New book minimum tax will not affect large companies

The new corporate minimum tax signed into law by President Biden last month will not affect large companies equally. According to the University of North Carolina Tax Center, a small percentage will bear the heaviest burden.

The tax imposes a 15% minimum on corporations based on profits they publicly report on their financial statements to shareholders. The deductions in the tax code can cause a number that can vary from taxable income to taxable income.

The nonpartisan Tax Foundation advocates for lower taxes, because companies may be able to write off the costs of investments or previous operating losses on their income tax returns.

If the levy was in place last year, only 78 companies would have paid the 15% book income tax included in Democrats' Inflation Reduction Act, according to the think tank. Only six companies — including Amazon and Berkshire Hathaway — would have paid half of the estimated $31.8 billion in revenue that Democrats expect the tax to generate.

It was Warren Buffett's Berkshire Hathaway who led the way with $8.33 billion owed, followed by Jeff Bezos' Amazon with $2.77 billion owed, based on their 2021 earnings. The Joint Economic Committee on Taxation had previously estimated that the tax would affect about 150 firms.

According to a separate analysis of the proposal conducted by Tax Foundation, the tax will likely be disproportionately borne by certain industries.

The coal industry would have to face the heaviest burden under a net tax hike of 7.2% of its pre-tax book income. It would be followed by automobile and truck manufacturing, which is facing a 5.1% tax hike.

These industries have a stronger impact because they are at the intersection of the book tax gaps targeted by Congress.

The proposal is intended to impact businesses that use tax breaks to change the time period when they report income or take advantage of tax incentives created by Congress, such as bonus depreciation and special items, which show up in one income definition but not the other, according to the Tax Foundation.

The Tax Foundation wrote in its analysis that the book minimum tax affects industries very differently, some of which may be unintended, which may be a reflection of a tax proposal that has not been fully vetted.