Corporate Alternative Minimum Tax Is Now in Effect — What Companies Will Pay More and Will It Affect You?
President Joe Biden signed the Inflation Reduction Act (IRA) into law on Aug. 16, far-reaching legislation which addresses climate, energy and healthcare issues. The IRA includes a corporate alternative minimum tax (CAMT) — a 15% minimum tax on the adjusted financial statement income of large corporations for taxable years beginning after Dec. 31, 2022.
“It’s 2023. That means the largest, most profitable corporations will have to start paying a 15% minimum tax. The days of the wealthiest companies not paying taxes are over,” President Biden tweeted on Jan. 2.
The Internal Revenue Service (IRS) explained that the CAMT applies to large corporations with average annual financial statement income exceeding $1 billion.
In terms of capital it would raise to offset the cost of the IRA, the administration initially forecasted a figure of $313 billion. However, the Joint Committee on Taxation (JCT) estimated (in September 2022) revenue of $222 billion from now through 2031 as a result of the legislation, adding that it will affect approximately 150 companies.
Per a July 2022 JCT estimate, the tax will hit the U.S. manufacturing industry the most, with its projected new tax burden being $155.6 billion, or almost half (49.7%) of the total amount. Of this share, chemical manufacturing will bear the brunt of the new tax (16.1% of the total) followed by transportation equipment manufacturing companies.
Next in line to shoulder the new tax are U.S. information companies, followed by holding companies, wholesalers and retailers, according to the JCT estimate.
Which Companies Will Foot the New Corporate Tax Bill?
Barron’s reported that investment bank UBS “screened for companies that both fit that bill [are eligible to pay the new tax] and have recently been paying less than 15% in cash taxes, and found 102.”
Some of these companies include Tesla, Ford Motor, Amazon and Salesforce.
In a Sept. 29, 2022, letter to Treasury Secretary Janet Yellen, Sens. Michael Bennet (D-Colo.), Elizabeth Warren (D-Mass.) and Angus King (I-Maine), as well as U.S. Rep. Donald S. Beyer (D-Va.), urged her to pursue strong implementation of the 15% corporate minimum tax. The authors wrote: “In the first three years following the 2017 corporate tax cuts, FedEx, Salesforce, and 37 other profitable corporations in the S&P 500 or Fortune 500 paid $0 in federal income taxes. Meanwhile, Amazon has paid only 5.1% in federal tax on its $78.6 billion in U.S. profits from 2018 to 2021.”
The White House detailed in an Aug. 19, 2022, fact sheet that the IRA aims to make the tax code fairer “by cracking down on millionaires, billionaires, and corporations that evade their obligations, and making sure the largest corporations pay their fair share.”
“The law’s tax reforms won’t just raise revenue to finance critically needed investments to lower costs for working families and combat climate change, they are also an important component of building an economy that rewards work rather than wealth and doesn’t let the rich and powerful get away with playing by a separate set of rules,” per the fact sheet.
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