By Patrick Gorman
December 4, 2017 - The U.S. Senate has passed the Republican plan overhauling the nation’s tax system early Saturday, including new lower rates for corporations and pass-through businesses, but its failure to repeal the Alternative Minimum Tax (AMT) has CEOs in certain sectors up in arms.
“It would be a disaster for any highly-leveraged business which is capital intensive in America,” Robert E. Murray, chairman, president and CEO of Murray Energy Corp. told Chief Executive. “The U.S. Senate has made a mockery out of their so-called tax reform. There are no advantages to anything else we’d get in this tax reform that will offset the AMT situation.”
The AMT is a mandatory alternative to the standard income tax that is activated when taxpayers hit a certain income level, and is designed to prevent taxpayers from using legal loopholes to avoid paying taxes. One area that could be impacted under the Senate plan is the tax credit for research and development that is leveraged by manufacturers, pharmaceutical companies and tech companies.
For Murray Energy Corp., one of the country’s largest coal mining companies, the potential loss of the business interest expense deduction under the AMT would result in an enormous tax hit for the company.
“We modeled the entire tax reform program, and it will raise Murray Energy Corp.’s taxes by $60 million per year,” Murray told Chief Executive. “When you leave the Alternative Minimum Tax in and you take away the net interest deduction and aren’t allowed to use interest as an expense, in my case, the Senate just killed 7,000 coal mining jobs in my company.”
Murray suggests that CEOs who find their businesses in a similar situation let their elected officials know about their concern and to urge them to support the U.S. House of Representatives version of the tax bill that is being discussed in conference, which eliminates the AMT.
CEOs should also do some research into whether their businesses may be negatively impacted by the AMT provisions in the Senate bill, according to Murray.
“I suspect there are many, many companies in this country that don’t realize what’s just happened to them,” Murray says. “Every business in this country should do as we did and model their tax program, because if they are a capital-intensive, highly-leveraged business, they are in trouble and many probably don’t know it. It’s a mockery and a tragedy from the U.S. Senate.”
Meanwhile, the National Association of Manufacturers has been supportive of tax reform efforts, but is concerned about the possible impact the AMT could have on how research and development expenses are taxed in the manufacturing world under the Senate’s version of tax plan.
“Research and development is the lifeblood of manufacturing,” Chris Netram, vice president for tax and domestic economic policy with the National Association of Manufacturers said in an email to Chief Executive. “The NAM supports pro-growth tax reform, and is working with key policymakers to ensure the final bill does not inadvertently harm manufacturing.”
As the tax reform bill advances this week to a congressional conference committee to reconcile any differences between the Senate and House versions, House Majority Leader Rep. Kevin McCarthy (R-CA) has already publicly stated that the AMT should be removed from the final version of the bill, so negotiations in this area bear watching as the process moves forward.