A last-minute modification to the GOP’s tax overhaul plan could result in much higher taxes for the tech industry and major corporations than experts had expected.
The Senate tax bill would keep in place the 20% alternative minimum tax (AMT) for corporations, which is designed to prevent them from shipping profits overseas for tax avoidance purposes. AMT affects about 1% of U.S. corporations.
However, under the revamped tax plan, if a company chooses to retain the AMT, it would lose the various tax breaks stemming from upgrading the existing equipment, intellectual property, and new R&D. The worst impacted by the change will be the tech sector and utility companies, industry analysts estimate.
However, AMT will affect any corporate taxpayer, with the companies that rely on innovation being the worst hit. Following the news, S&P 500 tech companies’ stock slipped 2% Monday, while the Nasdaq index fell 1.8%.
U.S. Chamber of Commerce Challenges the Tax Plan Changes
The U.S. Chamber of Commerce opposed the Senate changes to the bill and is now seeking a repeal. The agency’s chief tax counsel Caroline L. Harris described the AMT-linked provisions as “a very unpleasant surprise.” Harris noted that the AMT will prevent economic growth after the changes.
Under the current law, companies are required to calculate their taxes by taking into account the AMT (20%) and the federal income tax for corporations (35%) and choose which is the highest. Most corporations had to shell out the 35% tax rate, which is why many fled overseas.
The Information Technology Industry Council thinks that the current level of the AMT was caused by a “drafting error” and should be amended. The ITIC represents tech giants look Oracle, Amazon, and Google.
The group wants the AMT to be either repealed or lowered to match the proposed corporate income tax rate of 20%, and has criticized Congress’ decision to dismantle the R&D tax credit.
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