Biden’s 15% Corporate Minimum Tax Hits KKR, Blackstone, Whirlpool in First Year

WASHINGTON—President Biden’s 15% corporate alternative minimum tax hit the electric utility Duke Energy, the appliance maker Whirlpool and the investment firms KKR and Blackstone in its first year, and the president now wants to expand the levy.

Congress created the tax in the 2022 law known as the Inflation Reduction Act, trying to address situations in which companies reported billions in profits to investors while using legal credits and deductions to pay little or no corporate taxes. That was a political and policy problem partly of Congress’s own making and one that Biden and Democrats attempted to solve by layering on another tax.

The 15% corporate alternative minimum tax, also known as the CAMT, is supposed to serve as a tax backstop for companies averaging at least $1 billion in financial-statement profits over three years. The law set a floor under large companies’ tax rates by making them calculate taxes under both the regular system and CAMT and then pay whichever is higher.

It is also intentionally porous. Congress explicitly let companies offset both the CAMT and the regular corporate income tax with some breaks, including accelerated depreciation and renewable-energy tax credits. That means some profitable companies can still achieve very low tax rates.

“Just based on how it’s built, it’s not going to get companies up to the 15% minimum tax rate,” said Kyle Pomerleau, a senior fellow at the conservative-leaning American Enterprise Institute. “It’s going to fail to do that, but that was expected when it passed.”

CAMT (pronounced CAM-tee or cam-TEE in tax circles) was expected to raise $222 billion over a decade, and it would raise another $137 billion under Biden’s plan to bump the rate to 21% starting this year and push the main corporate tax rate to 28% from 21%. The Treasury Department calls the CAMT expansion “a targeted approach to ensure that the most aggressive corporate tax avoiders bear meaningful federal income tax liabilities.”

CAMT took effect for many companies in January 2023, and the administration still hasn’t proposed the detailed rules companies will need to calculate the tax, which is tricky because it is based on financial-statement income, not normal taxable income.

Without those rules for now, companies and accountants are struggling and estimating their way through the first year, and the results are proving idiosyncratic and complex. A Treasury official said Monday it was too early to assess whether CAMT was hitting revenue targets or how many companies are paying.

More than a dozen companies have said in securities filings that they owe CAMT for 2023 or expect to pay it soon. They range across industries, and the reports to investors typically say little or nothing about why any particular company is paying the minimum tax.

Whirlpool said it had a $28 million CAMT liability, while Ally Financial said it recorded a $128 million liability. Duke Energy reported a $69 million cost and cited the interaction of CAMT and older foreign tax credits.

KKR and Blackstone didn’t provide precise numbers. Other companies disclosing CAMT costs or potential effects include Corebridge Financial, Airbnb, Devon Energy, General Electric and the home builder NVR.

In many cases, despite those 2023 effects, CAMT has no impact on companies’ bottom lines, as reported to investors. The first year’s CAMT payments can be used to offset regular corporate tax obligations in future years, if companies once again calculate their taxes both ways and find that the regular corporate tax is more burdensome.

So companies are typically reporting higher cash tax payments now and creating deferred tax assets to reflect that future benefit. The two generally cancel out on financial statements. In that sense, the law amounts to an acceleration of future corporate tax payments, particularly if companies dip in and out of CAMT.

“The level of C-suite concern seems to be significantly less when CAMT only has a cash-flow impact,” said Monisha Santamaria, a principal at KPMG’s Washington national tax office.

Accountants and tax experts cite several reasons why companies might owe CAMT for 2023. A big one is stock-based compensation, where companies’ deductions for their financial statements don’t align with their deductions for tax purposes. Companies can also find themselves paying CAMT if they are booking a lot of their income abroad under a separate minimum tax of 10.5% or using a tax break for exports that features a 13.125% tax rate.

Extraordinary sales, unrealized gains and the tax rules regarding repairs are among the items driving companies into the CAMT, said Kristen Siegele, who handles tax policy at the Edison Electric Institute, a trade group for utility companies. Most EEI members aren’t subject to the tax, but the biggest ones—representing 75% of customers—might be, she said. Regulated utilities typically have to pass along their tax costs to customers in electricity rates.

The toughest CAMT problems fall on companies near the $1 billion, three-year-average threshold that determines whether they are subject to the tax at all, Santamaria said. Those “scope bubble” companies have to do several complex calculations to determine whether they need to pay.

“Who ends up paying and who ends up not paying just seems surprising to me,” she said.

One thing keeping companies out of CAMT for now is a looming tax problem that Congress is trying to fix, said Colleen O’Neill of the accounting firm Ernst & Young. Currently, companies are required to spread out their research deductions for tax purposes instead of taking immediate write-offs. That temporarily increases their cash tax payments in the regular tax system and thus reduces their exposure to the minimum tax. If Congress addresses that—there is a House-passed bipartisan bill with broad business support that is stalled in the Senate—more companies would pay CAMT.

Because companies don’t understand enough yet about how the CAMT will work—especially without Treasury rules—they can’t do much tax planning to avoid it.

“I would characterize taxpayers as being somewhat on the defense with respect to corporate AMT rather than offense,” O’Neill said. “If they’re doing something and they think it may trigger a liability, they may pause before doing it.”

Write to Richard Rubin at richard.rubin@wsj.com