The businesses that sponsor your local little league team and pour your morning coffee may end up paying higher tax rates than some of America’s largest, most profitable corporations, a new study suggests.
When tax credits and deductions are included, two of the most common types of small businesses pay a percentage on their income to the government more than double that of large corporations, the study commissioned by the National Federation of Independent Businesses and the S Corporation Association found. That's because those types of businesses -- known as S corporations and partnerships -- pay taxes at the individual rate, rather than as a corporate entity, making them ineligible for certain tax benefits, according to The Hill.
The result is an average corporate tax rate of just 12.6 percent, according to Government Accountability Office. That's compared to the 31.6 percent and 29.4 percent that S corporations and partnerships pay respectively, according to the study.
The findings come as many of America’s biggest businesses face criticism for avoiding their fair share in taxes. Many corporations, including Apple, Google and Amazon, wind up paying less than the top Federal tax rate of 35 percent, in part because they report international revenues in countries with lower tax rates, known as tax havens. Some companies, such as General Electric have been known to pay negative tax rates, meaning they actually gain money from paying taxes due to federal tax subsidies and other tax benefits.
Meanwhile, recent calls by President Obama to reform the corporate tax code have been criticized by small business owners who say such efforts would only further reduce the burden paid by corporations while doing nothing for businesses who are taxed at the individual rate.
(Hat Tip: The Hill.)
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Domestic Manufacturing Activities
Big fan: Starbucks Starbucks is <a href="http://www.huffingtonpost.com/2013/02/15/obama-corporate-tax-reform_n_2680880.html" target="_blank">among the companies</a> that have successfully lobbied to qualify for a tax break that rewards U.S. manufacturing. As a result, activities like roasting coffee beans count as domestic manufacturing and are eligible for tax breaks.
Excess Stock Options
Big fan: Facebook About 280 Fortune 500 companies have taken home a total of <a href="http://www.huffingtonpost.com/2013/04/24/mcdonalds-starbucks-apple-tax-break_n_3147875.html?utm_hp_ref=business" target="_blank">$27.3 billion over the past three years</a> thanks to a tax break that allows corporations to treat executive stock awards like cash compensation -- meaning the money can be written off like a business expense -- according to a recent report from the Citizens for Tax Justice. Critics argue that this defies "common sense," given stock options aren't a cost to the company like cash compensation is. Facebook <a href="http://www.businessweek.com/articles/2013-02-15/facebook-gets-a-multi-billion-dollar-tax-break" target="_blank">used this single loophole</a> to wipe out its entire tax liability last year.
Big fan: Duke Energy Accelerated depreciation <a href="http://www.huffingtonpost.com/2013/04/15/corporate-tax-breaks-cost_n_3087972.html" target="_blank">accounted for $76 billion</a> in revenue loss in 2011, the most of any corporate tax break, according to the Government Accountability Office. The tax break allows businesses to write off the costs of ostensibly deteriorating machinery before the equipment even wears out. A Citizens for Tax Justice study <a href="http://www.reuters.com/article/2012/04/10/us-usa-tax-corporations-idUSBRE8380TJ20120410" target="_blank">found that Duke Energy</a> managed to reduce its tax liability largely by using this tax break. Duke called the study misleading.
Deferral On Overseas Profits
Big fan: Apple Fortune 500 companies, including Apple, have <a href="http://www.huffingtonpost.com/2012/12/14/fortune-500-overseas-profits_n_2301223.html" target="_blank">more than $1.6 trillion in profits</a> parked offshore, according to multiple recent studies. By keeping that money overseas, companies are able to avoid paying U.S. taxes on the profits.
Exclusion Of Interest On State And Municipal Bonds
Big fan: Goldman Sachs When companies invest in state and municipal bonds, they are <a href="http://www.thefiscaltimes.com/Articles/2011/02/09/10-Big-Corporate-Tax-Breaks.aspx#page2" target="_blank">exempt from taxes</a> on the interest they earn from those bonds. This is one corporate tax break that individuals can take advantage of as well, though it largely benefits the wealthy. As a result of the loophole, the <a href="http://www.thefiscaltimes.com/Articles/2011/02/09/10-Big-Corporate-Tax-Breaks.aspx#page2" target="_blank">government has lost $58 billion</a> over the past five years, according to the Fiscal Times. Companies including Goldman Sachs have benefitted from the exemption by using the tax exempt bonds to build new offices, <a href="http://www.nytimes.com/2013/03/05/business/qualified-private-activity-bonds-come-under-new-scrutiny.html?pagewanted=all" target="_blank">according to The New York Times</a>.
Fossil Fuel Subsidies
Big fan: Continental Resources Oil and gas companies currently benefit from tax breaks that they say encourage innovation by subsidizing hunts for oil and gas that may not turn out to be fruitful. The result: Continental Resources <a href="http://www.huffingtonpost.com/2012/09/14/harold-hamm-tax-break_n_1884327.html" target="_blank">paid an effective tax rate of 2.2 percent</a> over the past 5 years. Chevron and Exxon Mobil paid tax rates at 4 percent and 2 percent, respectively. Pictured is Harold Hamm, Continental Resources' CEO.
Big fan: Google Those famous free lunches in the Google cafeteria are <a href="http://online.wsj.com/article/SB10001424127887324050304578408461566171752.html" target="_hplink">currently offered tax-free</a>, according to the Wall Street Journal. Right now, the lunches aren't treated as taxable compensation, so employees are benefitting from the free food, but don't have to pay taxes on it.
Corporate Jet Owners Tax Break
Big fan: The aviation industry, <a href="http://www.huffingtonpost.com/2013/03/20/obama-corporate-jet_n_2912781.html" target="_hplink">specifically companies like Cessna</a>, Beechcraft and Learjet This tax break, which allows companies to deduct the cost of a corporate jet from their tax bill like they would any other business expense, got its moment in the spotlight when President Barack Obama <a href="http://www.huffingtonpost.com/2013/03/20/obama-corporate-jet_n_2912781.html" target="_blank">highlighted it as an unfair perk for the rich</a>. The president's 2011 budget<a href="http://www.huffingtonpost.com/2011/09/19/obama-corporate-jet-taxes_n_970384.html" target="_blank"> pushed for an increase in the per-flight fee</a> for private jets from $60 to $100, yet the break remains in effect today. Companies that make jets, like Cessna, Beechcraft and Learjet, benefit from the subsidy as it supports the aviation industry, <a href="http://www.huffingtonpost.com/2013/03/20/obama-corporate-jet_n_2912781.html" target="_blank">according to proponents of the subsidy</a>.