In performing a quick review of SEC filings of large corps with an SEC State Location Code in Indiana, I found 9 large corps with Total Consolidated Core Pretax Income of more than $3 bil each, for the most recent 12 years. My definition of Core Pretax Income excludes both large Asset Impairments and related items, as well as Acquired In Process R&D Charges.
Below here is the effective state corporate income tax rates paid, which are computed by dividing the current state income tax paid by the consolidated pretax income, both in total for the past twelve years for each of these 9 large Indiana Corps. These 9 large Indiana Corps below had a weighted average state corporate effective income tax rate paid of only 1.58%, or a huge 81% discount to Indiana’s current state corporate income tax rate of 8.50%.
….……………………......................Current………Core…….......State
….……………………........................State.....Consolidated..Effective
….……………………........................Tax………...Pretax………Tax Rate
….……………………........................Paid……....Income……….Paid
….……………….…..........................(Millions of Dollars)
..9. Steel Dynamics…..................190*….......3,221……....5.90%
..8. Duke Energy Indiana / PSI....161………...3,229……....4.99%
..7. NiSource…............................190….........5,447………3.49%
..6. Guidant(1998-2005).............187...........5,466..........3.42%
..5. Mead Johnson Nutrition**....101……......3,155……....3.20%
..4. Zimmer Holdings...................191……......7,761……....2.46%
..3. WellPoint..............................639……....28,973……....2.21%
..2. Cummins…………………….........74*……......5,566……….1.33%
..1. Eli Lilly.................................(15)..........46,064……..(0.03)%
Total all 9………........................1,718…......108,882……....1.58%
* Includes both Current State Income Tax Paid or Payable and Deferred State Income Tax Expense. Thus, Current State Income Tax Paid, as well as the effective state corporate income tax paid rates, should both be lower than the above amounts for these two Corps.
** Includes amounts for only the most recent five years 2005-2009.
For the most recent year, the effective state corporate income taxes paid by these 9 large Indiana Corps was an even lower 1.01%.
Eli Lilly is one of only several very profitable Big Corps in the country, that instead of paying state corporate income taxes, has received state corporate income tax refunds in total for the last 12 years.
It is difficult for me to understand how a State like Indiana could be so mean-spirited to lay off all of these State Educators and other State Employees, and also cut State Medicaid Benefits, while at the same time, permit a large Corporation like Eli Lilly to generate $46 bil of core pretax income and not pay a dime of State Income Tax. It's all about the effectiveness of State lobbying, and the State government being more concerned about a Giant State Corporation than they are of regular citizens of the State of Indiana.
And the same point can be made about Wellpoint, which pays a total State effective state income tax rate of only 2.21%, and generates nearly 100% of its earnings in the US....Go figure! Whatever ever happened to fairness?
And then, below here is a summary of what I call a fair measure of the Total State Corporate Income Tax Loopholes Taken by the 6 large Indiana Corps with total such tax loopholes of at least $200 mil each for the past twelve years. In estimating what I think is a fair measurement of State Corporate Income Tax Loopholes Taken, for ease of computation, I started by multiplying the current Indiana Corporate Income Tax Rate of 8.50% by the total Consolidated Pretax Income of each large Indiana Corp for the last twelve years. Then, I subtracted the actual total State Income Tax Paid by each of these Corps for the same twelve years.
……………………….........................IN…….....State……..Resultant
………………….........….............Corporate..Effective.......Higher
………………….........………….........Tax……..Tax Rate…...State Tax
………………..........…………...........Rate……....Paid…....Last 12 Years
…………………………………………………....................(Millions of dollars)
1.. Eli Lilly…………....................8.50%.......(0.03)%..........3,930
2.. WellPoint............................8.50%.........2.21%...........1,824
3.. Zimmer Holdings................8.50%.........2.46%..............469
4.. Cummins.............................8.50%.........1.33%..............399
5.. Guidant...............................8.50%.........3.42%.............278
6.. NiSource…..........................8.50%..........3.49%.............273
Total all 6…………………………………………7,173 (yeah, $7.2 bil)
For the most recent six years, the related estimated total State Corporate Income Tax Loopholes Taken, as I have defined them above, by these 6 large Indiana Corps, was $4.7 bil, as compared to $7.2 bil for the past twelve years.
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 substantially increasing college tuition for state universities. And particularly in Indiana’s case, I think a wisely targeted, very healthy refundable investment tax credit would be very helpful to prop up the 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, and computer software investments, they make.....they could either take 100% first year expensing, or they could instead choose a refundable investment tax credit.
The reason a refundable investment tax credit works much better than 100% expensing for many small and medium-sized manufacturing companies is that in this very troubled economy, many of these manufacturers can't realize the tax benefit of 100% expensing, since they have tax losses. A 35% first-year refundable tax credit option, gives these manufacturers an equivalent first-year tax benefit. And then to yield no CBO-scored cost to the US government over the next ten years, no tax depreciation should be allowed related to this equipment purchase.
To further help the very troubled US manufacturing sector, I think a very healthy tax incentive is needed to encourage Manufacturing Building Upgrades.
Thus, I would consider allowing all businesses that make building improvements, to get first-year tax expensing of the entire first 10 years of tax depreciation allowed presently under the tax rules. Thus, they wouldn't be allowed any tax depreciation deduction on this building improvement in the next 9 years.
The tax basis of the real property gets reduced by the first-year tax depreciation taken. There would be no tax depreciation allowed in Years 2 through 10. And then, all tax depreciation taken after the first 10 years under present tax law, would be dramatically accelerated in some fashion, such as by cutting the remaining tax life in half, and thus doubling the annual tax depreciation starting in Year 11. Since total tax depreciation doesn't change, there should be no CBO-scored cost to the US Government for this highly-charged tax incentive initiative.
I’d even consider the same real property accelerated tax depreciation explained above for new buildings. The very troubled construction industry will be helped immensely from all of these Manufacturing Building and Other Building upgrades, as well as from New Building Construction Projects, which will occur all throughout the country, spurred by this tax initiative. I’d even consider giving some green energy tax credits here for these Building improvements. These energy tax credits would have a CBO scored cost, but the cost would be worth it to the country, desperately seeking energy independence.
