REUTERS/Mario Anzuoni
- Warren Buffett's energy business has reported a negative income tax rate for five years in a row.
- Berkshire Hathaway Energy receives tax credits for producing wind power and other clean energy.
- The key division has netted close to $6 billion of tax benefits in the last three years alone.
Warren Buffett's energy division has reported a negative income tax rate for five straight years, thanks to billions of dollars' worth of tax credits it's received for producing clean power.
Berkshire Hathaway Energy, one of the largest segments of Buffett's conglomerate, is home to companies including MidAmerican Energy, PacifiCorp, and NV Energy. It generated $26 billion of revenue and $3.1 billion in pre-tax earnings last year — a significant chunk of Berkshire's total revenue of $302 billion and $31 billion of operating profits in 2022.
The division's effective income tax rate dropped from nearly 13% in 2016 to below 6% in 2017, Berkshire's annual reports show. It then swung to -18% in 2018, or a roughly $450 million tax benefit.
"BHE's effective income tax rates regularly reflect significant production tax credits from wind-powered electricity generation placed in service by our domestic regulated utilities and other energy businesses," Buffett and his team explained at the time.
A cut to the federal corporate income tax rate, lower US income taxes on foreign earnings, and a few other factors also reduced the division's tax burden, they noted.
Berkshire Hathaway Energy's income tax benefit swelled to over $500 million in 2019, representing a -20% tax rate. The segment enjoyed a $1 billion benefit in 2020, equivalent to a -41% tax rate. It reported a $1.2 billion benefit or -37% tax rate in 2021, then a hefty $3.4 billion benefit or -52% tax rate in 2022. In other words, it's received close to $6 billion in income-tax benefits on a net basis in the last three years alone.
The key subsidiary disclosed a striking -163% tax rate in the first quarter of this year, as a $363 million benefit exceeded its $223 million of pre-tax earnings. Its tax rate was still a solid -61% last quarter.
"The tax rate remains remarkably negative at -61%, though not as negative," Chris Bloomstran, the president of Semper Augustus Investments and a longtime Berkshire shareholder, tweeted in August.
It's worth emphasizing that Berkshire as a whole has paid significant income taxes over the years, despite the tax benefits from its energy division. The conglomerate paid $32 billion in federal income taxes in the decade from 2012 to 2021, or about 0.1% of all the money collected by the US Treasury during that period, Buffett noted in his latest shareholder letter.
"When it comes to federal taxes, individuals who own Berkshire can unequivocally state 'I gave at the office,'" the investor quipped.
Buffett added that he's more than happy for Berkshire to pay its fair share of taxes, given his company owes much of its success to the "American Tailwind" it has enjoyed for decades.