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Harmful “Book Tax” Causes Confusion

A new 15% corporate minimum tax is causing businesses to fear that some one-time activities, such as business-unit sales, will cause them to incur the hefty levy, according to The Wall Street Journal (subscription).

  • It’s among the many concerns the NAM has raised in its advocacy against the book tax, which went into effect in January.

What’s going on: The new duty “applies to U.S.-based companies that report income to shareholders averaging at least $1 billion over three years. What’s more, once a company is subject to the levy, it remains that way even if profits decline unless certain conditions are met, such as a determination from the government that a company shouldn’t be subject to the minimum tax.”

  • Some companies are raising the matter of “extraordinary items,” or one-time sales that have pushed profits over the $1 billion threshold.

Manufacturer priorities: Also of significant economic importance to manufacturers are the safe harbor test and accelerated depreciation, two pro-growth incentives.

  • The NAM has urged the Internal Revenue Service to make permanent its proposed safe harbor test—currently available only through this year—to determine whether a taxpayer is subject to the corporate minimum tax.
  • The NAM’s advocacy was successful in modifying the tax regime to recognize accelerated or “bonus” depreciation in last year’s reconciliation legislation, which contained the corporate minimum tax.
  • Bonus depreciation is an accounting method in which an asset’s book value depreciates more quickly in the first few years of its life, reducing after-tax costs of large purchases.  

The last word: “Manufacturers believe that alternative minimum taxes–including a ‘book tax’—are unacceptable ways of addressing perceived deficiencies in the tax system and add complexity to an already complicated system,” NAM Managing Vice President of Tax and Domestic Economic Policy Chris Netram told the IRS last month.

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