Income Tax Rates

Income Tax Rates

One item talked about a lot of late is corporate income taxes.  I was reading some commentary on Gundlach's recent presentation (Jeff Gundlach full presentation) about p/e ratios being stretched and someone made the point that if you assume lower tax rates, that p/e ratios don't look high at all.

I am sure that idea has some merit, but it made me start wondering, how much tax do corporations actually pay?  I can answer that question, as my workbook to create my top 200 lists allows me to easily pull any balance sheet or income statement figures.  But keep in mind it is high level: Pre Tax Income and Income Taxes. So I assume that can be any income taxes, state, federal or other countries.  That means if you get a blended rate of 35% and you know the federal rate is going to 25%, you cannot assume a 10 point improvement.  It would be less.  So for the top 200 list I published yesterday,  here are the rolling 12 month tax rates:

Ticker	Rank	Stock Price	Market Cap	Tax Rate
NTIP	1	3.55	89	23%
FPRX	2	48.62	1,319	7%
NHTC	3	25.41	285	14%
ACHI	4	2.25	230	40%
GILD	5	73.07	97,841	19%
PDLI	6	2.27	373	39%
CALL	7	8.10	129	60%
WILN	8	1.64	195	57%
MMI	9	25.76	1,008	40%
IDCC	10	90.15	3,151	23%
AVID	11	5.11	207	-5%
AGTC	12	9.40	173	0%
PCO	13	6.45	173	2%
CHKE	14	10.00	87	34%
UTHR	15	150.22	6,940	32%
VEC	16	24.65	273	36%
AGX	17	70.70	1,103	33%
TDC	18	28.51	3,752	81%
CSCO	19	30.07	152,335	17%
ICON	20	10.45	599	34%
GME	21	22.73	2,364	36%
HLF	22	52.00	4,493	29%
LFVN	23	7.70	111	29%
HPQ	24	14.77	25,537	29%
MSGN	25	22.20	1,674	40%
CBI	26	32.73	3,334	19%
SYNT	27	21.21	1,788	110%
TARO	28	104.85	4,330	16%
SSNI	29	13.33	690	10%
MBUU	30	17.79	316	37%
IRMD	31	12.25	145	34%
DLX	32	73.27	3,586	33%
VIAB	33	38.70	15,414	26%
AMAG	34	23.00	969	8%
MCFT	35	14.01	260	38%
NSR	36	33.10	1,835	15%
TGNA	37	21.61	4,713	31%
HRB	38	23.79	5,128	36%
UIS	39	13.75	689	546%
VIA	40	42.80	17,047	26%
VLRS	41	13.84	1,400	30%
SCMP	42	12.50	543	21%
AMCX	43	56.47	4,074	31%
PBI	44	16.59	3,097	33%
TRNC	45	13.65	497	-78%
RGR	46	51.35	986	36%
ASPS	47	26.77	524	66%
DHX	48	5.85	279	-20%
GHC	49	525.85	2,931	32%
CA	50	33.09	13,732	29%
CXRX	51	2.17	113	5%
MPAA	52	28.33	550	41%
USNA	53	61.70	1,546	28%
AAPL	54	119.04	642,022	26%
YY	55	42.62	2,592	16%
ESRX	56	71.80	45,026	34%
BKE	57	21.50	1,038	37%
MYGN	58	16.33	1,124	28%
RPXC	59	11.11	558	40%
UEPS	60	11.87	631	33%
NLS	61	16.25	510	27%
TNH	62	106.47	1,970	0%
GNE	63	5.84	133	-6%
MCK	64	147.18	33,557	29%
WNC	65	17.22	1,137	35%
NCIT	66	13.45	186	38%
AKRX	67	22.48	2,840	32%
KORS	68	42.39	7,157	25%
BBY	69	43.83	14,026	36%
LEE	70	3.15	173	38%
ASFI	71	10.05	132	21%
BIIB	72	284.75	62,474	25%
SEDG	73	13.50	594	-2%
FIT	74	7.44	1,813	42%
HSII	75	23.20	437	51%
DISCK	76	26.82	16,146	27%
LEA	77	143.33	10,327	26%
MIK	78	20.52	4,213	35%
ORCL	79	39.26	164,696	23%
BBSI	80	62.22	461	25%
