How Much Tax Does Exxon Pay?
Policy + Politics

How Much Tax Does Exxon Pay?

Just how much do big oil companies pay in taxes?

Exxon Mobil says it pays plenty — more in U.S. taxes than it earned in the United States last year.

Not so, say critics of the oil industry; the Center for American Progress says the oil giant’s effective federal income tax rate is about half the 35 percent standard for U.S. companies. The liberal-leaning think tank, citing Exxon Mobil’s filings with the Securities and Exchange Commission, says the corporation didn’t pay any federal income tax in 2009.

It all depends on how you count.

Exxon Mobil counts everything — not just federal income taxes, but also local property taxes, state taxes, gasoline taxes and payroll taxes. The Center for American Progress (CAP) and other analysts count only the company’s federal corporate income taxes.

“We pay our fair share of taxes,” said Kenneth Cohen, Exxon Mobil’s vice president for public affairs, who in a conference call recently lumped more than $6 of sales, state and local taxes together with every $1 of federal income tax paid in 2010.

But Exxon Mobil’s tax rate is “lower than the average American’s,” Daniel Weiss, an energy expert at CAP, countered in an analysis that put the company’s U.S. federal income tax rate in 2010 at just 17.2 percent.

The tax debate may turn into the most combustible issue when top executives from five oil giants appear before a congressional committee on Thursday.

Most congressional Democrats and the Obama administration want to end or limit tax benefits — or tax breaks — for oil companies.

The provisions targeted include the industry’s use of a tax break that since 2004 has trimmed the corporate tax rate for manufacturers; oil-depletion allowances that all but the biggest firms use to recover drilling costs, sometimes more than 100 percent of those costs; and the expensing of “intangible” drilling costs at a rate higher than that used by most non-oil companies to recover investment costs.

Those investment incentives have helped make the oil industry one of the most profitable, when measured by cash flow and return on investment. Soaring gasoline prices — as of Wednesday, $3.96 a gallon for regular nationwide — have revved up the issue.

“The oil companies charging these exorbitant prices are picking through New Yorkers’ pockets through the tax code, collecting billions of dollars every year in unnecessary taxpayer subsidies,” Sen. Charles E. Schumer (D-N.Y.) said Wednesday. “This is completely unacceptable, and those big oil companies should know that the jig is up.”

But those tax incentives have survived previous political onslaughts. The expensing of intangible drilling costs — including exploration and development — dates to 1916. The oil-depletion allowance dates to 1926.

The idea of eliminating these tax breaks isn’t new. In 1984, the Reagan Treasury Department’s original tax reform blueprint got rid of the provisions, but it was never passed into law. Some breaks were later limited. The biggest firms, such as Exxon Mobil, have not qualified for the depletion allowance since the 1970s, but other large oil firms known as independents still do.

Deciphering how it all affects the bottom line isn’t easy. Oil companies get credits in the United States for taxes and royalties paid to foreign nations where they produce crude oil. Exxon spokesman Alan T. Jeffers said there are 35 IRS agents who work full time auditing the company’s books.

Read more at The Washington Post.