ExxonMobil’s recent announcement of first quarter profits of $10.9 billion has prompted the predictable political demagoguery about “obscene” profits and the need for a new windfall profits taxA windfall profits tax is a one-time surtax levied on a company or industry when economic conditions result in large and unexpected profits. Inheritance taxes and taxes levied on lottery winnings can also be considered windfall taxes on individual profits. . Exxon does not need our help to defend itself against such charges but I remain amazed that none of the major news outlets have highlighted the fact that these are net profits, meaning profits after taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es.
If reporters were to dig just a bit deeper into the company’s earnings statement they would find that Exxon—like all the major domestic oil companies—directly pays or remits a staggering amount of taxes to governments both here and abroad. Before taxes, Exxon had income of $20 billion on total world-wide revenue of $116 billion. Its earnings statement shows that the company paid $9.3 billion in income taxes to governments here and abroad. This amounts to an effective tax rate of more than 46 percent, 10 percentage points higher than the U.S. statutory rate of 35 percent.
In addition to income taxes, the table below shows that Exxon paid or remitted $20 billion in various sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es, excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es, severance taxes, and property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es. This brings the total amount of taxes the company paid or remitted to $29.3 billion, nearly three times the net profits it earned for shareholders.
The financial statements of two other large U.S.-based oil companies, ConocoPhillips and ChevronTexaco, show similar large tax payments. Indeed, these three companies paid or remitted a combined $47.8 billion in taxes in the first quarter of 2008, nearly $28 billion more than they earned in net profits.
Of course, these firms are multinational so many of these taxes are paid to foreign governments not just to Uncle Sam. But the point critics and the media need to recognize is that governments in general are bigger beneficiaries of oil industry sales than are shareholders.
| First Quarter 2008 Results | ||||
| (Millions of Dollars) | Exxon | Conoco | Chevron | Total |
| Gross Sales | $116,000 | $54,883 | $64,659 | $235,542 |
| Income before tax | $20,192 | $7,549 | $ 9,677 | $37,418 |
| Income taxes | $9,302 | $3,410 | $4,509 | $17,221 |
| Sales-based taxes | $8,432 | n/a | n/a | $ 8,432 |
| All other taxes | $11,607 | $5,155 | $5,443 | $22,205 |
| Total taxes | $29,341 | $8,565 | $9,952 | $47,858 |
| Net Profits | $10,890 | $4,139 | $5,168 | $ 20,197 |
| Effective Income Tax Rate | 6% | 45% | 47% | 46% |