Most corporations pay no federal income tax

Original Link: http://www.boston.com/business/ticker/2008/08/study_most_corp.html

Most US and foreign companies doing business in the United States pay no federal income tax, according to a study by the Government Accountability Office.

It said two-thirds of US corporations paid no federal income taxes between 1998 and 2005, and about 68 percent of foreign companies doing business in the country avoided corporate taxes over the same period.

‘‘It’s shameful that so many corporations make big profits and pay nothing to support our country,’’ said Senator Byron Dorgan, Democrat of North Dakota, who asked for the study with Senator Carl Levin, Democrat of Michigan.

An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called S corporations pay taxes under individual tax codes.

‘‘Half of all business income in the United States now ends up going through the individual tax code,’’ Edwards said.

The study by the GAO, the investigative arm of Congress, did not investigate why corporations weren’t paying federal income taxes or corporate taxes and it did not identify any corporations by name. It said companies may escape paying such taxes due to operating losses or because of tax credits.

More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million US companies paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of the US corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.

Dorgan and Levin have complained about companies abusing transfer prices — amounts charged on transactions between companies in a group, such as a parent and subsidiary. In some cases, multinational companies can manipulate transfer prices to shift income from higher to lower tax jurisdictions, cutting their tax liabilities.

‘‘It’s time for the big corporations to pay their fair share,’’ Dorgan said.