Fortune 500 company PPL not only paid no federal taxes last year, it got a $19 million rebate; it says it has invested those savings
PPL Corp. headquarters at Ninth and Hamilton streets in Allentown. A recent report on corporate taxes shows the Fortune 500 company has legally avoided paying millions of dollars in federal taxes, thanks to past government policy and President Donald Trumps law passed in 2017. (April Gamiz)
PPL Corp. in Allentown reaped a $19 million rebate for 2018, among some 60 profitable Fortune 500 companies nationwide that either paid no federal income taxes or received rebates.
Thats thanks in part to 2017 tax changes, as well as earlier tax policy.
A PPL spokesman acknowledged the Allentown company did not pay federal taxes last year, but said the tax policy was enacted to encourage investment in the electric power grid and the company has done that.
Sixty of Americas Fortune 500 corporations paid nothing or got refunds for 2018, according toa report released last monthby the Institute on Taxation and Economic Policy in Washington, described as a left-leaning think tank by the Washington Post and New York Times.
In PPLs case, the institute said the company received its refund based on $1.1 billion of U.S. income, for an effective tax rate of minus 2%. Combined, the 60 companies got a rebate of $4.3 billion on $79 billion in pretax income, according to the institute.
Matthew Gardner, a senior fellow with the institute, said companies receiving favorable tax results means a substantial loss of federal revenue.
Certainly, in the aggregate, this tax avoidance is harmful to taxpayers and harmful to the nation, Gardner said. With ongoing government shortfalls, this makes it difficult to fund services we all want to see funded.
President Donald Trump and Republicans argued that the tax changes would stimulate investment and economic growth.
For decades, profitable companies have been able to avoid corporate taxes, but the list of those paying zero roughly doubled last year, according toa recent New York Times story, as a result of provisions in Trumps Tax Cuts and Jobs Act. That law, adopted in late 2017, expanded corporate tax breaks and reduced the tax rate on corporate income. The law dropped the statutory federal tax rate from 35% to 21%.
Gardner said lawmakers in favor of the law claimed that lowering the federal tax rate would make U.S. corporations more competitive globally, and that the tax cuts would spur innovation and pay for themselves.
But before the tax changes, many profitable corporations including local Fortune 500 companies PPL and Air Products already avoided the statutory federal tax rate, he said. And after the 2017 changes, the biggest innovation is record-breaking stock buybacks, which have benefited wealthy investors, he said.
PPL spokesman Ryan Hill said the institutes report paints an incomplete picture regarding the energy companys taxes.
Hill said PPL used its savings toward capital expenditures to modernize its grid network and support jobs throughout its territory in Pennsylvania, Kentucky and the United Kingdom. In the last three years, he said, the company invested more than $9 billion in improvements.
A significant portion of that investment was eligible for bonus depreciation, Hill said. Bonus depreciation essentially allows a company to take a deduction for capital expenditures rather than depreciate the assets over time for tax purposes, he said. The company will pay less tax now but more tax in the future, he said.
However, use of bonus depreciation in prior years created net operating losses that PPL is able to carry forward for tax purposes and use to reduce taxable income, Hill said. The company expects to pay significant cash taxes once the net operating losses have been fully used, he said.
Hill said the entire liability, including current and deferred taxes, puts the companys effective tax rate at 26% in 2018.
Gardner said the institute found that, over about the last 10 years, PPL reaped about $9.5 billion in pretax income on which its federal income tax has been less than zero.
So even over the course of the business cycle, PPL appears to be phenomenally successful in zeroing out its federal income tax bills, Gardner said.
Air Products didnt make the most recent list. Gardner said the group could not measure Air Products taxes in part because the institute research covers companies whose earnings were posted for 2018. Air Products fiscal year runs November to October.
However, Gardner said among profitable Fortune 500 companies studied between 2008 and 2015, the institute found the Trexlertown industrial gases giant had an eight-year federal income tax rate of 10.7%. He said that in two years during the period, the company paid no federal income taxes, despite being profitable those years.
We always meet our tax obligations and take those matters very seriously, Air Products spokesman Art George said.
Theres no implication that there is anything illegal about this, Gardner said. But its fair to say that neither PPL nor Air Products paid anything close to the legal 35% tax rate [before the new Trump law] over the past decade.
Somepoliticians have decried the situation. But Gardner said, Congress could fix it tomorrow, but the tax breaks are the effect of lobbying by the very corporations that are benefiting from these tax breaks.
The Fortune 500 is a list of the countrys largest corporations based on total revenue. The institutes 2018 tax list includes household names such as Netflix and Amazon, and three other Pennsylvania companies: Aramark, U.S. Steel and UGI Corp., whose natural gas subsidiary serves the Lehigh Valley.
Also making the list: FirstEnergy Corp. of Akron, Ohio, the corporate owner of electricity provider Met-Ed.
Source: Institute on Taxation and Economic Policy