Just as many states have Individual Alternative Minimum Taxes (AMTs) that prevent households and intermediate businesses from claiming “too many” itemized deductions, some states impose AMTs on businesses to prevent businesses from reducing their corporate income tax. beyond a certain level. By forcing taxpayers to calculate their tax liability under two different systems, the federal AMT imposed high compliance costs on businesses, which in some cases turned out to be higher than the collections.
Five states currently collect corporate AMTs: California, Iowa, Kentucky, Minnesota, and New Hampshire. This is a significant drop from the eight states that imposed LMOs in the 2017 tax year.
The Tax Cuts and Jobs Act (TCJA) of 2017 changed the landscape for business LMOs by repealing the federal business LMO, which was created in 1969. Most state business LMOs were in tight compliance with the AMT federal government, but the TCJA left those states without a starting point. to determine the state’s AMT liability. As a result, states that have closely complied with the federal provision completely abandoned their corporate LMOs in 2018.
Historically, Alaska determined state companies’ AMT liability by collecting an amount equal to 18% of each company’s federal AMT liability. However, without a federal enterprise LMO, the state cannot “piggyback” on the federal provision, which means that no state enterprise LMOs can be collected. Likewise, Florida complied with the post-TCJA Internal Revenue Code (IRC) in March 2018, and since only companies that pay the federal AMT are liable for the Florida AMT, the AMT of the ‘Status 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 Finally, Maine repealed its corporate AMT in September 2018 as part of an IRC compliance bill, and Iowa, in a comprehensive tax reform package passed in May 2018, is expected to repeal its corporate AMT from tax year 2021.
In addition to Iowa, California, Kentucky, Minnesota, and New Hampshire have corporate AMTs that do not comply with the federal provision and continue to collect them.
The business AMT is an ineffective way to ensure that taxpayers pay a minimum level of tax each year, a factor that has contributed to its repeal in several states and at the federal level. States that have not yet repealed their AMTs should consider whether the relatively small amount of additional income they derive from corporate AMTs is worth the added complexity of maintaining two parallel tax systems, and whether a simplified corporate tax code with fewer deductions is a more efficient means of achieving annual income goals.
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