Public Service Enterprise Group, which operates New Jersey’s largest electric and gas utility, reported $1.7 billion in U.S. income last year. It paid nothing in federal taxes.

Neither did Newark-based Prudential Financial, the insurance giant known as The Rock. FirstEnergy, the Ohio company that owns Jersey Central Power & Light Co., the state’s other big electric utility, also did not pay a dime in federal taxes, nor did Realogy, a real estate and relocation services company located in Madison, or Avis Budget Group, the car rental giant headquartered in Parsippany.

According to the Institute on Taxation and Economic Policy, all appeared to use a diverse array of legal tax breaks to zero out their federal income taxes in 2018.

They were among 60 of America’s biggest corporations that managed to escape the tax man last year, paying no federal income taxes on $79 billion in U.S. pretax income, a recent study by the ITEP of the nation’s Fortune 500 companies found.

The non-profit, non-partisan tax policy organization said that instead of paying $16.4 billion in taxes at the 21 percent statutory corporate tax rate, those 60 companies enjoyed a net corporate tax rebate of $4.3 billion by using strategies such as accelerated depreciation—which allows companies to more quickly write off the cost of their capital investments, fossil fuel tax subsidies, and tax credits.

Prudential Financial, for example, reduced its income taxes by $111 million using low-income housing and other credits in 2018, the report noted, as allowed under the law. It said Amazon reduced its income taxes by more than $1 billion in 2018 through a tax break that allows companies to write off stock-option expenses.

Identifying companies that pay nothing in federal taxes is no easy task, said Matthew Gardner, one of the authors of the ITEP report, and he suspects there are far more than the ones that his analysis uncovered.

“The real number is probably bigger than 60,” he said. “Almost certainly.”

The data examined by the group came from 10-K annual financial filings with the Securities and Exchange Commission. But Gardner explained that for every company that provided a reasonably complete breakdown of taxes paid, there would be another company’s filing where it was almost impossible to determine. He said the vagueness of the reports was not the fault of the companies.

“It just reflects the low level of disclosure that the SEC requires. Very often you can’t see what’s going on, and that’s okay according to the law,” he remarked.

Critics of the nation’s corporate tax policies have railed for years about companies like Amazon find loopholes in the law to avoid payment to Uncle Sam. But the anger has been getting louder since Congress and the Trump administration pushed through major corporate tax changes as part of the Tax Cuts and Jobs Act in December of 2017. The new law cut the statutory tax rate from 35 percent to 21 percent, but left intact many of the tax breaks that allowed profitable companies to claim no federal tax liability.

“We’re in an age of armies of tax lawyers taking advantage of a weak tax code, said Sheila Reynertson, a senior policy analyst with New Jersey Policy Perspective.

Legal tax avoidance has been a corporate strategy for decades, Reynertson noted. But when Congress passed a “shoddy” tax law by cutting the tax rate without addressing existing tax loopholes, she said it had a far-reaching impact beyond a corporate giveaway. Cuts in federal taxes means less money for aging infrastructure, aging populations, and increasing healthcare costs.

“You can literally connect the dots,” she said. “We don’t have the revenue because these tax loopholes are being taken advantage of.”

Gardner said the sensible path for tax reform would have been to broaden the tax base, and then look at corporate tax rates on that base. Instead, he said Congress gave short-shrift to the goal of eliminating tax breaks—and in some cases, expanding them, as with accelerated depreciation, while pressing forward on a cut in the tax rate.

The old and new Prudential buildings in downtown Newark. The insurance giant also paid no federal taxes last year.Aristide Economopoulos |NJ Advance Media for NJ.com

Tax attorney Jay Soled, a professor at Rutgers Business School and director of the university’s Masters in Taxation Program, said accelerated write-offs essentially allow companies to expense anything they purchase.

“It juices up the economy on a temporary basis and minimizes their tax burden,” he said.

At the same time, Soled noted companies in general have become very proficient in parking their income offshore. That causes companies, for tax purposes, to avoid showing a lot of profit.

Still, he cautioned that if companies pay more in taxes, that ultimately gets passed on to someone else.

“Corporations are not poolside sucking on martinis. Corporate tax is borne by shareholders or the consumers buying goods and services, or lower wages to employees,” he said. At the end of the day, who bears the corporate tax? There is no free lunch here. If Apple doubles its tax, you pay more for your iPhone."

In New Jersey, Public Service Enterprise Group, the parent company of Public Service Electric & Gas Co., used accelerated depreciation to write off investments against its reported $1.7 billion in U.S. income. The company paid no federal tax, receiving instead a $97 million tax credit, according to its filings.

“The federal tax reform measure enacted last year encourages companies to make large investments by allowing businesses to immediately deduct the cost of major investments, pursuant to the law,” said PSEG spokesman Michael Jennings. “Our new power plants are examples of investments that fulfill the intent of the tax reform law. Those investments help spur the economy and create jobs, and we took the deductions.”

He added that the company’s customers have benefited tremendously.

“They will save more than $600 million this year because of the federal tax reform,” Jennings said.

FirstEnergy, the parent company of JCP&L—which supplies electricity to 1.1 million customers in Burlington, Essex, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union and Warren counties—made similar points.

“The Institute on Taxation and Economic Policy study is not really telling the whole picture when it comes to what large, capital-intensive companies such as FirstEnergy and other utilities pay in federal taxes. We are not avoiding our tax liability; we are deferring when we pay it,” said Mark Durbin, a FirstEnergy spokesman. “The reality is, since at least 2010, the federal tax laws permitted corporations to claim bonus depreciation to expense capital costs, significantly reducing current tax and deferring payment into the future.”

He added that the report also ignored state and local income and general tax liabilities.

“Currently, FirstEnergy pays more than $1 billion a year in various state and local taxes, including about $600 million in local property taxes,” he said.

Durbin said in some cases, the bonus depreciation created net operating losses that the tax laws permitted companies to carry forward to be used in future years. As a result of the 2017 Tax Cuts and Jobs Act, regulated utilities, including FirstEnergy, will not be permitted to take bonus depreciation in the future.

Realogy, which reported pre-tax domestic income of $204 million, said its 2018 federal credit of $13 million reflected the change in our receivable for refundable alternative minimum tax credits that were previously paid by the company. The corporate alternative minimum tax, or AMT, was repealed as part of the Tax Cuts and Jobs Act

“Realogy has generated historical losses, which are being utilized to offset current year income,” added Trey Sarten, a company spokesman.

Prudential reported $1.4 billion in U.S. income and received a $346 million federal tax credit for 2018. Avis Budget reported $78 million in U.S. income, and a $7 million tax credit. Neither company responded to requests for comment.

Ted Sherman may be reached at tsherman@njadvancemedia.com. Follow him on Twitter @TedShermanSL. Facebook: @TedSherman.reporter. Find NJ.com on Facebook.

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