10 Companies Paying the Least in Taxes

BOSTON (TheStreet) -- When news broke that General Electric (GE), among the largest U.S. companies, will pay close to zero taxes for its fiscal year, Americans were stunned.

After all, many are still out of work after the deepest recession in more than half a century. But, at GE, innovative accounting, fervent lobbying and one of the most well-staffed and financially creative tax teams have helped the industrial conglomerate hold on to profits, even as the country faces a record budget deficit, national debt at an all-time high and the looming cost of underfunded entitlement programs.

General Electric isn't the only company that pays little in taxes. The top corporate tax rate is pegged at 35%, but the following Dow companies, all of which are profitable, are paying less than that, on a net basis. According to some analysts, corporations contribute less than 7% of total U.S. tax revenue, compared to upward of 30% in other periods of American history.

Here is a closer look at the 10 least-taxed Dow companies and how much they paid the U.S. in 2010. Below, they are ordered by their effective tax rate, the actual percentage of taxable income paid to government collectors, from low to lowest.

Of note: The effective tax rate includes taxes levied by foreign governments, as well, which is why the article provides data on how much was paid to the U.S. government, specifically. In many cases, these U.S. companies are paying more in taxes to foreign governments than they are to the U.S.

10. Johnson & Johnson ( JNJ) is a diversified health-care company, with pharmaceutical, health-care supply, medical-devices and consumer-products businesses. It's most widely known as a maker of consumer products such as Band-Aids and Listerine.

The company's sales have declined modestly in 2010, but net income and earnings per share rose 8.7% and 8.6%, respectively. J&J had a net profit margin of 12% in the fourth quarter.

The company generated $62 billion in sales and more than $17 billion of pre-tax income during fiscal 2010. Yet, it was taxed at an effective rate of 21%, with $1.2 billion of current international tax expenses, $356 million of deferred international tax expenses and $2.1 billion of U.S. taxes paid. J&J's effective tax rate fell from 22% in 2009 and 24% in 2008.

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9. Hewlett Packard ( HPQ) makes computers and servers and offers technology consulting services.

Sales, net income and earnings per share have expanded 8.9%, 13% and 18%, respectively, over the past 12 months. HP posted an operating margin of 8% and a net profit margin of 8% for its recently reported fiscal first quarter. HP achieved $126 billion of sales during its fiscal 2010 and generated $11 billion of pre-tax income. It was taxed at an effective rate of just 20%, incurring $484 million of U.S. federal tax expenses and $231 million deferred. It had $1.3 billion of current international taxes and $21 million deferred. HP's effective rate widened from 19% in 2009.

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8. Verizon ( VZ) owns 55% of Verizon Wireless, the largest mobile-telecom network in the U.S.

In the past 12 months, Verizon's sales have declined 0.9%, but net income and earnings per share have ascended just over 2%. Verizon's fourth-quarter net margin came in at 10%. The company suffered a loss in the year-earlier quarter. The company posted 2010 sales of $107 billion and pre-tax income of nearly $13 billion. Verizon received a $709 million current tax benefit from the U.S., but deferred $2.9 billion for future taxes. It enjoyed a $19 million current international tax benefit and a $24 million deferred tax benefit. On the local level, Verizon received a $42 million current tax benefit. Verizon had an effective 2010 tax rate of 19%, up from 14% in 2009.

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7. DuPont ( DD) is a specialty-products company, selling agricultural products, nutrition additives, performance chemicals and specialty coatings.

DuPont's sales have advanced 18% in the past 12 months as net income and earnings per share soared 72%. Its fourth quarter net profit margin came in at 4.9%, down from 6.6% in the year-earlier quarter. In fiscal 2010, DuPont produced nearly $33 billion of sales and $3.7 billion of pre-tax income, but enjoyed an effective tax rate of less than 18%, down from 19% in 2009. It enjoyed a $109 million tax benefit from the U.S., with $245 million expensed for deferred taxes. It paid $454 million of current international taxes.

