The corporate alternative minimum tax (CAMT), which took effect in January 2023, has already affected more than a dozen large firms, The Wall Street Journal reported.
Electric utility Duke Energy, appliance maker Whirlpool, and investment firms KKR and Blackstone are among the large companies that reported that they owe the CAMT for 2023 or expect to pay it soon.
The tax was created by the Inflation Reduction Act of 2022. It consists of a 15 percent minimum tax on the adjusted financial statement income of certain large corporations for taxable years beginning in 2023. Taxpayers generally affected by the CAMT are corporations, including insurance companies, with an average annual adjusted financial statement income exceeding $1 billion.
Congress explicitly allowed companies offset both the CAMT and the regular corporate income tax with some breaks, the Journal reported, including accelerated depreciation and renewable-energy tax credits, meaning that some profitable companies can still achieve very low tax rates.
“Just based on how it’s built, it’s not going to get companies up to the 15 percent minimum tax rate,” said Kyle Pomerleau, a senior fellow at the American Enterprise Institute, in an interview with the Journal. “It’s going to fail to do that, but that was expected when it passed.”
President Joe Biden plans to raise the rate of theCAMT to 21 percent starting this year, and to increase the main corporate tax rate to 28 percent from 21 percent, which would raise an additional $137 billion over the next decade. The Treasury Department called the CAMT expansion “a targeted approach to ensure that the most aggressive corporate tax avoiders bear meaningful federal income tax liabilities,” the Journal reported.
The administration still has not proposed the detailed rules that companies will need to calculate the CAMT, which is based on financial-statement income, not normal taxable income. Without those rules, companies and accountants are estimating their way through the first year, according to the Journal.
Whirlpool reported that it had a $28 million CAMT liability, while Ally Financial said it recorded a $128 million liability, according to the Journal. Duke Energy reported a $69 million cost and cited the interaction of the CAMT and older foreign tax credits. KKR and Blackstone didn’t provide precise numbers. Other companies reporting CAMT costs or potential effects include Corebridge Financial, Airbnb, Devon Energy, General Electric and home builder NVR.
Accountants and tax experts interviewed by the Journal cited several reasons why companies might owe the CAMT for 2023. Stock-based compensation, in which companies’ deductions for their financial statements don’t align with their deductions for tax purposes, is one. Companies booking much of their income abroad under a separate minimum tax of 10.5 percent or using a tax break for exports that features a 13.125 percent tax rate are other reasons why they owe the CAMT.
The toughest CAMT problems can be for companies near the $1 billion, three-year-average threshold that determines whether they are subject to the tax at all, said Monisha Santamaria, a principal at KPMG’s Washington national tax office, in an interview with the Journal. Those “scope bubble” companies have to do several complex calculations to determine whether they need to pay. “Who ends up paying and who ends up not paying just seems surprising to me,” she said.
Because companies don’t understand enough yet about how the CAMT will work, especially without Treasury rules, they can’t do much tax planning to avoid it, Colleen O’Neill of Ernst & Young told the Journal.
“I would characterize taxpayers as being somewhat on the defense with respect to corporate AMT rather than offense,” she said. “If they’re doing something and they think it may trigger a liability, they may pause before doing it.”