Walmart, Apple, J.Crew and scores of other famous retailers are members of a group pushing for changes in the corporate tax code that would benefit companies that stash more cash abroad.
The Retail Industry Leaders Association, or RILA, sent a letter to the House of Representatives Ways and Means Committee Monday, urging lawmakers to overhaul the corporate tax code in two major ways. The first is to simply lower the corporate tax rate. The second is to shift toward a territorial tax system, which would allow U.S.-based companies to legally duck U.S. taxes on most income they earn abroad.
The trade group insisted the changes would be revenue-neutral, meaning the government wouldn’t lose tax dollars.
Even an incremental move toward a territorial tax system may hurt U.S. coffers, Matt Gardner, the executive director of the Institute on Taxation and Economic Policy, a left-leaning tax research group, told The Huffington Post. That's because it's "just leaving the barn door open in terms of the possibilities of tax avoidance," he said.
The U.S. Treasury Department estimated that a territorial tax system that would let companies stop paying U.S. taxes on income earned abroad -- would cost the federal government about $130 billion over 10 years, according to the Center on Budget and Policy Priorities.
It seems natural that retailers would push for a lower corporate tax rate, Gardner said, because the letter highlights, the sector enjoys fewer corporate tax loopholes than many industries. Companies like Best Buy and Safeway tend to pay taxes at a rate close to the official corporate rate of 35 percent because they conduct most sales in the U.S. and can't simply ship cash overseas.
However, not all the companies on the list are paying that 35 percent. Apple, for example, paid a tax rate of 9.8 percent on its $34.2 billion profit in 2011, according to The New York Times. Apple didn't return an e-mailed request for comment. Though its Apple Stores are popular, the company isn't typically considered a traditional retailer.
“Obviously some industries are doing significantly better than other industries in our current corporate code,” the letter states.
The group's push for a territorial tax system is odd, given that system largely benefits companies that stash cash abroad, something most companies represented by the trade group don't do, Gardner said.
The current corporate tax code allows American-based multinational companies to defer paying U.S. taxes on the money they make abroad until they bring it back to the U.S. They’re still responsible for paying foreign taxes in the countries where they make the money, and they get credited for paying those taxes when they bring the money back.
A few of the companies in the group, including Apple and Nike, have been criticized for offshoring profit to avoid taxes.
“They’re looking at companies like Apple, Nike and saying we’d like to do that,” Gardner said. “It’s also possible that these guys haven’t really thought about (taxes on offshore profits) and what they really want is the rate reduction and a small number feel strongly about the territorial part.”
The retail trade group letter argues that the current tax code hurts its members looking to expand and open locations abroad. Many countries, including France, Australia, Germany and the U.K. have territorial tax systems, according to the Senate Republican Policy Committee.
Most European countries "have some version of a ‘territorial’ regime and essentially tax only the earnings generated within their borders,” the group's letter states. “This disparity in treatment only hurts the ability of U.S. companies to compete abroad and discourages them from returning capital back to the United States.”
Gardner argued that a territorial tax system wouldn’t make much of a difference to companies earning profit overseas in countries they’re already likely to do business. Instead, a territorial tax system “remains basically an avenue towards tax avoidance,” he said.
“The foreign tax rates aren’t about the U.S. versus France," said Gardner. "It’s about the U.S. versus the British Virgin Islands. The reality is that our tax rates are not that different from the legitimate markets from which we hope to compete."
The Retail Industry Leaders Association is not the first business group to push for a territorial tax code. A lobbying coalition known as LIFT launched last month urging territorial taxes. Some individual companies have been urging the change for years.