A new corporate business tax has big businesses questioning how it will play out for them.
A new corporate tax that is part of the Inflation Reduction Act will instate a minimum tax of 15% on the adjusted financial statement of big corporations. The business will pay the larger of the minimum tax or the regular tax, according to Congress Reports.
The tax will apply to companies that make more than $1 billion in average annual earnings, calculated over a three-year period, in any of the previous three years. For businesses that have foreign ties, it will only affect income earned in the U.S. over $100 million or more, calculated the same way.
The tax will exclude regulated investment companies, Subchapter S Corporations, and real estate investment trusts.
Companies are struggling to configure if they fall within the 150 companies that will be affected. The companies have to calculate if it falls within the $1 billion mark.
Why it’s news
The reason for the tax comes from concerns from President Joe Biden and members of Congress that some corporations report low taxes despite their high profits.
The tax is expected to affect around 150 large corporations and generate significant revenue—projected to bring in around $258 billion over a 10-year period.
Businesses will also grapple with how to disclose the potential impacts of the minimum tax in financial statements before they receive guidance on the law from regulators, including the Financial Accounting Standards Board, says The Wall Street Journal.
Companies have many questions surrounding this newly given tax and officials are saying they have as many questions as they do answers, but their first priority is implementing the Inflation Reduction Act.
Backing up a bit
Last week, President Biden signed a climate and health-care law called the Inflation Reduction Act.
The primary goal of the law is to restrain inflation by reducing the deficit, lowering prescription drug prices, and investing into clean energy. The bill invests $369 billion in climate change investments, $64 billion in extending the Affordable Care Act, institutes a 15% corporate minimum tax, and expands IRS tax enforcement.