In performing a quick review of SEC filings of large corps with an SEC State Location Code in Tennessee, I found 6 large corps with Total Consolidated Pretax Income of roughly $4 bil and above each, for the most recent 12 years.
Below here is the effective state and local 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 6 large Tennessee Corps. These 6 large Tennessee Corps below had a weighted average state and local corporate effective income tax rate paid of 3.10%, which is a 52% discount to Tennessee’s current statutory corporate income tax rate of 6.50%.
….……………………..................Current…………………......State
….……………………....................State...Consolidated..Effective
….……………………....................Tax……….Pretax………Tax Rate
….……………………....................Paid……..Income……….Paid
….……………….…....................(Millions of Dollars)
..6. HCA……………………............857………19,440………..4.41%
..5. Dollar General...................129………..3,909…….....3.30%
..4. FedEx...............................625……...19,958……......3.13%
..3. Autozone..........................264…….....9,453…........2.79%
..2. International Paper...........165………..6,602…….....2.50%
..1. Unum Group........................0….........6,528…….....0.00%
Total all 6………......................2,040…....65,890…….....3.10%
For the most recent six years, the weighted effective state and local corporate income tax rate paid by these large Tennessee Corps was a much lower 2.33%.
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 cutting off State unemployment compensation benefits. And particularly in Tennessee’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 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 troubled small and medium-sized manufacturers, like many of those in Tennessee.
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 refundable tax credit gives these manufacturers an upfront tax benefit.
If the CBO scoring on refundable tax credits is too onerous for the US government, then here is what I would consider doing.
Give these companies a very healthy upfront investment tax credit of say 10%, and reduce the future tax depreciation such that the CBO scoring washes out over a ten-year period.
For example, say you assume a long-term US federal corporate income tax rate of 35%. Under both present tax rules for normal tax depreciation and 100% expensing, the CBO scoring should be the same, in most situations....total tax benefit of 35% X the amount of the equipment or computer software investment.
Thus, if you assume a $1 mil equipment investment, the total tax benefits for the ten-year CBO scoring period would total $350,000.
My recommended change would be to give small and medium-sized manufacturers, and perhaps even all companies in all industries, a choice of taking say an upfront 10% investment tax credit, or $100,000, and then I would also reduce their future tax benefit from their future tax depreciation from $350,000 to $250,000.
Thus, the CBO scoring would wash out.
And then for this $250,000 tax benefit from this future tax depreciation, I would substantially accelerate it, perhaps even allowing 100% expensing of this residual amount, which if my math is correct, would be $714,286. Thus the tax benefit of the 100% expensing would be 35% X $714,286, or $250,000.
And then if you wanted to provide the maximum juice to the US economy, you could instead let these companies get an upfront refundable investment tax credit of 35% X $1 mil, or $350,000, and no subsequent tax depreciation. This would also wash out in ten-year CBO scoring.
