It was (allegedly) PT Barnum who first said, “There is no such thing as bad advertising.” The PR experts at Nike Corporation clearly disagree with this maxim. Last week, after multiple media outlets, including the New York Times, wrote about ITEP’s conclusion that Nike avoided federal corporate income tax under the Trump tax bill, the company contacted these news outlets to … change the subject.
The ITEP report, released two weeks ago, found the Oregon-based shoemaker to be one of at least 55 large, profitable American companies that paid no federal income taxes last year despite significant US profits. ITEP also found that nearly half of these companies, including Nike, have not paid current federal income taxes for the past three years combined – that is, the three years that Trump’s corporate tax cuts were in place.
Nike’s carefully worded response begins by stating that “Nike pays significant direct and indirect taxes each year at the federal, state and local levels. In fact, Nike has paid more than $ 9.1 billion in taxes, including customs duties, since 2016. “
As Nike officials are likely to know, there is no publicly available information about which companies are levying the most tariffs. Hence, we simply cannot judge the correctness of this statement. In any case, ITEP’s report does not deal with duties or taxes other than federal corporate income tax. All publicly traded companies are required to disclose the income taxes they pay, including a breakdown of federal, state and foreign taxes. This is the disclosure included on the income tax return of the company’s 10-K annual financial reports, which shows that Nike generated US $ 2.9 billion in US revenue for the past year. Instead of paying federal income tax at the 21 percent statutory tax rate, she paid nothing and received a net federal tax rate of $ 109 million on previously paid taxes.
Nike’s statement to the Times does not deny ITEP’s finding that the company avoided every penny of federal income tax liability over the past year, presumably because it would mean contradicting its own annual financial report.
The same data shows that Nike’s current federal tax expense was only $ 1.8 billion for the past five years, suggesting that the tariffs offset Nike’s $ 9.1 billion US tax claim since 2016 strongly in the air.
But even that $ 1.8 billion five-year figure is misleading as it includes the $ 1.1 billion transitional tax expense, which is calculated as a percentage of the company’s offshore earnings, and which Nike in the fiscal year 2017-2018.
The transitional tax that Nike describes is not a tax on profits it made in 2020 or on profits it made from 2018 to 2020. It’s a tax that American multinationals have been required to pay under Trump Law at long last – and at a high discounted rate – on profits they made a few years ago and claimed to be keeping offshore. Because many companies kept these profits offshore for technical reasons as part of their tax accounting (in reality the profits could be in the US economy or elsewhere), they could indefinitely delay paying US taxes on them under the old tax law.
In the last year before Trump, Nike announced it had $ 12.2 billion in profits and estimated it would owe $ 4.1 billion in taxes if it officially brought those profits to the United States. This corresponds to an effective tax rate of 33.6 percent that Nike would have paid for these “offshore” profits. Since the US tax rate on repatriation at the time was 35 percent *minus* Whatever has been paid to overseas jurisdictions for that income, the clear implication is that Nike paid a foreign tax rate of approximately 1.4 percent on that offshore cash.
The company likely did this in part by artificially shifting profits to its many Bermuda-based subsidiaries. As early as 2013, an ITEP study found that Nike had 10 subsidiaries in Bermuda, each named after one of the company’s shoe lines. We can assume that each “subsidiary” was a PO box in which the company collected royalties for each line.
When Congress and President Trump passed the 2017 tax cut and cut the corporate tax rate from 35 percent to 21 percent, they gave Nike and similar companies a no-jail card for their offshore cash. Instead of paying 35 percent, the new law’s transitional tax allowed these companies to pay a rate of 15.5 percent on offshore cash holdings. That is a *enormously* Discount.
And it means the $ 1.1 billion Nike points to as evidence of its gigantic tax payments is only a fraction of the taxes the company would have had to pay on those old revenues. This is not something the company should brag about.
Nike is not the first company to “deny” ITEP analyzes to avoid corporate taxes through a PR strategy that amounts to a change of subject. Two years ago, Netflix told every reporter that its reporting was “factually incorrect” because Netflix had paid taxes to countries other than the United States. And last year, Amazon told the world that ITEP’s analysis was wrong because the company collected the wage taxes owed by its employees. In particular, all three companies are not attempting to dispute the ITEP report’s finding: when it comes to the one federal tax that is designed to ensure that the most profitable American companies pay their fair share of the cost of public investment funding (i.e. H.) Neither of these companies paid a cent in a year in which they reported profits in the billions.
Right now, tax writers on Capitol Hill are starting to debate President Joe Biden’s proposal to revitalize corporate income tax by increasing the tax rate, broadening the base by removing tax breaks and strengthening international tax rules. A fundamental question of fair taxation in this context is whether the current tax can even get the largest and most profitable companies under control. ITEP’s most recent report clearly shows that this is not the case with Nike – and Nike’s response to our findings is a transparent attempt to change the subject rather than addressing our findings directly.