Record Taxes Paid before Record Oil Profits

May 2, 2008

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 tax. 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 taxes.

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 taxes, excise taxes, severance taxes, and property taxes. 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%

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