AWRE	81	6.40	147	33%
ABBV	82	61.99	101,664	22%
APEI	83	25.45	413	38%
DISCA	84	27.40	16,495	27%
CPLA	85	86.85	1,024	39%
FOX	86	29.25	54,493	27%
SCLN	87	10.55	555	7%
BGSF	88	14.00	126	38%
TUP	89	54.71	2,779	30%
SGU	90	11.24	634	43%
BPT	91	29.35	628	0%
BPT	92	29.35	628	0%
NATH	93	62.35	262	38%
RHI	94	49.91	6,398	37%
FOXA	95	30.03	55,946	27%
SIMO	96	43.31	1,539	19%
DIN	97	75.56	1,363	35%
DL	98	10.87	360	19%
RLGY	99	26.27	3,812	39%
MED	100	41.38	494	33%
GSB	101	4.26	92	29%
NVO	102	35.73	90,429	21%
CYOU	103	23.94	1,274	13%
AMFW	104	5.81	2,225	1%
CAH	105	75.00	24,150	38%
MDCA	106	7.00	366	-12%
KLAC	107	81.44	12,788	18%
SPOK	108	20.90	429	-239%
AMGN	109	156.12	117,558	14%
WSTC	110	25.21	2,133	35%
OMC	111	85.31	20,363	33%
MAN	112	93.28	6,436	36%
AMWD	113	74.85	1,231	35%
KFY	114	28.60	1,630	35%
ETM	115	15.05	624	38%
MPW	116	12.63	3,126	1%
MLHR	117	31.75	1,916	29%
AHS	118	33.02	1,632	40%
IPG	119	23.58	9,618	29%
MDP	120	58.40	2,656	60%
MCO	121	96.96	18,839	31%
GNC	122	11.42	780	37%
OMAB	123	32.23	1,583	29%
PETS	124	22.75	464	37%
ODP	125	4.63	2,523	-51%
GIB	126	49.36	15,280	26%
CSGS	127	50.62	1,652	33%
EBF	128	16.65	428	37%
MHFI	129	107.92	28,631	30%
CBS	130	62.32	27,795	27%
LB	131	60.69	17,616	35%
CATO	132	26.77	716	19%
FL	133	70.55	9,454	35%
GNTX	134	20.89	6,068	32%
FRAN	135	18.37	692	38%
INFY	136	14.50	33,146	28%
HSNI	137	33.90	1,791	37%
TIME	138	18.95	1,888	53%
IQNT	139	22.97	794	37%
Q	140	77.16	9,348	29%
DNB	141	123.48	4,519	45%
LEJU	142	3.99	540	31%
GPS	143	23.66	9,464	43%
CLCT	144	21.07	180	39%
ROIA	145	2.65	126	-2%
ROIAK	146	2.70	128	-2%
JAZZ	147	117.30	7,231	26%
ZPIN	148	15.52	890	17%
MEET	149	5.09	301	-174%
VGR	150	22.31	2,773	37%
TWX	151	94.14	74,135	25%
LCI	152	20.30	745	42%
TZOO	153	10.15	141	39%
AEO	154	15.21	2,808	34%
MD	155	70.69	6,584	36%
COH	156	35.08	9,889	26%
WYN	157	77.30	8,503	34%
BBBY	158	40.92	6,080	36%
SNI	159	75.29	9,797	30%
JNPR	160	27.87	10,716	26%
ANIK	161	50.03	754	36%
SQBG	162	4.95	312	23%
SBH	163	25.77	3,791	37%
HURN	164	46.00	986	22%
MAS	165	32.05	10,544	37%
SWKS	166	78.33	14,789	17%
DPS	167	89.54	16,628	34%
NRCIA	168	18.55	457	33%
UTMD	169	67.90	257	24%
MTOR	170	13.66	1,213	-274%
CO	171	5.88	429	33%
WTW	172	12.23	805	18%
SRDX	173	24.90	334	41%
WINA	174	118.00	511	38%
QCOM	175	66.88	99,718	17%
BBGI	176	6.80	158	40%
HMTV	177	11.70	480	36%
TJX	178	75.93	50,244	38%
CR	179	73.80	4,384	30%
CHRW	180	73.38	10,485	37%
GRMN	181	48.52	9,182	17%
ENTA	182	33.99	647	33%
TSQ	183	10.10	276	41%
MLP	184	7.13	135	0%
SHI	185	60.40	6,527	23%
UTX	186	110.22	91,593	32%
CTSH	187	56.52	34,392	34%
STRA	188	80.45	871	39%
SPLS	189	9.17	5,988	-7%
BAH	190	36.33	5,457	22%
EXPD	191	53.87	9,842	37%
EXPR	192	10.74	844	37%
SERV	193	37.16	5,095	39%
PFMT	194	2.23	112	15%
ITRN	195	27.25	571	31%
GD	196	177.89	55,098	27%
MSI	197	82.27	13,953	31%
BLBD	198	16.05	443	45%
CIGI	199	37.00	1,441	35%
BLD	200	37.62	1,428	10%

