Chevron's Tax Rate is 47 Percent -- With No Windfall Tax

Last Updated Nov 17, 2008 2:25 PM EST

  • Internal Revenue Service LogoThe Company: Chevron Corp., the second-largest U.S. oil company.
  • The Filing: FORM 10-Q filed with the SEC on November 6, 2008.
  • The Finding: Chevron earned pre-tax profits of $35.7 billion and paid $16.6 billion in income taxes for the nine-months ended September 30 -- an effective tax rate of 46.5 percent. Should it pay even more in taxes?
The Upshot: For the comparative nine-month period of 2007, the effective tax rate was 41 percent. The company said the higher rate for the 2008 period was primarily associated with a greater proportion of income being earned in tax jurisdictions with higher income tax rates.

Windfall profit activists allege that oil companies can afford to pay more in taxes, arguing that energy firms waste monies on stock buybacks -- dollars that ought be used on exploration activities and renewable energy alternatives. Albeit year-on-year net profits at Chevron are up 38 percent to $19 billion, capital spending did not keep pace -- rising 20 percent to $13.6 billion. Stock buybacks in the comparative nine-month period climbed 25 percent to $5.5 billion.

I argue that oil companies are paying their fair share of taxes. Apple's trailing twelve-month profit margin of 14.9% dwarfed that of Chevron's by 610 basis points, yet no one is screaming that the IRS slap a special tax on iPhone or iPod profits.

During his campaign for the White House, President-elect Barack Obama voiced his support for a windfall profits tax on oil companies, with the objective to fund tax rebates of $500 for most individuals and $1,000 for married couples. The existing Obama-Biden Tax Plan, however, is noticeably absent on the foregoing specifics.

The Question: Given the recent decline in energy prices, does a one-time oil profits tax make sense?

  • David Phillips

    David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.