Companies Push to Repeal AMT After Senate's Last-Minute Move to Keep It Alive

By Theo Francis and Richard Rubin Features Dow Jones Newswires

Technology, banking and other industries mounted a new round of lobbying Monday to save a wide range of tax breaks following the last-minute switch in the federal tax overhaul by the U.S. Senate.

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The Senate on Saturday decided to keep a corporate alternative minimum tax, or AMT, a move that gave the senators $40 billion over a decade to use on other priorities, according to the official estimate.

The move blindsided CEOs and business groups, who acted quickly on Monday to try to persuade legislators to kill or modify the provision, arguing that keeping it would undercut several goals of the legislation, including fostering investment in the U.S.

The corporate AMT is a parallel system with low rates and fewer breaks that kicks in if a variety of tax breaks bring a firm's regular tax bill too low. Currently, the corporate AMT of 20% rarely applies, since most corporations face a higher 35% tax rate and benefit from breaks eligible under both systems.

With a proposed 20% corporate rate, many companies could end up in the AMT -- and lose some of their tax breaks in the process.

Business lobbyists argue that keeping the corporate AMT would make it harder for tech companies to claim tax credits for research and development spending and for banks to claim credits for investing in troubled U.S. areas. It also could undermine the international-tax structure Republicans created elsewhere in the same bill, undercutting incentives to put intellectual property in the U.S., tax experts say.

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The provision is "hugely problematic," said Jennifer McCloskey, director of government affairs at the Information Technology Industry Council, whose members include Amazon.com Inc., Apple Inc. and Alphabet Inc. "We will be working to see it resolved this week."

A congressional aide familiar with the legislative change said it is unlikely the alternative minimum tax would have the dramatic effect that critics fear, since the Joint Committee on Taxation pegged its savings below the value of the R&D tax credit. Other tax experts, in contrast, warn the $40 billion estimate could prove too small.

The House and Senate hope to reconcile competing versions of the tax overhaul and pass a final bill by Christmas.

The corporate pushback is getting results. House Majority Leader Kevin McCarthy (R., Calif.) said Monday that negotiators from the House and Senate needed to remove the corporate AMT.

The U.S. House's tax-overhaul bill, passed Nov. 16, would eliminate the corporate AMT. Earlier drafts of the Senate bill would have as well, but changes to the version adopted in the early hours of Saturday morning preserved it.

The discovery of the change sparked consternation among corporate lobbyists and trade associations over the weekend, including among members of the influential Business Roundtable, a trade association of chief executives at some of the biggest U.S. companies.

Most of the overhaul was drafted without taking an alternative minimum tax into account, and so could conflict with it, tax experts concluded. For example, the Senate bill initially preserved the New Markets Tax Credit, which incentivizes projects in distressed areas and then reduces banks' tax bills. The retention of the corporate AMT reversed that, said Michael Novogradac, managing partner of Novogradac & Co., a San Francisco accounting firm that specializes in the credit and similar breaks. "I know it's got to harm some. And it may harm many," he said.

As emails flew, trade groups issuing statements broadly praising the Senate bill began to also raise concerns about the alternative minimum tax -- and then urged action to reverse the decisions.

"You really have to scratch your head at an effort like this that would negatively impact research and development in the U.S.," said Linda Moore, CEO of TechNet, a trade association that includes top officials at Oracle Corp., Cisco Systems Inc., Visa Inc., and Microsoft Corp.

On Monday, than two days after applauding the Senate for passing the tax bill, the U.S. Chamber of Commerce called the reinstatement of the AMT "a very unpleasant surprise," saying it would prove more harmful under the overhaul than in current law.

"This cannot be the intended impact from a Congress who has worked for years to enact a more globally competitive tax code," Caroline Harris, its chief tax counsel, wrote on the trade group's website. "The U.S. Chamber wants tax reform to be as pro-growth as possible, and that means repealing the AMT."

In a letter to the lawmakers who will hash out differences between the House and Senate bills, an Intel Corp. executive warned against maintaining the alternative minimum tax, writing on behalf of the R&D Credit Coalition and its 100-plus members.

"Maintaining the corporate AMT will add the complexity of dealing with two tax systems and will penalize companies that engage in research," wrote Ronald Dickel, Intel's vice president of finance and director of global tax.

Much of the R&D tax break goes to giant firms. Among S&P 500 companies reporting a combined $3.1 billion in tax benefit from the credit in 2016, roughly 85% went to 20 corporations, mostly in the technology, pharmaceutical and defense industries, according to an analysis by financial-data firm Calcbench.

Last year, Alphabet reported a $483 million benefit from research tax credits, while Intel reported nearly $300 million, according to Calcbench. In the year ended Sept. 30, Apple reported $678 million. Intel declined to comment. Apple and Alphabet didn't immediately respond to requests for comment.

But smaller companies benefit as well, including a number of farm- and construction-equipment makers that belong to the Association of Equipment Manufacturers, said Kip Eideberg, vice president of public affairs and advocacy for the trade association.

"Since the research credit is not permitted to reduce regular tax below the tentative minimum tax, it is effectively repealed," Mr. Eideberg said. "We do not believe that is how you encourage growth in the manufacturing sector, and we have encouraged the tax writers in the Senate to remove the corporate AMT."

The corporate AMT's effects are also worrying banks that hold municipal bonds, said Neil Barr, head of the tax department at Davis, Polk & Wardwell LLP in New York. The interest on that debt, normally tax-free, would effectively become taxable.

Retaining the corporate AMT would also alter the new features of the international tax system that Senate Republicans wrote, Mr. Barr said. For example, companies that were counting on lower tax rates on foreign profits or profits from intangibles such as patents wouldn't get them. "It would substantially undercut the structural underpinnings of what they're trying to accomplish," he said.

--Doug MacMillan contributed to this article.

Write to Theo Francis at theo.francis@wsj.com and Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

December 04, 2017 20:16 ET (01:16 GMT)