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AT&T Paid No Federal Taxes in 2011; Achieved a $420 Million Taxpayer-Subsidized Refund

In an example of corporate welfare at its finest, AT&T effectively paid no federal taxes in 2011. In fact, thanks to lucrative incentives and corporate subsidies, the telecommunications company walked away with a giant taxpayer-subsidized $420 million refund.

CEO Randall Stephenson was paid a higher salary — $18.7 million — than AT&T paid in taxes last year, and thanks to the Bush era tax cuts, Stephenson kept $1,137,456 more of that money for himself in 2011, according to a new report from the Institute for Policy Studies.

How did AT&T actually get paid by the Internal Revenue Service when it effectively owed nothing in taxes? The company used new “accelerated depreciation” rules corporate America lobbied hard for over the past five years. While AT&T was slapping usage caps and overlimit fees on its customers ostensibly to help pay for network upgrades, AT&T wrote off the value of those upgrades on its federal taxes, winning turbo-charged tax deductions for every new cell tower, 4G upgrade, and just about everything else AT&T used to enhance its network.

Under the current accelerated depreciation rules, AT&T gets to write off a higher amount during the first few years an asset is acquired. That saved the company $5.2 billion on their 2011 taxes alone.

But for companies like AT&T, considered “capital-intensive” businesses, it is only the beginning. The Institute reports even greater savings will likely show up in AT&T’s future annual reports. In 2011, Congress expanded depreciation rules and allowed businesses to deduct the entire cost of new long-term investment purchases. Although billed as an anti-recession move, such tax breaks often result in taxpayers bearing a substantial portion of the cost of investments firms would have made anyway.

AT&T was also not hurt too badly by its aborted attempt to acquire Deutsche Telekom’s T-Mobile USA. The phone giant ultimately had to pay a deal breakup fee worth $3 billion in cash and $1 billion worth of wireless spectrum to the German phone company. AT&T wrote off those on their taxes, too, helping the company not only get their tax liability down to zero, it helped win them a taxpayer-subsidized refund.

Stephenson’s disastrous failed deal to acquire AT&T’s smaller rival did not hurt him too much either, although some under him quickly took early retirement after the deal fell apart. Ultimately, AT&T’s Board of Directors sent him a message he could afford to ignore — a salary cut of just $2 million — less than 10 percent of Stephenson’s pay package. But with the Bush era tax cuts softening the blow, that slap on his salary really only cost him $862,544.

The Institute’s larger point is that tax cuts and general corporate tax policy has now moved well beyond “lower taxes” and has now increasingly shifted to providing taxpayer-financed subsidies and corporate welfare to corporations earning record profits while the United States continues to rack up enormous deficits. CEO pay also continues to flourish, only enhanced further with the added financial benefits of a temporary Bush Administration tax cut that is long beyond its intended expiration date.

Currently there are 18 comments on this Article:

  1. txpatriot says:

    Did AT&T or its CEO do anything illegal regarding their federal taxes? If not, what exactly is your point?

    • “The Institute’s larger point is that tax cuts and general corporate tax policy has now moved well beyond “lower taxes” and has now increasingly shifted to providing taxpayer-financed subsidies and corporate welfare to corporations earning record profits while the United States continues to rack up enormous deficits. CEO pay also continues to flourish, only enhanced further with the added financial benefits of a temporary Bush Administration tax cut that is long beyond its intended expiration date.”

      • txpatriot says:

        If you have a beef with the tax rules that AT&T followed in filing its taxes, you should take it up with your Representative. AT&T did nothing wrong and neither did its CEO.

        But then you knew that already . . .

        • Then why ask? Nowhere in that piece is AT&T or Stephenson accused of doing anything illegal. That’s not the larger point. I hope those who feel the current tax laws give too much away to large corporations do make their views known.

          • txpatriot says:

            Philip: its your blog; if you want to paint AT&T and Stephenson as evil for simply following the tax code as it exists, then by all means knock yourself out.

            So let me ask you: do YOU take advantage of the tax code to minimize your taxes owed? Somehow I doubt if you or anyone else voluntarily pays more tax than they are legally liable for.

            Yet when corporations do exactly the same thing, they’re the bad guys, right?

            • txpatriot says:

              And by the way, a refund doesn’t necessarily mean taxpayers are subsidizing AT&T. All it means is that AT&T paid more in taxes than it was legally liable for.

              I get refunds some years, and other years I owe more than I paid. But the years I got a refund doesn’t mean you or any other taxpyer “subsidized” me — it just means I paid more than I owed.

              • You and I don’t have millions to spend (also a writeoff) on lobbyists to cook the tax system to our favor. AT&T and Verizon do. Verizon has not paid corporate federal taxes for the last three years by the way. (http://www.dslreports.com/shownews/Study-Verizon-Hasnt-Paid-a-Cent-in-Taxes-in-3-Years-116981).

                AT&T’s deductions allowed the company to pay zero in federal taxes -and- still get a check from the IRS. When you combine the two, their effective tax rate was -5%.(http://www.thenation.com/sites/default/files/user/17/TaxRatesforWeb_fullsize_jpb.png)

                That means the IRS gave them money, not returned money they already paid.

                I’d like to see an average American worker in a middle class job show me a tax return they filed showing zero tax payments thanks to write-offs -and- qualify for a huge “refund” anyway. That is what AT&T accomplished and it was not by accident.

                If AT&T paid the federal government nothing over four quarters and still gets $420 million sent to them, where did the money come from?

                Of course, these companies always argue that if you cut their taxes, it will translate into more jobs… raise them and they cut jobs. So both AT&T and Verizon got their enormous tax breaks, and AT&T shed more than 20,000 jobs since. Verizon has slashed more than 40,000.

