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Friday February 10, 2012

Corporate Taxes: Who Pays the Least

For years, critics have complained that the U.S. has one of the highest corporate tax rates of any industrialized nation. But it turns out that most U.S. companies pay less than 35%, which is the official U.S. corporate tax rate. With the help of data tracker Capital IQ, which, like BusinessWeek, is owned by The McGraw-Hill Companies (MHP), we looked at the companies in the S&P 500 index to get a real-world picture of how much companies actually pay the tax man.

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Data: Capital IQ, a division of Standard & Poor's
Methodology: We looked at the companies in the S&P 500 index, excluding those with two or more recent years of losses, and instead of the "effective tax rate" companies calculate and apply to their income statement, pulled out the figure companies disclose as cash taxes paid. That's the closest number available in public filings to the check they wrote to the IRS and other tax collectors around the world. Dividing that by pretax income excluding extraordinary items, we came up with a tax rate closer to reality. Real estate investment trusts, and companies based outside the U.S were dropped from the list. To minimize the impact of one-time anomalies, we then averaged the last four years' numbers.