Corporate America is up in arms and actively lobbying the Trump administration over an unusual tax provision that could cost companies some $700 million.
What is being argued about are tax credits tied to the corporate alternative minimum tax. When Congress in February unpicked the so-called sequester with another $300 billion of spending with the Bipartisan Budget Act of 2018, lawmakers did not specifically address the fate of AMT credits.
They may have felt they didn’t need to — the sweeping Tax Cuts and Jobs Act repealed the corporate AMT and provided for a refund of those credits.
But companies’ AMT refund payments and related transactions processed for the federal government’s 2018 fiscal year, which ended Sept. 30, are subject to getting reduced by a 6.6% sequestration rate, according to accounting giant EY , which has cited IRS guidance . The IRS said the “sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise affects the sequester.”
Now, insurers are on the front line in asking for an end to these reductions and directing their ire to the Office of Management and Budget, which is tasked with identifying which sequestration programs get cut.
“Our objection is that it was an item that was put on a sequester list at all,” said Jon Bergner, assistant vice president of federal policy for the National Association of Mutual Insurance Companies. The credits and refunds are not quite government outlays, so they’re not something that should be sequestered, Bergner argued.
“We believe that this issue could be handled administratively by the Office of Management and Budget, and we are encouraging them to do so,” he added.
The Office of Management and Budget didn’t respond to repeated requests for comment.
It’s not just insurers that are upset.
General Motors Co. /zigman2/quotes/205226835/composite GM +0.87% , Goodyear Tire & Rubber Co. /zigman2/quotes/210067261/composite GT -1.60% , T-Mobile US Inc. /zigman2/quotes/204659678/composite TMUS -1.37% , miner Cleveland-Cliffs Inc. /zigman2/quotes/205424168/composite CLF -3.50% and packaging producer Owens-Illinois Inc. /zigman2/quotes/200272047/composite OI -1.00% are also among the companies resisting the cuts to AMT credits and refunds. They’re part of an “AMT Refund Coalition” that disclosed in an Oct. 1 filing that they have hired lobbyists to work on “issues related to corporate AMT refunds.”
That potentially could take away $739 million from U.S. companies, going by MarketWatch’s rough calculations based on data from research firm Audit Analytics.
About 540 companies disclosed AMT credits from April 2017 through March 2018 in 10-Ks, according to Audit Analytics. Their credits were worth a total of at least $11.2 billion, and trimming 6.6% from that total would amount to a reduction of $739 million.
The overall hit could be larger, given that not all companies disclose that they have AMT credits in a separate line on their balance sheets, but instead just roll them into a broader entry. On the other hand, corporations also can sit on their credits, rather than use them and face the haircut.
Among those 540 companies are household names such as Delta Air Lines /zigman2/quotes/200327741/composite DAL +0.10% and Hartford Financial /zigman2/quotes/207281914/composite HIG -0.21% . The table below shows the 10 companies from that 540 that have the biggest AMT credits, along with their annual revenue and market capitalizations.
|Company Name||AMT Credit||Annual Revenue||Market Cap||Ticker|
|FirstEnergy||$1.47 billion||$14 billion||$18 billion||/zigman2/quotes/201870541/composite FE|
|Fannie Mae||$837 million||$114 billion||$1.6 billion||/zigman2/quotes/208846331/composite FNMA|
|Hartford Financial||$790 million||$17 billion||$18 billion||/zigman2/quotes/207281914/composite HIG|
|Samson Oil & Gas||$780 million||$17 million||$3.5 million|
|Energy Transfer Equity||$604 million||$41 billion||$20 billion|
|NiSource||$576 million||$4.9 billion||$9.1 billion||/zigman2/quotes/208795963/composite NI|
|EQT Corp.||$435 million||$3 billion||$12 bilion||/zigman2/quotes/209305691/composite EQT|
|Delta Air Lines||$379 million||$41 billion||$36 billion||/zigman2/quotes/200327741/composite DAL|
|American Airlines||$344 million||$42 billion||$17 billion||/zigman2/quotes/209207041/composite AAL|
|Occidental Petroleum||$221 million||$12 billion||$63 billion||/zigman2/quotes/207018272/composite OXY|
Source: Audit Analytics
The impact for some property and casualty insurers amounts to millions of dollars, said Bergner from the National Association of Mutual Insurance Companies.
Losing millions because of this issue doesn’t mean that much for a large company with annual revenue in the billions, but it does add up to being a significant overall pain for Corporate America, said Andrew Schmidt, a North Carolina State University accounting professor.
Insurance has been the industry most affected by the corporate AMT historically, according to the Tax Policy Center’s data . Mining has been the No. 2 industry subject to this tax, followed by financial companies that aren’t insurers, and then manufacturing.
This report was first published on Oct. 9, 2018.