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6. Cisco ( CSCO) makes networking equipment, with dominant market share in switches and routers.

Cisco's sales have risen 19% in the past 12 months and its net income has expanded 25%. Cisco's fiscal second-quarter net margin contracted from 19% to 15%, but remained outstanding relative to peers. Cisco's trailing 12-month pre-tax margin, at 21%, ranks in the 89th percentile for the tech sector.

Yet, Cisco's effective tax rate, for fiscal 2010, was less than 18%, well below the top U.S. rate of 30% and down from its rate of 20% in 2009 and 21% in 2008. Cisco paid $1.5 billion in 2010 of current taxes to the U.S., enjoying a deferred benefit of $425 million.

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5. Coca-Cola ( KO) makes syrups and beverages.

Revenue has grown 17% in the past 12 months and net income has advanced 73%. Coke's fourth-quarter net margin jumped from 21% to 55%, helped by one-time gains. Still, its trailing 12-month pre-tax profit margin ranks in the 99th percentile for the beverage industry. Coke generated more than $35 billion of sales in fiscal 2010 and more than $14 billion of pre-tax income. Yet, it was taxed at an effective rate of less than 17%, paying $420 million in current taxes to the U.S. and incurring a deferred expense $599 million. Coke paid $1.3 billion in current international taxes and deferred a more modest $16 million.

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4. Pfizer ( PFE) is a global drug company.

Pfizer's sales have risen 36% in the past 12 months, but its net income has dropped 4.4% and earnings per share have fallen 19%. Pfizer's fourth-quarter net margin climbed from 4.6% to more than 16%. Its trailing 12-month pre-tax margin, at 14%, ranks in the 66th percentile for the pharmaceutical industry. Pfizer produced $68 billion of 2010 sales and generated $9.4 billion of pre-tax income. It received a $2.8 billion current tax benefit in the U.S. and deferred $2 billion. Pfizer paid $2.3 billion of current international taxes and received a $74 million deferred tax benefit.

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3. General Electric ( GE) is an industrial conglomerate, with operations ranging from energy infrastructure to turbine manufacturing.

GE's sales have decreased 4.3% in the past 12 months as its net income rose 5.6% and earnings per share advanced 13%. GE's fourth-quarter net margin widened from 7.3% to 11%. Its trailing 12-month pre-tax margin, at 9.5%, ranks in the 70th percentile for industrial conglomerates. GE generated $150 billion of 2010 revenue and more than $14 billion of pre-tax income. Yet, it paid a paltry $4 million in current taxes to the U.S. and deferred expenses of $1 billion. GE had an effective tax rate of 7.4% for 2010.

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2. AT&T ( T) is an integrated telecommunications company, with wired and wireless assets.

AT&T's revenue has inched up 1% in the past 12 months as net income grew 64% and earnings per share climbed 57%. Its fourth-quarter net margin contracted from 8.9% to 3.5%. AT&T's trailing 12-month pre-tax margin, at 15%, ranks in the 81st percentile for the telecom sector. AT&T achieved $125 billion of sales during fiscal 2010 and more than $18 billion of pre-tax income. It paid $307 million in current taxes to Uncle Sam, down from $1.2 billion in 2009. It enjoyed a deferred tax benefit of $2.1 billion. AT&T was taxed at a 2010 rate of negative 6.4%.

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1. Bank of America ( BAC) is a financial company.

Its sales have fallen 11% in the past 12 months as the bank swung to net losses in the third and fourth quarters of its fiscal year. Bank of America achieved 2010 net revenue of $111 billion and suffered a pre-tax loss of $1.3 billion. Bank of America paid no current taxes to the U.S. and received a deferred tax benefit of $287 million for its fiscal 2010. Yet, Bank of America paid $158 million of current local taxes and deferred $201 million. It paid $815 million in current international taxes and deferred $694 million. The company had a 2010 tax rate of negative 69%.

-- Written by Jake Lynch in Boston.

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