Wow,  all freaking over the map.  Let me check one (say WILN at 57%) just to make sure I did it right.

Category	2016 Q3	2016 Q2	2016 Q1	2015 Q4	Total
Sales/Turnover (Net)	16,569	15,961	30,160	26,017	88,707
Operating Expenses – Total	7,199	8,939	10,509	10,010	36,657
Cost of Goods Sold	5,396	6,293	7,969	8,121	27,779
Gross Profit (Loss)	11,173	9,668	22,191	17,896	60,928
Selling, General and Administrative Expenses	1,803	2,646	2,540	1,889	8,878
Operating Income Before Depreciation	9,370	7,022	19,651	16,007	52,050
Depreciation and Amortization – Total	6,847	9,956	10,130	10,086	37,019
Operating Income After Depreciation	2,523	(2,934)	9,521	5,921	15,031
Non–operating Income (Expense) – Total	60	234	281	6	581
Special Items Income (Expense)	-	-	-	(3,049)	(3,049)
Pretax Income	2,583	(2,700)	9,802	2,878	12,563
NET INCOME (LOSS)	657	(3,152)	4,920	3,007	5,432

Hmm, that does work. 5,432/12,563 is 43%. So Tax rate is 57%.  

I am not sure what this tells us.  It is clear there is a difference between the actual tax rate (what we have here) and the pro-forma tax rate.  I suspect it has to do with tax carry forwards or perhaps acceleration of items like depreciation.  But I am not an accountant.

Here are some statistics on top 200. 

Average tax rate: 26.8%

Median Tax Rate: 31.2%

Wt Average Tax Rate (so HPQ and AAPL get more weight): 25.5%.

Here are stats going to top 400

Average: 27.2%

Median: 30.5%

Wt Average: 25.5%

These feel more like going forward rates.  So while tax rates can vary a lot by company, it looks like on average we come to numbers that make sense.  I suspect the median is a good figure for a company that is more US centric, while the averages may be more representative of multi-national companies.

Summary

Not really sure where I am going with this, but I think at the end of the day that the impact on post tax earnings may be a bit less than people are expecting, especially for multi-national companies. So if we think about a pure US company, like Foot Locker (FL), 35% is the rate. They maight really benefit from a 20 to 25% federal rate.  But multi nationals, like ORCL and ABBV are already at 22% and 23%. So they will get some impact from lower fed rate, but their income is blended, so only US component will benefit.

Any thoughts?