Boeing paid $1.2 billion in federal income tax last year for an effective tax rate of 23 percent. It was the third year in a row when Boeing actually paid income tax as opposed to claiming a refund.
Boeing paid $1.2 billion in federal income tax in 2016. Its pretax U.S. profit for the year was $5.2 billion, so the effective federal tax rate was 23 percent.
With Boeing management actively lobbying for the administration of President Donald Trump to adopt a new corporate-tax regime — the so-called Border Adjustment Tax, which would lower corporate tax rates generally and could prove a windfall to the jet maker in particular — it’s worth looking at what Boeing pays under the current tax system.
In nine of the past 15 years, Boeing has had a negative tax rate. But 2016 was the third year in a row when Boeing actually paid income tax, as opposed to getting a refund.
Boeing tax facts
Totals over 15 years, 2002-2016
Pretax profit: $61.9 billion
Federal income tax paid: $2.0 billion
Effective tax rate: 3.2 percent
Source: Institute on Taxation and Economic Policy
Before 2015, Boeing for years paid vastly reduced taxes — or even negative taxes — largely because of the losses it claimed from the 787 Dreamliner program.
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When Boeing reports to its shareholders, it amortizes its multibillion-dollar investments in new jets over 20-plus years, smoothing out the expenses over decades and allowing it to declare a hefty profit quarter after quarter.
But when the Internal Revenue Service comes calling, Boeing reports the actual money coming in and going out.
So in 2013, while the Boeing Commercial Airplanes unit reported a profit of $5.8 billion to Wall Street, company filings show that calculated on the basis of the cost of airplanes actually built and the revenue taken in, the division lost $1.6 billion that year.
That’s why Boeing paid no federal taxes in 2013 and the U.S. government wound up owing the company $199 million — an amount Boeing could take either as a refund for taxes paid in the past or to reduce its future tax payments.
In 2003, Boeing’s negative federal tax bill was a colossal $1.7 billion.
Boeing spokesman Chaz Bickers said that over the long term, with the company no longer losing money on every 787 built but making a slowly growing profit per plane, the tax bills should gradually rise — as evidenced by Boeing paying taxes in the past three years.
“As we go through this period and into the 787 being more cash positive, you’ll see the current tax-expense increase,” Bickers said.
However, Boeing’s tax lawyers can lower the bills even in the fat years.
The jet maker’s 2016 tax bill would have been bigger — and its tax rate equal to the nominal corporate tax rate of 35 percent — but was reduced by $617 million, the company disclosed in its annual 10-K filing with the Securities and Exchange Commission this past month.
The 2016 reduction came from the application of a federal court of Claims decision that allowed it to adjust its tax basis, as well as the settlement of a federal tax audit from previous years.
Matthew Gardner, a senior fellow at the nonprofit Institute on Taxation and Economic Policy, which lobbies for tax fairness, said Boeing “continues finding new bases for postponing taxes.”
“Boeing’s prodigious capacity to keep generating deferred tax liabilities means that in any given year, its effective tax rate is very, very low.”
The tax data from Boeing’s SEC financial filings, compiled by Gardner, shows that for the dozen years before 2014, Boeing’s average tax rate was a negative 3.8 percent. But the past three years have turned that around.
Since 2002, Boeing has logged total U.S. profits of $62 billion while paying a cumulative $2 billion in federal taxes.
That’s an average tax rate over 15 years of 3.2 percent.
Boeing has always answered criticism of its failure to pay taxes by saying that once its jet program turns around, it will pay much more in the future.
And under the current tax system, one would expect this trend of Boeing paying relatively higher federal taxes than it has in the past to continue at least for the next few years.
The Border Adjustment Tax could stop that trend dead.