Profiles in corporate tax avoidance: Duke Energy

Profiles in corporate tax avoidance: Duke Energy

Publicity photo of Jerry Lewis for his NBC television program. Press release mentions April 15 but no year. Original photo shows a 1958 calendar date. This work is in the public domain in that it was published in the United States between 1923 and 1977 and without a copyright notice.

April 15 is “Tax Day”—the day by which all Americans must file their federal income tax returns. Frequently, conservative anti-government groups attempt to use Tax Day as a means of advancing their agenda of slashing taxes and cutting essential public structures and services. This year, N.C. Policy Watch is highlighting a different message: Namely, that not all Americans (and especially not all American corporations) are paying their fair share of federal taxes.

To underscore this message, we are shining a light on a trio of giant corporate tax avoiders with strong connections to North Carolina. Today, tomorrow and Friday, we will publish profiles of these three tax scofflaws that summarize:

  • the size and scope of their businesses,
  • the taxes they have avoided paying in recent years
  • and the methods they use to accomplish this.

Each profile will also feature a brief description of some of the essential public structures and services that could have been saved from the recent federal budget sequestration if these actors had only paid their fair share (or something close to it).

There are two principal types of corporate tax avoidance highlighted in these reports—

  1. the excessive use of loopholes and deductions that eliminate a company’s effective tax liability,
  2. and the “off-shoring” of corporate profits.

At the national level, the analysts and advocates at Citizens for tax Justice and the Institute on Taxation and Economic Policy have done an excellent job of summarizing these techniques in a series of reports in recent years—two of which can be viewed by clicking here and here.

Click here to read all the profiles in the series.

Company: Duke Energy

Photo of Duke Energy Center in Charlotte by James Willamor Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0)
Photo of Duke Energy Center in Charlotte (left) by James Willamor (CC BY-SA 2.0)

Background and North Carolina connections:

Duke Energy needs no introduction to most North Carolinians. Based in Charlotte, the company is a North Carolina icon that is, today—in the aftermath of its controversial takeover of Progress Energy— the monopoly electricity provider to the vast majority of the state’s residents.

Duke Energy at a glance
Largest electric power holding company in the U.S.; serves vast majority of NC electric consumers
Assets:$114 billion
2012 Profits:$1.792 billion
Net 2012 tax rate:-2.6% (rebate of $46 million)
2008-12 profits combine:$9.1 billion
Net 2008-12 tax rate:-3.3% ($299 million in total rebates)

Founded over a century ago as Catawba Power, Duke has grown to become a massively profitable corporate behemoth. Indeed, with its large footprints in the Carolinas, Florida, Ohio and Indiana and numerous other domestic and foreign assets, Duke has become the largest electric power holding company in the nation.

At last count, the company had:

  • 7.2 million electric customers and 500,000 gas customers (representing over 22 million people or more than one-in 15 Americans)
  • A service area that covers approximately 104,000 square miles in the Southeast and Midwest,
  • 57,700 megawatts of generating capacity from a diverse mix of coal, nuclear, natural gas, oil and renewable resources,
  • 2012 operating revenues of $19.6 billion and $114 billion in assets.
A crowd of utility poles leading up to Duke Energy's main electrical substation in Durham, North Carolina. Photo by Ildar Sagdejev Attribution-ShareAlike 3.0 Unported (CC BY-SA 3.0)
A crowd of utility poles leading up to Duke Energy’s main electrical substation in Durham, N.C. Photo by Ildar Sagdejev (CC BY-SA 3.0)

Duke’s controversial CEO, Jim Rogers, was paid $8.7 million in 2012—just over $4 million less than he made in 2006 when he received $12.9 million.

Principal tax avoidance strategy:

The U.S. corporate income tax rate is officially 35%. Many of our nation’s most profitable corporations, however, pay nowhere near this statutory rate because they are able to take advantage of numerous loopholes, tax deductions and other tax breaks to virtually eliminate their effective tax liability. In some years, these profitable corporations paid no income tax at all, or even more troubling, actually received rebates from the federal government. This means that companies have “negative tax rates”—they made more after taxes than before taxes. This has been the chief technique used by Duke.

The following, for instance, is from a 2012 Citizens for Tax Justice report entitled “Big No-Tax Corps Just Keep on Dodging”:

“[Duke] Reported pretax profits in 2009 and 2010 were adjusted upward for a non-cash goodwill impairment. Tax deferrals, largely related to accelerated depreciation, explain most of the company’s low taxes. The Domestic Production Activities Deduction saved the company $18 million in 2008. Accelerated depreciation saved the company substantial amounts in all four years.”

Taxes avoided:

Duke reported a profit of $1.792 billion to the federal government in 2012 which, at a rate of 35%, should have resulted in a federal tax liability of $627 million. Nonetheless, as a result of its use of creative tax avoidance techniques it actually enjoyed a federal tax rate of negative 2.6% and received a rebate of $46 million.

For the five years between 2008 and 2012, Duke reported a total profit of just over $9 billion. Again, however as a result of tax avoidance techniques, its effective federal tax rate for this period was -3.3% (i.e. negative 3.3%). In other words, Duke received a net federal tax rebate for the five-year period of $299 million.

Public services not provided that Duke’s taxes could have paid for:

As more and more people are aware, the recent federal decision to implement billions of dollars worth of “sequestration” cuts is beginning to take a real toll in North Carolina. For instance, sequestration is expected to slash nearly $9 million in Head Start funds and $6 million in vocational rehabilitation funds for persons with disabilities in North Carolina in the coming year.

Obviously, however, if Duke Energy and other large corporations had paid the statutory rate (or something close to it) in federal income taxes, many—if not all—of these painful cuts could be (and would have been) avoided.

The bottom line:

Duke Energy is at an important moment in its history. Recent controversies surrounding its takeover of Progress Energy and close ties to the McCrory administration have left many North Carolinians understandably skeptical about the company’s repeated claims to be one of the state’s leading corporate citizens. These tax avoidance data only serve to exacerbate this issue.

If Duke wants to get serious about living up to its claims about what it is and what it stands for and begin to repair its tarnished image, it would do well to begin by paying its federal income taxes.

The data in this report regarding Duke Energy’s profits and taxes were provided to N.C. Policy Watch by the Institute on Taxation and Economic Policy and derived from an analysis of the corporation’s “10-K” filings with the Securities and Exchange Commission.