The Washington-based research group, which is backed by labor unions, found that three companies -- Washington-based Pepco Holdings Inc., American Electric Power Co. of Columbus, Ohio, and DuPont Co. of Wilmington, Delaware -- paid no state income tax in 2008, 2009 and 2010.

The study examined 265 companies in the Fortune 500 that were profitable in all three years and reported enough information to evaluate state income tax payments.

It found that those companies paid state income taxes equal to 3 percent of their U.S. profits, about half of the average statutory state tax rate, according to Matthew Gardner, executive director of the institute and co-author of the report.

The reduced rate of corporate state income tax payments translates into $42.7 billion in forgone revenue to those states in the past three years, the report found.

“Our report should be understood to show that state income taxes are not raising the revenue they were designed for,” Gardner said.

Forty-four states and the District of Columbia levy some form of state corporate income tax. Ohio, Nevada, South Dakota, Texas, Wyoming and Washington don’t have the tax, Gardner said.

Falling Revenue

Gardner said state corporate income tax revenue has been falling for 20 years. He attributed the decline to increased state subsidies to companies and to federal tax breaks that reduce the amount of taxable revenue. Companies also devote “money and legal firepower to coming up with tax-avoidance schemes,” he said.

States have contributed to the decline by shifting corporate taxation from property and payroll to sales, which generally yields lower taxes, said Joe Huddleston, executive director of the Washington-based Multistate Tax Commission. The organization of state governments administers tax laws for multistate businesses.

Large companies have done more to shift income to low-tax or no-tax states, Huddleston said.

“It’s only the biggest of the big that are able to avoid equitable tax treatment,” Huddleston said.

The three companies that, according to the report, avoided state income taxes were among 30 corporations listed as paying no federal income tax in the same period in a study last month by Citizens for Tax Justice, the institute’s sister organization.

Pat Hemlepp, a spokesman for American Electric Power, said the findings in both reports are skewed because the period of the study occurred during an economic decline, when the company participated in federal stimulus programs to create jobs. Those programs benefited the company’s state and federal tax position, he said.

‘Villainizing Companies’

“There was bonus depreciation and other programs that allowed for deferral of taxes,” Hemlepp said in a telephone interview. “All a report like this is doing is villainizing companies for following the directives of Congress and the administration.”

The advocacy group’s report said that from 2008 through 2010, AEP had profits of $5.9 billion, a negative state tax position of $97 million and negative federal tax of $545 million.

A company with a negative tax position effectively receives a tax benefit from the government, such as credits or refunds.

Hemlepp said from 2005 through 2007, the three years before the period covered by the study, AEP paid $1.3 billion in federal taxes and $87 million in state taxes. The company’s tax payments will begin to show similar levels when the effects of stimulus programs wind down in 2012, Hemlepp said.

Stimulus Programs

Pepco cited the effects of stimulus programs in a statement on its tax payments.

The power company made about $2 billion in capital investments subject to tax benefits, including bonus depreciation and other deductions, chief financial officer Anthony Kamerick said in a statement.

The accelerated deductions, along with “significant cash contributions the company made to the employee pension retirement plan,” were the main reasons Pepco didn’t face a tax liability in the 2008-2010 period, the statement said.

DuPont spokeswoman Tara Stewart declined to address the conclusions of either report.

“DuPont complies with all tax laws and regulations in every jurisdiction in which it operates,” she said in an e- mail.