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FirstEnergy, AEP paid zero federal income taxes

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Akron's FirstEnergy Corp. and Columbus-based American Electric Power are among 55 profitable companies in the United States that legally paid zero federal taxes in 2020, a Washington think tank analysis shows.

Ten out of the 55 companies that paid zero federal taxes were electric or gas utilities, according to the study by the liberal Institute on Taxation and Economic Policy. The nonprofit, non-partisan ITEP was established in 1980 and studies state and federal tax issues.

The analysis did not look at state or local taxes, which AEP and FirstEnergy said amounted to about $2.3 billion between the two utilities last year. AEP said it paid about $70 million in federal payroll taxes last year as well.

FirstEnery and AEP also were among 26 profitable companies that for three years, from 2018 to 2020, took legal deductions that allowed them to pay zero federal income tax, according to ITEP. Nine of the 26 companies were gas or electric utilities.

"This isn't surprising. It isn't illegal. And it isn't new," said Matthew Gardner, senior fellow at ITEP and the study's lead writer. The study involved looking at the annual financial reports filed by the nation's largest publicly traded companies with the Securities and Exchange Commission.

Other well-known companies among the 55 in the ITEP report are Nike, FedEx, Duke Energy, Consolidated Edison, HP, Dish Network, Archer Daniels Midland, and Advanced Micro Devices.

FirstEnergy and AEP primarily made use of a change in tax laws to immediately write off capital expenses as a means to not pay federal income taxes, Gardner said his analysis shows.

But it isn't clear in the federal regulatory filings what specifically FirstEnergy and the other companies wrote off and what they used tax savings for, he said.

"There is no question that what FirstEnergy and AEP do is extremely legal," Gardner said. He said his analysis of how the utilities made use of the tax code shows they two were "pretty conventional."

These kind of tax breaks go back at least 20 years and have bipartisan support, he said. The Tax Cuts and Jobs Act passed by Congress and signed into law by President Donald Trump in 2017 enabled companies to immediately write off capital investments, called accelerated depreciation, to reduce their income tax expenses.

FirstEnergy said its actions deferred the paying of federal taxes and it is not avoiding its federal tax liability.

"Since at least 2010, the federal tax laws permitted corporations to claim bonus depreciation, allowing very capital-intensive companies, like FirstEnergy and other utilities, to expense capital costs, significantly reducing current tax and deferring payment into the future," FirstEnergy spokesman Mark Durbin said.

"We are not avoiding our federal tax liability; we are deferring when we pay it," he said. "In some cases, the bonus depreciation created net operating losses that the tax laws permitted companies to carry forward to be used in future years.

"What the report ignores is the state and local income and general tax liabilities, which are substantial," Durbin said. "Currently, FirstEnergy pays more than $1 billion a year in various state and local taxes, including over $500 million in local property taxes."

The large-scale state and local taxes paid by FirstEnergy greatly benefit local communities and the customers who live there, Durbin said.

"Our customers and communities also benefit from the major capital projects, and jobs that are created, that we undertake to enhance electric service reliability," he said. "These are the types of capital expenditures that have the potential to result in federal tax deferrals.

AEP in 2020 paid $1.3 billion in local and state taxes, spokesman Scott Blake said.

"We are often one of largest sources of local tax revenue in the communities where we operate. We also paid $70 million in federal taxes," he said. The $70 million is the net of $85 million in payroll taxes that were due in 2020 and a $15 million refund or credits for income taxes, Blake said.

"Federal tax programs like bonus depreciation were designed to encourage and accelerate investments that create jobs and boost the economy," Blake said. "These include capital investments that have been made to benefit our customers and communities, such as investments in renewable energy and updating aging infrastructure."

Because AEP is a regulated electric utility, costs including the payment of federal taxes are factored into the rates paid by customers, Blake said. "The benefits of any federal tax savings are also passed on to customers."

Gardner at ITEP said Congress and President Joe Biden should reevaluate the tax incentives used by these companies but not necessarily get rid of them.

One option proposed by President Joe Biden is the creation of a minimum tax that corporations would have to pay, Gardner said.

The federal regulatory financial reporting showing how companies use the tax incentives and deductions needs to be more transparent to ensure money is being spent as intended by Congress, he said.

"We need way better disclosure in these financial reports," Gardner said.

Jim Mackinnon covers business. He can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com. Follow him @JimMackinnonABJ on Twitter or www.facebook.com/JimMackinnonABJ.

Discussions

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Yooper Logic's picture
Yooper Logic on Apr 9, 2021

This is the most important part of this article:

"Federal tax programs like bonus depreciation were designed to encourage and accelerate investments that create jobs and boost the economy."

These capital investment monies are able to "churn" in the economy over and over again AND in the communities / States in which these companies reside.  If turned over to the Fed as taxes, who knows where those monies go... War?  Foreign countries?  Bail out bankrupt States?

What is frustrating is hearing profitable business owners, such as Jeff Bezos, say that corporate tax rates are too low.  Jeff, give everyone at Amazon making less than $100K / year a 15% raise if you have money to burn. 

Corporate taxes are merely an expense that gets passed on to customers; the Dollar Menu will now be the Buck-Fifty Menu.

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