The tax filings of companies, like those of individuals, are confidential. When individual companies want to make the case that they pay large amounts of tax – as many do – they often point to complex calculations from their financial statements that portray the companies in the best light. For an outsider, it can be hard to know how many accounting assumptions go into these calculations and how accurately they reflect the company’s actual tax payments.
But there is one standardized measure of corporate taxes that allows for meaningful comparisons among companies and industries. It is known as Cash Taxes Paid and appears in the public reports that companies are required to file for investors. The category reflects the combined amount of corporate income tax that a company pays in a given year, to foreign governments, the United States government and state and local governments.
This number often varies significantly from year to year, depending on a company’s accounting strategy and on how many tax breaks it qualifies for that year. As a result, a single year’s Cash Taxes Paid number can be misleading. But in a 2008 academic paper, three accounting professors — Scott Dyreng of Duke, Michelle Hanlon of M.I.T. and Edward Maydew of the University of North Carolina — suggested that looking at several years, at least, could offer insight into corporate taxes.
For a column for the Sunday Review this week, I asked S&P Capital IQ, a financial research group, to collect the last six fiscal years of Cash Taxes Paid for the companies in the Standard & Poor’s 500-stock index. Capital IQ then compared these numbers to the companies’ pretax earnings, including unusual items, for the same six years. Together, the two statistics create an effective tax rate for each company, as well for various industries. Read more…