, therefore assumed none were paid.
For the most recent year, the weighted state corporate effective income tax rate paid by these 21 large Ohio Corps was an even lower 1.47%.
There is a massive divergence between the state and local corporate income tax rates paid by Ohio’s retailers and its financial companies. Ohio retailers have paid much higher state and local corporate income tax rates, as you can see by three Ohio retailers being in the top four in the above list. On the other hand, four financial companies are at the very bottom of the list.
And there are so few manufacturers on the above list. The severe recession has really devastated Ohio’s manufacturing sector, just like it has hurt manufacturers all throughout the country’s Rust Belt….particularly in Pennsylvania, Michigan, Wisconsin, and Indiana.
Only six of the 50 US States now don't have state corporate income taxes. Ohio is one of the six, since it switched from a Franchise Tax to now some version of a Gross Receipts Tax, which it phased in starting in 2005. However, many Ohio Big Corps still pay Corporate State Income Taxes to other states. These 44 US States plus Washington DC, which have state corporate income taxes, have an average Corporate State Income Tax Rate of 7.44%, which is close to the related median tax rate of 7.30%.
It seems to me that Ohio’s switch from an income-based Franchise Tax to a Gross Receipts Tax has substantially benefited the giant, powerful Procter & Gamble, at the expense of nearly all other Ohio’s manufacturers. Procter & Gamble’s net margin percentage (i.e. Pretax Income divided by Net Sales) just towers over all other Ohio manufacturers, as you can see from the following table.
……………………………………………..........Most Recent Two Years…...
……………………………………………………...Pretax……....................Net
......Ohio Corp………………...HQs……....Income….Net Sales….Margin
…………………………………………..............(millions of dollars)
Procter&Gamble.....Cincinnati...29,460...155,632...18.9%
14 Other Ohio Largest Traditional Manufacturers
Owens Illinois…………....Perrysburg……1,313…….14,952……8.8%
Parker Hannifin…………..Cleveland……..1,437……20,302…...7.1%
Eaton……………………......Cleveland……..1,443…….27,249……5.3%
Timken…………………......Canton…………...346……....8,183……4.2%
Owens Corning…………...Toledo…………...199……...10,650…..1.9%
Goodyear Tire…………....Akron…………..(171)….....35,789….(0.5)%
AK Steel……………….......West Chester….(104)……..11.721….(0.9)%
Worthington Industries.Columbus……...(63)……....4,574…..(1.4)%
Polyone………………….....Avon Lake…….(116)……....4,800….(2.4)%
Cooper Tire…………….....Findlay………...(142)……....5,815….(2.4)%
Ferro……………………......Cleveland……...(100)……...3,903….(2.6)%
Nacco Industries………..Cleveland……...(392)……...5,976….(6.6)%
NewPage Holding……….Miamisburg…...(512)……....7,462….(6.9)%
Dana Holding………….....Maumee……..(1,098)….....13,323…(8.2)%
Total 14 Other Than P&G..............2,040.....174,699.....1.2%
Whereas, for the two most recent years, these above 14 largest Ohio traditional manufacturers other than Procter & Gamble had total net sales of $174,699 mil, 12% above that of Procter & Gamble, these 14 companies only had total Pretax Income of $2,040 mil, a miniscule 7% of Procter & Gamble’s Pretax Income of $29,460 mil. Thus, the huge, very powerful Procter & Gamble cleans up with the new Ohio Gross Receipts Tax vs. the previous Franchise Tax, which was based on income. And these other manufacturers get nailed with substantial Ohio Gross Receipts Tax, even though their profit is very modest. And 9 of these 14 manufacturers even had Pretax Losses for the most recent two years.
Particularly in these very troubled economic times, it seems to me that another really good argument for Ohio to have a State Corporate Income Tax, rather than a Gross Receipts Tax, is that when the giant Procter & Gamble repatriates any of its massive amounts of presently Unremitted Foreign Earnings, the State of Ohio’s financial coffers should be significantly enhanced.
Here’s Procter & Gamble’s Unremitted Foreign Earnings amount at the end of its four most recent fiscal years:
June 30, 2010…..$30 bil
June 30, 2009…..$25 bil
June 30, 2008…..$21 bil
June 30, 2007…..$17 bil
Now that is what I call a huge amount of Unremitted Foreign Earnings. It’s also what I call substantial annual growth in the build up of this key Unremitted Foreign Earnings number. Just think what Procter & Gamble’s Unremitted Foreign Earnings will be down the road.
In its fiscal year ended June 30, 2006, Procter & Gamble repatriated $7.2 bil of its foreign earnings. In its annual report footnotes, there is no mention of any state income tax paid connected with this foreign earnings repatriation. My hunch is that is so because Ohio switched to a Gross Receipts Tax from its previous Income-based Franchise Tax.
I think it makes much more sense to balance a State’s severely stressed budget by closing some of the huge Big Corp State Corporate Income Tax Loopholes, rather than by either drastically reducing critical state services like education and citizen protection, or by significantly increasing state university tuition.
And particularly in Ohio’s case, I think a wisely targeted, very healthy refundable investment tax credit would be very helpful to prop up the very troubled manufacturing sector.
For maximum positive effect to the US economy and to US job creation, I think the US government should let businesses have a choice on the capital expenditures they make.....they could either take 100% first year expensing, or they could instead choose a refundable investment tax credit, with a bonus percentage for capital expenditures made by the very troubled Rust Belt manufacturers, like those in Ohio. I wouldn't give the bonus investment tax credit percentage to huge companies like Procter & Gamble. I think something has seriously gone wrong when one company like Procter & Gamble is able to generate pretax profits which are more than 14 times the total profits of the 14 next largest manufacturers in Ohio.
