Sharechat Logo

Companies Start Reaping Billions in Tax Breaks to Ride Out Economic Slump

Thursday 14th May 2020

Text too small?

WASHINGTON—New tax breaks expected to total about $650 billion are starting to flow to U.S. businesses, giving them quick cash and longer-term help to ride out the coronavirus-induced economic downturn.

Companies reporting tax deferrals or benefits exceeding $100 million each include fast-casual chain Chipotle Mexican Grill Inc., Walt Disney Co., American Airlines Group Inc. and oil refiners Valero Energy Corp. and Marathon Petroleum Corp. 

So far, more than 50 publicly traded companies have disclosed tax savings and deferrals totalling at least $2.8 billion, according to securities filings. Money is also going to private companies that don’t report earnings.

“Depending on the company, the provisions can be really meaningful in getting them to the other side of this,” said Manal Corwin, principal-in-charge of KPMG LLP’s Washington tax practice.

The tax breaks, enacted in March, are a crucial piece of the government’s attempt to prop up businesses during the coronavirus pandemic, alongside Federal Reserve lending and the Small Business Administration’s loan-forgiveness program. 

“They’re tinkering with the levers they have to get cash into the pockets of businesses, with the exception of just outright handing cash to them,” said David Hasen, who teaches tax law at the University of Florida.

Some other programs spurred controversy over eligibility and over what conditions should be attached to federal money. Companies including AutoNation Inc. and Shake Shack Inc. returned federal money following lawmakers’ concerns about public companies getting money aimed for small businesses. 

Generally applicable tax provisions are different. They aren’t limited by an application process, a dollar cap or specific agency approvals. Instead, they are available broadly to companies meeting the criteria in the law, and they are designed to generate cash quickly.

Oil-industry companies get money from the tax system while policy makers debate whether they should get lending support. Airlines can get tax refunds on top of grants from a separate Treasury Department program.

In all, businesses are likely to get about $650 billion in tax cuts, accelerated deductions and deferred payments in 2020 and 2021, according to the Joint Committee on Taxation. The net cost will shrink over time as deferred payments are made and companies use deductions now instead of in the future.

Many companies told investors that they are still analysing the provisions; they may disclose more details later this year. Some may only realize tax-break benefits as they book 2020 losses that make them eligible.

MGM Resorts International, which closed casinos and furloughed 63,000 workers, told investors it expects to benefit from several tax provisions but hasn’t quantified them yet. AMC Entertainment Holdings Inc., which shuttered movie theaters, said it would get a $19 million refund.

The breaks include several outright tax cuts. One relaxes the limit on interest deductions that Congress created in 2017. Another is a tax credit worth up to $5,000 for each employee being paid not to work.

That employee-retention tax credit is new, and uncertainty about its rules made some companies reluctant to rely on it or able to detail yet how much they would get. Still, Disney said it would get $150 million from the credit for the most recent quarter. More companies may claim it after the Internal Revenue Service said last week that the credit would be available for companies that furloughed workers while paying health benefits.

Other changes shift the timing of tax payments without affecting the bottom-line earnings reported to investors. Companies can postpone some payroll taxes from this year until 2021 and 2022. They can cash out certain old credits instead of waiting. American Airlines, for example, said it would get $226 million from accelerating credits.

The breaks with the biggest impact now are retroactive changes designed to get cash to companies quickly. Companies with losses in 2018 and 2019 can carry those losses back up to five years. They can offset past profits and get tax refunds immediately.

Those changes to losses carry an extra bonus: Instead of using those losses to offset future profits taxed at 21%, companies can use them against past profits taxed at 35%.

Although the March bill was broadly bipartisan, some Democrats now say some of those changes on losses went too far, and the House bill introduced Tuesday would limit them.

Stericycle Inc., which processes medical waste, expects a $100 million tax refund from its 2018 and 2019 losses. National Oilwell Varco Inc., which makes equipment used in oil and gas production, recorded a $123 million benefit for taking losses from 2019 back to 2014.

“We know that it’s going to be tough times for a while,” said Blake McCarthy, the company’s vice president of corporate development and investor relations. “This helps us to buttress the balance sheet for the enterprise to survive.”

Companies with losses this year but not in 2018 or 2019 face a different situation. They can stop making estimated tax payments but can’t turn losses into cash until early next year. However, as they record money-losing quarters, they can include that future cash in their current earnings as reported to investors. Companies with sudden swings from profitable to flailing could fare best.

Benefits for those companies “could be really big because a lot of these big companies were quite profitable,” said Rebecca Lester, who teaches accounting at Stanford University.

Marathon Petroleum, which operates refineries, pipelines and convenience stores, recorded a $9.2 billion first-quarter loss that would have been larger without its $1.9 billion income-tax benefit. That included $411 million for carrying losses back to prior years.

Companies’ numbers can’t necessarily be compared to each other, and some may not disclose changes that affect only cash flow or are too small to be deemed material.

Chipotle said it would get $100 million from the law, but that benefit just affects the timing of deductions and payments, not the total tax burden.

“It saves us cash this year when we need it the most,” John Hartung, the chief financial officer, told analysts last month.

Source: Wall Street Journal

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Heartland Market Update
Steel & Tube Fy20 Trading Update
Further Contract Win Strengthens Scott Technology’s Position In Mining Sector
China’s Assertiveness Is Becoming a Problem for Its Friends, Too
New Talisman - Chairman’s Address to AGM 2020 August 6, 2020
T&G reports its 2020 Interim Results
Gold price hits $2,000 for first time on Covid
TruScreen strengthens its market presence in central and eastern Europe
Refining NZ announces non-cash impairment
Ryman Healthcare COVID-19 update Victoria

IRG See IRG research reports