Timeshare sellers can have holidays from minimum tax – Part 2


The Alternative Corporate Minimum Tax (CAMT) generally does not apply to US corporations with a three-year average applicable financial statement revenue of less than $1 billion. For example, calendar year companies will generally be exempt from CAMT 2023 if their average AFSI for 2020, 2021 and 2022 does not exceed $1 billion.

AFSI is pre-tax income under generally accepted accounting principles (GAAP) with certain adjustments, such as the use of tax depreciation. Although the 2021 gross revenue of Hilton Grand Vacations Inc., a major U.S. timeshare seller, was $2.3 billion, the company has 2020, 2021 and 2022 annualized GAAP average net income. before tax of approximately $100 million. Looking to 2023 and absent a significant jump in profitability, HGV’s three-year average GAAP net income before tax looks set to fall well below $1 billion for several years. The company does not appear to be a likely candidate for imminent CAMT exposure.

A similarly sized CAMT GAAP revenue-based exemption appears to be available for some of HGV’s competitors, such as Travel & Leisure Inc. and Bluegreen Vacation Holding Corp., which are also companies focused on vacation ownership intervals. traded on the New York Stock Exchange and based in Florida. Travel & Leisure, HGV’s largest competitor, had 2021 GAAP gross revenue of $3.0 billion and annualized 2022 GAAP net income before tax of $400 million in the first half of 2022. It had a 2021 GAAP net income before tax of $400 million and a 2020 GAAP loss before tax of $300 million.

Bluegreen had 2021 gross revenue of $800 million, annualized 2022 GAAP net income before tax of $100 million, 2021 GAAP net income before tax of $100 million and 2020 GAAP loss before tax of $100 million. Because CAMT has a very large GAAP net income size threshold, and that threshold is a three-year average that still reflects the adverse effects of Covid-19 on the VOI industry, CAMT is often not a short-term concern.

Not all major VOI sellers fall below the CAMT net income threshold of $1 billion in the short term. For example, Disney Vacation Resorts’ VOI sales business is owned by Walt Disney Co., which reported annualized GAAP net income of $8.4 billion in the first half of 2022 companywide. For each VOI vendor, all companies under common control to be combined will need to be identified, and the required adjustments from GAAP to AFSI will need to be made, to conclude whether the CAMT threshold is met.

CAMT Group-wide calculation

CAMT is not a transaction-based tax, a segment-based tax, or an affiliate-based tax; it applies on the basis of consolidated GAAP statements, which makes some timeshare companies less likely to be subject to it. This may depend on the existence of a large volume of GAAP income items that are not included in taxable income. The sale of VOIs on the installment plan generates significant GAAP tax income. But HGV, Travel & Leisure, Bluegreen, and Disney also have large amounts of resort management fee revenue and other revenue that does not produce meaningful GAAP tax revenue. In addition, Disney’s media and theme park operations are far larger than their VOI sales businesses, and these businesses may or may not involve significant GAAP income with respect to taxes.

The AMC does not apply where the regular 21% tax on taxable income of the consolidated group exceeds the GAAP interim 15% alternative minimum tax on income. When a business segment with a significant volume of tax GAAP items, such as a VOI installment sales business, that is part of the same consolidated GAAP group as other segments that generate a significant volume of non-tax-derivative income ‘a GAAP-over – excess tax, such as a resort management fee business, the corporate tax rate above 15% on the latter can offset the effects of the 15% provisional minimum tax rate on the first.

This phenomenon is particularly significant when the GAAP excess over tax is attributable to a reversible temporary difference, such as VOI remittance obligations, and when the comparably profitable business under GAAP, such as a US resort management fee business, continuously has little or no income above GAAP taxes. In this case, the provisional 15% CMA GAAP tax rate is based to a large extent on the growth of this VOI sales activity rather than the absolute volume of this VOI sales activity. sale of VOI. This is because the collection of tax-deferred VOI installment receivables from prior years’ sales will trigger ordinary corporation tax creditable to CAMT and will not generate significant GAAP revenue. In contrast, the regular 21% tax credit against CMA for fully taxed resort management fees or other activities is based on all of this current net income.

On the other hand, the VOI vendor group may have other tax GAAP income items, such as executive stock options and GILTI from foreign subsidiary management fees. Subject to future CAMT guidance, the items could cause the timeshare seller to be in a marginal provision of CAMT, even when the US VOI revenue from GAAP sales on tax, if combined only with the GAAP revenue from US resort management fees would create no CAMT liability. A thorough study of each covered VOI vendor would be required to project their CAMT liability.

Second pillar

The second pillar of the OECD could impose a tax on the American group of multinationals based in the United States if their effective tax rate in the United States was lower than 15%, even if their net income was lower than 1 billion dollars . Tax could be collected from the U.S. parent, for example through the Qualified National Minimum Tax (QDMT) proposal contained in the President’s FYE 2023 budget or, from foreign subsidiaries of the U.S. parent, based on the Pillar Two Undertaxed Profits Rule (UTPR).

The second pillar would generally only apply to a multinational based in the United States if the gross turnover exceeds 750 million euros. The lower size threshold based on OECD Pillar 2 gross revenue would likely reach Disney and could also reach Travel and Leisure, Heavyweight and possibly Bluegreen. However, the second pillar has a temporary exclusion from the UTPR rules which may apply where the US group has subsidiaries in no more than five non-US jurisdictions and the total book value of the group’s assets located outside the US does not not exceed 50 million euros.

The full ability of these companies to combine pre-tax income from higher-taxed resort management fees and other higher-taxed income, with the less-taxed GAAP VOI remittance obligation on taxable income, would be available in the under the second pillar, as is the case under CAMT. The calculation of the second pillar tax base also favorably excludes temporary differences that will reverse within five years. This would exclude much of the VOI deferred payment gain from the QDMT and UTPR tax base. Unlike the CAMT, which will go into effect in 2023, a US QDMT and foreign UTPRs have yet to be enacted, and their effective date is uncertain.


Many U.S. companies whose segments generate significant GAAP tax revenue, such as HGV’s VOI sales business, may escape CAMT in the near future due to the $1 billion AFSI threshold. With respect to CAMT and Pillar Two, the general group-wide application may allow other group companies to block the application of CAMT and Pillar Two to VOI sales activities.

One could wonder, on a political level, whether the postponement of the VOI installment sale authorized by Section 453(l)(2)(B) should be included in the CAMT tax base and, to the extent that this deferral extends beyond five years, should be included as part of the second pillar, particularly given the burden of interest on the deferred corporate tax liability under section 453(l)(3). Perhaps future IRS CAMT guidelines, such as those issued under the regulatory authority of Section 56Acould provide some CAMT relief on timing differences in general and VOI installment sales in particular.

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Alan S. Lederman is a shareholder of Gunster, Yoakley & Stewart, PA in Fort Lauderdale, Florida.

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