WHY IS WEST VIRGINIA BROKE? - Consider 71 Corporations That Do Not Pay Taxes

(02/11/2005)

Why is West Virginia broke?

Could it be because dozens of major corporations and businesses that operate in West Virginia do not pay taxes, according to Citizens for Tax Justice.

West Virginia's tax loss could be up to $1 billion.

West Virginia’s effective corporate tax rate fell 47 percent in the last 15 years, more than the national average of 40 percent.

New Jersey has fought the plot, and has dropped only 6%.

Merrill Lynch earned $8.8 billion in profits from 2001 to 2003, but the brokerage giant, which has offices in West Virginia, avoided paying any state corporate income taxes, in a study just released.

BB&T, the North Carolina bank that bought One Valley Bancorp and its dominant West Virginia market share a few years ago, earned $1.4 billion but paid no state income taxes here or elsewhere, according to the study by Citizens for Tax Justice.

These outfits have lots of company.

Among other companies that avoided all state income tax in at least one of the three years, including several that do business in West Virginia: Manpower, AT&T, FPL Group (which owns the Tucker County wind power site under a subsidiary), Advance Auto Parts, Foot Locker, Avon, NiSource (parent of Columbia Gas Transmission Corp.), Charles Schwab, IBM, Time Warner and Marriott International.

The Washington-based group found 71 companies in the Fortune 500 managed to avoid paying state income taxes in at least one of the three years examined.

The companies may have avoided paying states $41.7 billion.

The study group said “We thought it would be interesting to see which states were losing the most and to find out which corporations were involved and name a few names.”

Companies use a variety of schemes to shelter profits from taxes, exploiting loopholes in state and federal laws, the report says.

Then, small businesses and private citizens are forced to pay more to support state government services.

“There could be millions, if not hundreds of millions, of dollars that are not being paid and fall on the rest of us because of these apparent loopholes,” according to Steve White, director of the Affiliated Construction Trades Foundation.

Citizens for Tax Justice said wide-spread use of tax loop-holes really flowered in the mid-90s.

“The most notorious is the Toys R Us shelter,” said the group.

Under a scheme made famous by the toy giant, a company sets up a subsidiary that owns its logos and trademarks in a tax-haven state like Delaware. Stores pay royalties for the logos to the subsidiary and deduct the cost as business expenses, thus cutting profits. Meanwhile, the tax-haven state doesn’t tax the royalties.

Another scheme is asset transfer, under which a company spins off profit-making assets to a state that doesn’t tax them. Wisconsin auditors found most of that state’s banks did just that with their loans, moving them to Nevada.

BB&T, MBNA and Bank of New York are among the corporations with the lowest effective corporate tax rates in the study.

“The gist of the shelters is the same. You find something you can move on paper — money for banks, trademarks, research — and move it to a state that doesn’t tax that entity. Then you charge your units to use that trademark or research.”

Because they don’t have to, corporations do not disclose how much they pay in state taxes to individual states.


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