Tax Payments Rising in Loss-Making Firms
Between 1988-2023, tax burden increased for unprofitable companies while regulatory changes proved ineffective.
1The Tax Paradox in Loss Firms
From 1988 to 2023, the percentage of publicly traded companies reporting pre-tax losses rose from 20% to 40%. Surprisingly, 68% of these loss-making firms made positive cash tax payments. Both the number of taxpaying loss firms and their payment amounts showed an increasing trend over time.
2Counterintuitive Finding: Taxes Rise with Losses
The research revealed that as pre-tax losses grew, tax payments actually increased. This unexpected relationship stems from discrepancies between accounting rules and tax legislation. Multinational status, state taxes, and consolidation differences were identified as key explanatory factors.
3Determinants of Tax Payments
The study identified 10 key factors influencing companies' likelihood and amount of tax payments. Firm size, goodwill impairments, extraordinary items, and depreciation differences stood out. Larger companies showed higher probability of fulfilling tax obligations despite reporting losses.
4Ineffectiveness of 2017 Tax Reform
The Tax Cuts and Jobs Act of 2017 reduced US corporate tax rates from 35% to 21%. However, research shows this reduction didn't alleviate the tax burden on loss-making firms. The structure of tax payments continued independently of rate reductions.
5Accounting-Tax Discrepancy
The gap between financial statement losses and taxable income arises from items like goodwill impairments and asset write-downs. Companies may report accounting losses while showing taxable profits under tax laws. This phenomenon is particularly pronounced in large-scale enterprises.
6Policy Implications
Findings highlight the need to reevaluate how tax policies affect corporate profitability. The growing proportion of loss-making yet taxpaying firms calls for revisions to current tax systems. Multinational companies' tax strategies warrant particularly close examination by policymakers.
Original article: Contemporary Accounting Research — Zarar Eden Şirketlerde Vergi Ödemeleri Artıyor