In performing a quick review of SEC filings of large corps with an SEC State Location Code in Arizona, I found 6 large corps with Total Core Consolidated Pretax Income of more than $4 bil each, for the most recent 12 years. My definition here of Core Pretax Income excludes large Asset Impairments.
Below here is the effective state and local corporate income tax rates paid, which are computed by dividing the current state corporate income tax paid by the consolidated core pretax income, both in total for the past twelve years for each of these 6 large Arizona Corps. These 6 large Arizona Corps below had a weighted average effective state corporate income tax rate paid of a modest 2.13%, which is a huge 69% discount from the current Arizona state corporate income tax rate of 6.968%.
….……………………....................Current………Core……........State
….……………………......................State……Consolidated..Effective
….……………………................Income Tax…….Pretax…..Income Tax
….…………………….....................Paid……......Income……Rate Paid
….……………….…......................(Millions of Dollars)
..6. Apollo Group.....................518………....6,425…….....8.06%
..5. Pinnacle West Capital……...241....……...4,916……......4.90%
..4. Republic Services..............160………....4,595……......3.48%
..3. Phelps Dodge(1998-2006).108…….......7,900…….....1.37%
..2. Freeport McMoran(07-09)..93…........15,472…….....0.45%
..1. Southern Copper………….......12*……….13,971………..0.09%
Total all 6………......................1,133…........53,279…….....2.13%
* Southern Cooper just disclosed Total Current Federal and State Income Taxes, therefore I estimated Current State Income Taxes based on relative State and Federal Statutory Tax Rates
For the most recent 6 years, the weighted effective state corporate income tax rate paid by these 6 large Arizona Corps was a much lower 1.69%, and for the most recent year was an even lower 1.51%.
Apollo Group’s effective state corporate income tax rate paid of 8.06% is one of the highest of all the large corps I have reviewed throughout the entire country.
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 3 large Arizona Corps with total such tax loopholes of at least $300 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 Arizona Corporate Income Tax Rate of 6.968% by the total Consolidated Core Pretax Income of each of these 3 Arizona large Corps for the last twelve years. Then, I subtracted the actual total State Income Tax Paid by these 3 Corps for the same twelve years.
……………………….........................AZ…….....State……..Resultant
………………….........….............Corporate..Effective.......Higher
………………….........………….........Tax……..Tax Rate…...State Tax
………………..........…………...........Rate……....Paid…....Last 12 Years
…………………………………………………....................(Millions of dollars)
1.. Freeport McMoran…….......6.968%.......0.60%............985
2.. Southern Copper………….....6.968%.......0.09%............960
3.. Phelps Dodge.....................6.968%.......1.37%.............442
Total of all 3……………………………………2,388 (yeah, $2.4 bil)
The estimated state tax loopholes taken by these 3 large Arizona Corps is also $2.4 bil for the most recent 6 years.
And then here’s an updated list of the 4 Arizona Big Corps with Total Core Pretax Income of more than $5 bil for the most recent 12 years. This list is sorted by Pretax Income.
….…………………….....................Current……...Core…......State&Loc
….……………………...................State&Loc.Consolidated..Effective
….…………………….......................Tax………...Pretax……..Tax Rate
….…………………….......................Paid……....Income……….Paid
….……………….….........................(millions of dollars)
Freeport McMoRan (2007-2009)...93........15,472.......0.60%
Southern Copper.............................13........13,971.......0.09%
Phelps Dodge (1998-2006)............108.........7,900.......1.37%
Apollo Group.................................518.........6,425.......8.06%
AZ Total for all 4 Corps................732.......43,768.......1.67%
And below here is a listing of the 5 Arizona Mid-sized Corps with Total Core Pretax Income for the most recent 6 years of at least $2 bil each, but which had Total Core Pretax Income for the most recent 12 years of less than $5 bil, and thus weren’t included in the above list of the 4 Very Big Arizona Corps.
........................................Most Recent Six Years
.......................................State&Local.....................Effective
.......................................Corporate........Core......State&Local
..........State.......................Income.........Pretax......Tax Rate
.......Corporations.............Tax Paid.......Income........Paid
...........................................(Millions of Dollars)
Avnet.....................................65............2,737..........2.37%
Republic Services..................101............2,729..........3.70%
Pinnacle West Capital..............88............2,330..........3.78%
Microchip Technology............10............1,856..........0.54%
PetSmart.................................97*..........1,842..........5.27%
AZ Total for all 5..................361..........11,494..........3.14%
* Includes both Current State and Foreign Income Tax Paid or Payable
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 drastically reducing critical state services like education and citizen protection.
Also, I think it makes sense to use some of the funds from the closing of these larger Corp State Income Tax Loopholes to provide some wise, highly stimulative, directly-targeted, job-creating tax incentives to small and medium-sized businesses.
In a very positive development for States like Arizona, I do like it that the Obama Administration seems to be now putting additional pressure on both Fannie Mae and Freddie Mac to write down the home mortgage loan principal balances of underwater home properties. When you think about it, Fannie Mae and Freddie Mac are now in essence the US government.
The greedy large banks, like Wells Fargo, Bank of America and JPMorgan Chase, still are reluctant to write down their mortgage loan principal balances on underwater properties, particularly so on second mortgages. I think I would reluctantly consider giving these selfish banks a tax incentive to do so, such as a temporary acceleration of their federal income tax loan loss provision deduction. This can be easily structured at no CBO scored cost to the US Government over the ten-year CBO scoring period.
In another very positive development for States like Arizona, the FASB has changed its position on how financial institutions are to carry some of their loans on their balance sheets, switching from a fair market value approach to an amortized cost approach. I think the FASB’s previous accounting position contributed significantly to both the severity of the original US financial crisis, as well as to the extremely prolonged nature of this horrible financial crisis.
