Exxon Mobil Corporation (XOM), Chevron Corporation (CVX), And A Key Question: Do Oil Companies Pay Enough in Taxes?

Sticker price versus what you pay
Looking purely at U.S. income tax expenditures clearly doesn’t give a full picture of what these major oil companies are paying in tax. To get a better look, let’s examine their effective tax rates. This is a simple ratio for the income tax expense divided by the company’s total earnings before taxes from the past 12 months.

According to S&P’s Capital IQ, some the largest oil companies in the U.S. have the biggest tax rates around.

Source: S&P Capital IQ,

So when all is said and done, the tax rate can be much higher than the 35% that goes to the IRS. What’s probably even more surprising about those tax rates, though, is they’re even much higher than for the major players in other parts of American industry.

Source: S&P Capital IQ.

What a Fool believes
The thing about numbers is that they can be easily presented in a way that gives credence to any argument, and any fact or truth can be produced to back up a claim. Do big oil companies like Exxon Mobil Corporation (NYSE:XOM) pay considerably lower U.S. income taxes than individuals? Yes. But do they pay a high tax rate that would seem unfair to other sectors? Yes. So if the Obama administration thinks the oil industry should pay its fair share, they can find a way to frame that argument, and the opposition can give its own side just as well.

While these types of arguments make for good cocktail party fodder, very rarely should taxes sway your investment decisions. To paraphrase Warren Buffett, when someone pitches a sound investment idea to you, the first thought in your mind is never “what will my tax rate be on the gain?” Rather, focus on solid companies that will perform no matter what business environment is out there.

The article Do Oil Companies Pay Enough in Taxes? Or Too Much? originally appeared on Fool.com.

Fool contributor Tyler Crowe owns shares of Apple. You can follow him at Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool. The Motley Fool recommends Apple, Chevron, Goldman Sachs, National Oilwell Varco, and Google and owns shares of Apple, Google, National Oilwell Varco, and JPMorgan Chase.

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