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Tuesday, March 19, 2019
There’s Taxes, and There’s Taxes

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Last month Calcbench did a quick analysis of which large companies were reporting large swings in tax expense (either increases or decreases) as a result of tax reform, in absolute dollar terms.

Today we’re taking another look at big swings in tax expense in percentage terms — and through that lens, the numbers can be huge.

This time we looked at the 2017 filings of more than 120 large companies that reported some effect of tax reform. As we’ve noted previously, all companies must reconcile the effective tax rate they are really paying after adjustments, to the statutory rate. Some companies reconcile in dollar terms, others in percentages. For this exercise, we examined the filings of those 120 companies, which all reconciled by percentage, and searched for adjustments labeled as related to tax reform.

We ranked the 1o companies with the largest upward adjustments below.

The exact reasons for these adjustments may vary from company to company. To compile the list, we simply searched for adjustments tagged “Tax Act Impact,” “Impact of TCJA, percent,” or similar language like that. Within that broad heading, however, any number of reasons could drive the specific adjustments.

For example, AIG booked a $6.7 billion increase in tax expense primarily due to revaluations of its deferred tax assets and liabilities. That increase is larger than all of AIG’s $1.46 billion earnings before taxes — hence the percentage adjustment of 453 percent. (That’s simply the lion’s share of AIG’s effective rate. Include all the other usual adjustments, and its effective rate is actually 513.4 percent! We didn’t track all those items in this analysis, but you can find them on our Interactive Disclosure page.)

Other firms can report high percentage swings if, say, they pay a large amount in the one-time deemed repatriation of foreign earnings; and those earnings are a large portion of total earnings. We’ve seen other examples of the deemed repatriation leading to some whacky effective rates, too. But don’t worry, after this year, companies will resume making gobs of money and reporting eye-popping low tax rates.

As to the companies with the largest downward swings — that is, they are cutting their tax bill — they are…

Calcbench will continue to monitor interesting tax disclosures. Lord knows, we’ll see plenty of them this year.


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