The Dirty 30 | #9 Tax Loopholes and Avoidance

In 2013, Corrections Corporation of America is "celebrating" its thirtieth anniversary.  We believe there is nothing to celebrate about 30 years of profiting off of incarceration.  In response Grassroots Leadership and Public Safety and Justice Campaign published "The Dirty Thirty: Nothing to Celebrate About Thirty Years of Corrections Corporation of America," a list of thirty stories that exhibit the most troubling aspects of the company's history.  Each week we'll highlight one of these stories.  Click here to view the full report.  Printed copies are available in limited quanitity.  For more information please contact Kymberlie Quong Charles.

It is of little surprise how often Corrections Corporation of America - a private corporation invested in maximizing its profit margins as much as possible - has made efforts to avoid paying taxes. Several cases have brought CCA’s attempts at tax avoidance to light. In 1998, CCA was sued by the Cleveland Independent School District in Texas after the company failed to pay its stipulated local taxes, reducing its $180,000 tax payment by $100,000 without prior permission. CCA settled the case, agreeing to pay $300,000 in outstanding tax payments before pulling out of its contract to operate the Cleveland Pre-Release Center. Meanwhile, at CCA’s Leavenworth Detention Center in Kansas, the company filed a property tax protest with the county in February 1998, arguing that the prison’s tax status should be reclassified as residential rather than commercial. CCA’s request was denied, with Kansas State Representative Candy Ruff commenting, “They’re located in a for-profit industrial park surrounded by for-profit enterprises. They’ve got these bars on the windows. They’ve got barbed wire on top of the fence, and they want to say they’re a residence? Give me a break.”[1]

Ironically, CCA has now been able to successfully use this very same argument to circumvent paying taxes on a much greater scale, through the tax strategy of becoming a real estate investment trust (REIT). Designed to reduce the payment of corporate federal income taxes, REITs are a special tax designation for companies that focus on real estate holdings. CCA was able to make the successful claim to the Internal Revenue Service that the money they collect from government entities for holding prisoners is essentially the same as rent collection, achieving REIT status in 2013. CCA’s Chief Executive Damon T. Hininger said, “The good news about this is that we are going to be able to enjoy a full year of tax savings for 2013.”[2]

CCA has obviously done its homework following the company’s disastrous attempt to operate a REIT in 1999 under its Prison Realty Trust (see #14). One of the conditions of REIT status is that 90 percent of income must be distributed to shareholders. CCA failed to meet these conditions previously because of cash flow problems, posting a $62 million loss for 1999.[3] Shareholders filed lawsuits against CCA and Prison Realty Trust, alleging that material information had been concealed from shareholders, and the company had made misleading statements. In February 2001, CCA settled the lawsuits for approximately $104 million in stocks and cash. Now that CCA is financially “back on track”, having found a new market in immigration detention, the corporation that posted $162 million in profits for 2011 is once again finding new ways to maximize its earnings. At a time of drastic budget cuts throughout the public sector, CCA expects to make $70 million savings in tax payments for 2013 due to its REIT status.[4]

  1. Mark Wiebe, “Detention Center Meets Opposition in Push to Change Tax Classification,” Kansas City Star, March 12, 1998, pg.1.
  2. Nathaniel Popper, “Restyled as Real Estate Trusts, Varied Businesses Avoid Taxes,” The New York Times, April 21, 2013.
  3. Philip Mattera & Mafruza Khan, “Jail Breaks: Economic Developments Subsidies Given to Private Prisons,” Washington, DC: Good Jobs First, 2001. .
  4. Noel Brinerhoff, David Wallechinsky, “Private Prison Companies Find Loophole to Avoid Taxes,” AllGov, Aprils 24, 2013.