How the Senate’s Tax Bill Could Impact Semiconductors

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Part 9
How the Senate’s Tax Bill Could Impact Semiconductors PART 9 OF 11

Why Some Industries Are Lobbying against the Alternative Minimum Tax?

Alternative minimum tax

In its initial version of the tax reform bill, House Republicans had proposed to eliminate the corporate AMT (alternative minimum tax), but the Senate’s version brought back the ATM because it would raise $40 billion in government revenues over the next decade, according to the official estimate.

Why Some Industries Are Lobbying against the Alternative Minimum Tax?

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The AMT is a parallel system that calculates taxable income after limiting or eliminating certain deductions, credits, and other tax preference items. A flat rate of 20% is applied to the taxable income.

The AMT triggers when several tax breaks bring a company’s taxes too low, and so the AMT aims to prevent corporations from avoiding taxes altogether by misusing deductions and credits. Under the current 35% maximum corporate tax rate, the AMT rarely applies, as most corporations face a higher tax.

Companies lobby to remove AMT

For this reason, technology (QQQ), banking, and other corporations are lobbying the US government to eliminate the corporate AMT because, they argue, the retention of this tax could undercut the main goal of boosting investments in the US.

With a proposed maximum tax rate of 20%, many companies could fall under the AMT bracket, and at 20%, many companies would have little room to use deductions and credits, as they had done previously, to lower their taxes.

According to Calcbench analysis, S&P 500 companies (SPY) claimed $3.1 billion in R&D (research and development) tax credits in 2016, of which 85% was claimed by 20 companies operating in the areas of technology, pharmaceuticals, and defense.

The impact of AMT on the technology industry

In the technology industry, the corporate AMT could potentially discourage companies from investing in R&D, according to the US Chamber of Commerce. Semiconductor companies are some of the biggest R&D spenders, with Qualcomm (QCOM), Intel (INTC), and Broadcom (AVGO) spending 33%, 22%, and 20.5% of their revenues, respectively, on R&D.

Under the AMT, many companies wouldn’t be able to deduct their complete R&D spending to claim tax credits—in addition to saving from the drastically lower maximum corporate tax rate, which may disincentivize the goal of keeping IP (intellectual property) in the US, according to some tax experts.


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