Acxiom tells IRS its losses nix taxes Tax-code changes, credits offset profit

BY JAKE BLEED ARKANSAS DEMOCRAT-GAZETTE
1,053 words
18 April 2004
The Arkansas Democrat Gazette
61
English
Copyright (c) 2004 Arkansas Democrat-Gazette, Inc. All rights reserved.

Acxiom Corp. hasn't paid full corporate income taxes since 2001, and it doesn't plan to again until 2006.

But the company isn't shirking its obligations to Uncle Sam. It's simply playing by his rules.

Those rules allow Acxiom to maximize its expenses and present itself to tax authorities as an unprofitable company. In reporting losses for tax purposes in the hundreds of millions, the Little Rock-based data-management company faces paying little, if any, corporate income taxes.

Shareholders, however, see a much different company. Under the accounting rules expected by Wall Street, Acxiom reported $21.8 million in net income for 2003, and expects better results for 2004.

"We firmly believe we ought to pay our fair share," said Bob Bloom, Acxiom's financial relations leader. "Having said that, we don't go out of our way to pay extra."

Few do in corporate America. Less than 40 percent of American corporations paid any federal income taxes at all between 1996 and 2000, according to a recent report from the congressional General Accounting Office, with most showing no taxable assets.

And corporations that do pay taxes have watched their burden fall steadily since the late 1980s, according to the U.S. Department of Commerce, from roughly 35 percent of profits in 1990 to 26 percent in 2002.

That's primarily the result of tax rules that allow companies - including Acxiom - to write off assets at a faster rate than allowed under Wall Street's Generally Accepted Accounting Principles, or GAAP. These inflated costs mean less profit for Uncle Sam to target.

Tax rules also have created a growing divergence between the numbers a company presents to investors and those it saves for the Internal Revenue Service.

Such "book-tax-differences" have grown in size and number since the early 1990s, experts say, as companies move to take advantage of tax-code changes. Congress regularly alters the tax code to encourage economic gain, offering companies breaks on new investments and - ideally - spurring spending. "The economic stimulus component of the tax law makes taxable income less than book," said Lillian Mills, an accounting professor at the University of Arizona, adding that "in the 1990s there has been a growing gap between book income and taxable income."

Aggressive use of the tax code is expected of U.S. corporations, said Charles Mulford, an accounting professor at Georgia Institute of Technology.

"Your objective is to try to minimize tax payments - legally," Mulford said. "That's what this is."

Tax-code changes enacted after Sept. 11, 2001, for example, extended a company's ability to balance one year's losses against future profits. Such "net operating loss carryforwards" now allow companies to convert operating losses into tax credits, and shield up to five years of future profits.

They also allow companies to use one year's losses to recoup taxes paid up to five years in the past.

Acxiom has helped itself to those advantages. In fiscal 2002, the company reported an $18.7 million loss from operations as it struggled through major layoffs and a cold economy.

The company reported losses on its state and federal tax returns, generating $102 million in net operating loss carryforwards. A year later, the company showed investors a stronger balance sheet and reported earnings of 25 cents per share. Despite the sudden return to profitability, the company also reported tax carryforwards that were far larger than the year before, a combined $529 million for state and federal income taxes.

In a year that saw investors welcoming a $55 million gain on operations, tax authorities were shown more than $180 million in losses, according to the company's 2003 annual report.

That's not unusual, said George Plesko, an accounting professor at the Massachusetts Institute of Technology who estimates that about 15 percent of companies annually report profits to shareholders and losses on their tax forms.

Acxiom's 2003 tax losses are largely the result of changes in how the company calculates its costs. For example, the company in 2003 adopted a threeyear amortization rate for software, allowing it to write off costs more rapidly.

Previously, Acxiom had used a five- or seven-year amortization rate, similar to rates used in its calculations under Wall Street's Generally Accepted Accounting Principles.

The tax losses are also the long-term results of changes in how Acxiom records revenue, said Jaime Cocanower, an Acxiom tax accountant. The company adopted new revenuerecording standards in 2002, chalking up a $100 million book charge as a result. But the company did not receive IRS approval to record similar charges for its tax filings until last year, Cocanower said.

Fiscal 2003 wasn't the first time Acxiom reported negative taxes. The company has reported negative tax liabilities every year since 1994, meaning the company has either deducted or put off millions in corporate income taxes.

Such tactics don't go unnoticed, however, and Cocanower said Acxiom goes through an IRS audit almost annually. But those audits have actually worked to Acxiom's advantage, Cocanower said.

"I would say, over the years, they have owed us money," he said, referring to the federal government.

Corporations face paying more than income taxes, of course. Acxiom stresses the amount it pays annually in taxes on its payroll, property and other assets. Bloom estimates the company paid Arkansas between $7 million and $10 million last year.

Acxiom's net operating losses will shield the company from corporate taxes for years, until at least 2006, Bloom said. And, thanks to tax-code changes in 2001, the company used its losses in 2003 to recoup tax revenue paid as early as 1998.

That led to $46.6 million in federal and state tax refunds for 2002, along with the company's mountainous net operating loss carryforwards.

"In fiscal '05, we don't expect much in the way of income taxes, either on a state or federal basis," Bloom said. "Sometime in '06, we expect to be a taxpayer again."

Acxiom believes that "more likely than not, the company will realize the benefits of these deductible differences," according to its 2003 annual report.

This article was published 4/18/2004

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