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7 U.S. companies keep shrinking tax bills

Google headquarters.
Justin Solomon | CNBC
Google headquarters.

The race is on among U.S. companies to find the best ways to cut their tax bills. But there's a handful of firms that could write the book.

Seven U.S-based companies in the Standard & Poor's 500 index, including online ad firm Google (GOOGL), online travel agent TripAdvisor (TRIP) and pet supply retailer PetSmart (PETM), have paid a lower effective tax rate in each and every of the past five years.

To weed out companies that are paying lower tax rates because they're making less money, in order to make the list, the companies' net income needed to also be higher in 2013 than it was five years ago.

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What's wrong about companies cutting their tax bill? Absolutely nothing. But investors are getting increasingly sensitive to the means and methods companies are using to cut their taxes.

Lowering taxes is one way to boost profit to shareholders, which is one of the key reasons why companies exist. But investors are wondering which companies could be exposed if tax officials take a closer look at the rules and perhaps consider reform.

"To the extent that tax-planning strategies are legally allowed, they often result in a permanent reduction in the firm's tax obligations," according to a June report by Nicholas Yee at research firm Gradient Analytics, not referring to any specific company. "However, there can be no guarantee that the reduction is sustainable."

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If you search for "lower tax rates" online, you'll likely turn up Google. The online search and advertising firm has managed to push its effective tax rate to 15.7% in 2013 down from 27.8% in 2008 despite net income soaring 206%.

That's a pretty nifty move, which Google is pretty clear about in its explanation for the lower tax rate. In its 2013 regulatory filing, Google says, it was "primarily as a result of proportionately more earnings realized in countries that have lower statutory tax rates." The company also credited the federal research and development credit that was part of the American Taxpayer Relief Act of 2012.

Another company to go to great pains to cut its U.S. tax bill is TripAdvisor. The company has driven down its effective tax rate from 39.3% in 2008 to 27.8% in 2013. During that time, the company's net income jumped 184%. The company in its 2013 regulatory filings even predicts it'll drive its tax rates down more.

TripAdvisor in the filing says a restructuring of its non-U.S. operations for "more efficient treasury management and global cash deployment" helped cut taxes in addition to the expansion of its non-U.S. operations lead to lower effective tax rates. For instance, in 2011 the company won a tax incentive from Singapore that gives it a reduced tax rate of 5%, versus the normal rate of 17%.

But TripAdvisor is a good example of why investors are wise to watch these developments. TripAdvisor said in its second quarter 2014 filing its under IRS audit for 2009 and 2010 tax years. There's been no update from that audit.

Again, there's nothing necessarily wrong about wanting to pay lower taxes. But investors need to be aware of the issue and know where the companies appear to be the most aggressive and successful in paying less to the taxman.

Below are the seven U.S. S&P 500 companies that have cut their effective tax rates each and every of the past five years and posted higher net income:

—By Matt Krantz, USA Today

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