This week’s map shows states that levy alternative minimum taxes (AMTs) to prevent corporations from reducing their corporate income tax beyond a certain level. Under an AMT, corporations are required to calculate their tax liability under two systems and pay the higher amount. This requirement under the federal AMT imposed high compliance costs on businesses, which in some cases proved larger than collections.
Six states currently collect AMTs from businesses: California, Connecticut, Kentucky, Minnesota, New Hampshire and New York.
The Tax Cuts and Jobs Act of 2017 (TCJA) changed the landscape of corporate AMTs by repealing the Federal Corporate AMT, which was established in 1969. Most state-owned enterprise AMTs closely complied with the federal AMT, but the TCJA left those states without a starting point. to determine state responsibility for AMT. As a result, states that closely complied with the federal provision dropped their corporate AMTs altogether in 2018.
Historically, Alaska determined the AMT liability of state companies by collecting an amount equal to 18% of each company’s federal AMT liability. Without a federal enterprise AMT, however, the state cannot “piggyback” on the federal provision, which means no state enterprise AMT can be levied. Similarly, Florida complied with the post-TCJA Tax Code (IRC) in March 2018, and since only businesses that pay federal AMT are liable for Florida AMT, state AMT no. is no longer collected. Finally, Maine repealed its corporate AMT in September 2018 as part of an IRC compliance bill, and Iowa, in a comprehensive tax reform package passed in May 2018, repealed its corporate AMT. business as of January 1, 2021.
California, Kentucky, Minnesota, and New Hampshire have corporate AMTs that do not comply with the federal provision and continue to collect them. Connecticut and New York are unique in that their capital stock taxes operate like AMTs, with companies remitting corporate tax on the greater of their liability under net income or share capital basis. (The New York corporation tax actually has three bases.)
The corporate AMT is an inefficient way to ensure that taxpayers pay a minimum level of taxes each year, a factor that has contributed to its repeal in several states and at the federal level. It requires the calculation of tax liability under two systems and undermines structural elements of the tax code, such as provisions for net operating losses and deductions for business expenses. States that have not yet repealed their AMTs should consider whether the relatively small amount of additional revenue they derive from corporate AMTs is worth the added complexity of maintaining two parallel tax systems, and whether a Streamlined companies with fewer deductions is more efficient. way to achieve annual revenue goals.