                Now how did things get this way? Here is how: http://sunlightfoundation.com/blog/2012/04/16/lobby-more-pay-less-in-taxes/

                It’s corporate welfare, and frankly I am surprised to see you so strongly defending it less than 24 hours after you also wrote this:

                “…I wonder how other ratepayers in Georgia feel about paying higher USF fees so a few rural customers get cheap phone service? Cutting the subsidy sounds like the right way to go.”

                Sounds like you should be asking for cuts in incentives and corporate subsidies.

                • txpatriot says:

                  Thanx for the links — I haven’t had time to review all of them but I did look at the “Corporate Tax Dodgers Report”. It confirmed one of my assumptions: the basis for their analysis was corporate 10-K filings with the SEC, not actual federal tax returns (which are confidential).

                  Of course the problem with any such analysis is that net income for SEC (GAAP purposes is not defined the same way as taxable income for IRS purposes. So simply taking GAAP net income and hitting it with a 35% tax rate doesn’t really tell you much.

                  I looked at AT&T’s 2011 annual report:

                  http://www.att.com/Common/about_us/annual_report/pdfs/2011attar_full_3.pdf

                  Under note 10, Income Taxes, AT&T claims it paid taxes at effective rates of 37.7%, (6.4)%, and 32.9% for the tax years 2011, 2010, and 2009 respectively. I don’t kow how that jibes with your claim that “AT&T effectively paid no federal taxes in 2011″ but I’m not an accountant either.

                  • Scott says:

                    Perhaps I’m missing something here but a couple days ago you were arguing about how the local Telco’s should lose their FTC subsidies that taxpayers paid for (at least those with land lines and cellphones paying USF fees) raising their service costs to a level acceptable by the large corporations like AT&T or Comcast?

                    I even brought up the tax loophole and subsidies then for AT&T as a counter… and now today we find out that indeed AT&T and many in its industry have been dodging taxes with average effective rates in the 6-8% range if not lower due to subsidies or agreements.

                    I did see and find one note for AT&T showing an effective rate of -6% in 2010 because of an $8.3 billion reduction in tax expenses resulting from a favorable IRS settlement.

                    Many of the other years that Verizon and AT&T get their low rate is due to federal subsidies plus creative accounting.

                    While you argue that that’s no different than you or I taking advantage of ways to reduce our taxes, that’s a very flawed argument when you’re holding it up against corporations that have billions of dollars to spend lobbying for those loopholes exclusively for their own or their industries use, and to further lobby politicians for other subsidies or government business.

                    Last I checked I didn’t have a few million to spend on K Street in order to get the IRS to pay ME money back, or the ability to hire an army of accountants to figure out how to turn every $1 of lobbying into a 8-14% profit, let alone 22,000% of profit with landfall deals like the “American Jobs Creation Act”

                    Next time AT&T wants to claim unfair competition against a small town Telco they’re more than welcome to return the difference between their single digit effective tax rate and the 35% corporate tax rate back to the IRS along with every other multinational and mega-corp.

                    And you don’t think you’ve not having to make up the shortfall as a individual on your taxes or lack of funding for public services in the tens of billions in lost Taxes from AT&T and each and every company like them?

                    • txpatriot says:

                      Scott if our government would live within its means (as all the rest of us have to do), there would be no “shortfall” for individuals to make up.

  2. Jay S says:

    From an accounting perspective, one generally would not call the use of an ‘asset depreciation schedule’ an example of corporate welfare. I don’t see how AT&T was ‘given’ anything by its use of depreciation rules. The terms, ‘given’ or ‘corporate welfare’ would be used when the government hands over funds as a direct cash payment(ie Solyndra).

    Please explain why if a company(AT&T) spends cash money, purchases an asset,it should be deprecated following a schedule that requires a lengthy (ie.life of the asset or some other arbitrary length) deprecation timeline for income tax purposes? Why is it not the ‘correct or fair’ method, for tax purposes, to entirely write off all assets, that a business purchases(spent its money), within the purchase year? How is AT&T being ‘subsidized’?

    • rjdafoe says:

      I can’t understand why you can’t see it. They paid zero corporate taxes, and still received a refund from the IRS. Wether it is correct, I don’t know. But if that is the truth, then this should not happen. If you happen to get to 0 taxes with loopholes, so be it, lets close the loop holes. But to get money back after your tax rate is 0%, is not right.

      What happened to everyone should pay their fair share? They are talking out of both sides of their mouth.

      • Jay S says:

        NOL (net operating loss) can be carried ‘back’ or ‘forward’. While I can’t speak specifically for the AT&T situation, as I have not see the returns, generally, the tax rules require losses to first be carried back up to five years. The adjustment(reduction of net income) of any previous years returns allows the company to recapture the taxes paid;the IRS sends AT&T a tax refund check for an amount, up to but not more than,the total taxes paid in the past five years. Any loss not offset by past 5 years income gets carried forward, to offset any future net income, thus lowering AT&T future tax liability.

        Corporate income for tax purposes can be very lumpy, due to certain capital expenditures. I don’t think a one year ‘snapshot’ is a goad representation. Though, I think a 5 or 10 year average of Zero Tax$ would be problematic. Does anyone know what the running average tax rate for T or VZ or other like companies has been as of late?

  3. Jack says:

    txpatriot, most people don’t have the power to influence lawmakers to make laws that minimize their taxes and provide them with taxpayer subsidies. What is ‘wrong’ and ‘evil’ is how lawmakers have been bought and paid for by corporations and their CEO’s to make laws that benefit them at the expense of the ‘little guy.’ Of course they did nothing wrong according to the law – they change the laws to facilitate their behavior – but you already knew that.

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