One of the last-minute, late-night changes Senate Republicans made to their tax-overhaul plan may mean higher taxes for corporations, including technology firms, than the bill’s drafters intended, experts say.
As amended, the Senate tax bill would preserve the existing 20 percent corporate alternative minimum tax, a levy designed to stymie companies’ tax avoidance that applies to fewer than 1 percent of U.S. companies under current law.
But under the Senate plan, retaining the AMT could prevent companies from making use of planned tax breaks related to intellectual property, to spending on new equipment and to research and development. The AMT may fall hardest on technology and utilities companies -- though the snag would apply broadly, experts say.
“The fact is, almost everyone who’s a corporate taxpayer is going to be an AMT taxpayer” under the bill, said Bret Wells, a tax law professor at the University of Houston.
Shares of technology companies dropped Monday. An index of technology companies on the S&P 500 fell around 2 percent. The Nasdaq 100 Tech Index fell 1.8 percent.
Already, the U.S. Chamber of Commerce is seeking the AMT’s repeal -- as the Senate bill would have done before Saturday’s changes. Seeing the provision retained in the legislation was “a very unpleasant surprise,” wrote Caroline L. Harris, the organization’s chief tax counsel.
“Repeal of the AMT has long been one of the policy pillars for pro-growth tax reform,” Harris wrote in an article on a chamber website.
‘Drafting Error’
Under existing rules, every corporation must calculate its tax bill according to both the regular corporate income tax and the AMT, and pay whichever’s higher. With the corporate AMT at 20 percent and the current corporate rate at 35 percent, most companies have ended up paying tax calculated at the higher regular corporate rate.
A simple “drafting error” most likely left the AMT in the Senate bill at 20 percent -- even though the overall corporate rate would be reduced -- said Jennifer McCloskey, director of government affairs at the Information Technology Industry Council, a group that represents tech companies including Google, Oracle and Amazon. Congress should repeal the AMT completely or cut it to a level proportionate to the new 20 percent corporate tax rate, she said.