By Jillian Berman
Even though corporate tax breaks cost the U.S. government billions every year, the particulars of how they work remain a mystery to many Americans. That’s why we decided to shed a little bit of light on the process by creating a guide to the big, bad world of tax breaks.
Check out many ways corporations avoid paying taxes below:
Excess Stock Options
Big fan: Facebook; About 280 Fortune 500 companies have taken home a total of $27.3 billion over the past three years 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 used this single loophole to wipe out its entire tax liability last year.
Big fan: Duke Energy; Accelerated depreciation accounted for $76 billion 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 found that Duke Energy 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 more than $1.6 trillion in profits 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 exempt from taxes 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 government has lost $58 billion 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, according to The New York Times.
Domestic Manufacturing Activities
Big fan: Starbucks; Starbucks is among the companies 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.
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 paid an effective tax rate of 2.2 percent 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 currently offered tax-free, 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, specifically companies like Cessna, 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 highlighted it as an unfair perk for the rich. The president’s 2011 budget pushed for an increase in the per-flight fee 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, according to proponents of the subsidy.