Profiles in tax avoidance: DuPont

***This post was authored by Jelicia Diggs.

As Congress debates reforming the federal tax code, it is critically important to raise new revenues that can support our nation’s long-term economic recovery.  One excellent source of new revenues involves the billions of dollars in corporate tax loopholes, deductions, credits, and outright giveaways that allow too many multinational corporations to avoid paying their fair share of taxes.  This year, N.C. Policy Watch and the N.C. Budget and Tax Center are focusing on federal corporate tax reform as a means of highlighting a frequently under-reported fact: Namely, not all American corporations are paying the statutory tax rate and therefore are failing to support fiscal responsibility and the investments that are needed for a strong economy.

To underscore this message, we are shining a light on a number of corporate tax avoiders with strong connections to North Carolina by summarizing:

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

Click here to read previous profiles of Duke Energy, Merck & Co. and International Paper.

Company: DuPont

Background and North Carolina connections:

Founded over two centuries ago as a gunpowder mill, DuPont has grown into one of the top five largest chemical companies in the world. In fact, Fortune Magazine ranks Dupont as one of the nation’s “Most Admired Companies” and second in the world among chemical companies. DuPont is headquartered in Wilmington, Delaware.

DuPont is best described as a global science company that offers products and services in fifteen industries such as automotive, chemical, medical, and energy. With diverse industries in more than 90 countries, this company puts out to introduce hundreds of products and patents every year. In 1968 DuPont opened its fourth United States location in Fayetteville, North Carolina. The Fayetteville plant manufactures a variety of fibers, new films and specialty chemicals needed by businesses, the military, and consumers.  The Fayetteville location employs just over 900 employees.

Over the past several years, DuPont has experienced a successful recovery from the Great Recession, and is continuing to generate significant profits.  After cutting more than 17,000 jobs in 2010 due to the recession, DuPont has since managed to regain its dominant footing in the chemical industry. The company currently has more than 150 research and development centers and more than 70,000 employees worldwide and $49.7 billion in assets. Forbes.com reported last year that DuPont’s CEO Ellen Kullman has received an average compensation of around $9.7 million per year, for each of the last six years.

 DuPont   at a glance
One of the largest chemical companies in the world; serves   a variety of industries and is headquartered in Wilmington, Delaware
Total Assets: $49.7 billion
2012 profits: $636 million
Net 2012 tax rate: 19.0 percent
2008-2012 profits   combined: $3.63 billion
Net 2008-2012 tax   rate: 12.3 percent

Principal tax avoidance strategy:

Although the US corporate tax rate is 35 percent, DuPont has managed to use existing loopholes, tax deductions, and other tax breaks to avoid paying this legal rate.  Specifically, DuPont has made aggressive use of accelerated depreciation to reduce its effective tax rate to far less than 35 percent. The largest of all tax loopholes, accelerated depreciation lets companies like DuPont write off the costs of their machinery and buildings faster than they actually wear out. Accelerated depreciation has questionable value for spurring economic growth and job creation, since this tax deduction often skews investment decisions away from what makes the most business sense and toward tax-sheltering activities. This can, for example, favor short-term, tax-motivated investments over long-term investments.

Taxes avoided:

DuPont reported a profit of $636 million to the federal government in 2012, which at a rate of 35 percent, should have resulted in a federal tax liability of $222.6 million. However, through usage of creative tax avoidance strategies, this corporation enjoyed a favorable federal tax rate of 19 percent and paid a mere $121 million in taxes.

The past five years tell a similar story. Between 2008 and 2012, DuPont reported a total profit of approximately $3.63 billion. Yet due to the use of tax avoidance techniques, its effective federal tax rate for this period was only 12.3 percent. To put it more plainly, DuPont paid a total tax of $446 million for the entire five-year period (which is $825 million short of what the corporation would have paid at the 35 percent corporate tax rate).

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

As is becoming more apparent every day, 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 approximately $911,000 in the state’s ability to respond effectively to public health threats including but not limited to: infectious diseases, natural disasters. It will also result is an additional loss of about $1.98 million in grants to help prevent and treat substance abuse. Obviously, however, if DuPont and other large corporations paid their fair share in federal corporate income taxes many—if not all—of these painful cuts could be avoided.

The bottom line:

DuPont plays an important role in the state, national and international economies, but at present, this multi-billion dollar company is failing to live up to its civic duty as a corporate citizen.).  Meanwhile the rest of us are being forced to make up for this revenue loss tax increases and spending cuts. If “safety and health, environmental stewardship, highest ethical behavior, and respect for people” are the core values that DuPont wants to share with the world, it should live up to its pledge and pay its federal income taxes.

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Profiles in tax avoidance: DuPont