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Apple and other tech giants may get a 'stomach punch' from this last minute addition to the tax bill

  • The Senate included in its tax bill a corporate alternative minimum tax.
  • If the corporate tax rate is lowered to the proposed 20 percent and an AMT remains, the concern is it will ultimately result in higher taxes for tech companies.
  • "With many tech companies such as Broadcom, Apple, Microsoft, Cisco and Oracle among others significantly ramping up R&D this would be a major stomach punch to tech players if the Beltway does not amend this AMT last-minute addition into the bill," analyst Daniel Ives says.
Tim Cook
Marlene Awaad | Bloomberg | Getty Images
Tim Cook

Some of the largest technology companies — including Apple — could take a hit if a provision added to the Senate's tax plan at the last minute is not removed.

The Senate included in its tax bill a corporate alternative minimum tax, which aims to make companies pay a minimum rate if the breaks they receive make their burden too low. In contrast, a bill passed by House members eliminates the current AMT of 20 percent.

The current AMT rarely applies to companies, since most are subject to the 35 percent federal corporate tax rate. However, if the corporate tax rate is lowered to the proposed 20 percent and an AMT remains, the concern is it will ultimately result in higher taxes for tech companies who benefit from research and development deductions.

"The AMT addition would be a black eye especially for technology companies as the tax breaks related to [intellectual property] and spending on research and development," said Daniel Ives, head of technology research at GBH Insights. Tech companies are able to deduct taxes on intellectual property and research and development.

"With many tech companies such as Broadcom, Apple, Microsoft, Cisco and Oracle among others significantly ramping up R&D this would be a major stomach punch to tech players if the Beltway does not amend this AMT last-minute addition into the bill," Ives said.

Broadcom's research and development spending has increased more than 284 percent over the past three fiscal years. Apple and Oracle have also boosted their R&D spending by 43.2 percent and 12.7 percent, respectively, over the same period. Microsoft and Cisco Systems have kept R&D spending little changed.

GOP House leaders railed against the addition of the AMT earlier this week.

"I think that both the individual and the corporate AMT — it's costly, it's complex — really on the business side, undermines many of the pro-growth and pro-American provisions in the tax code," said Rep. Kevin Brady, R-Texas, told CNBC's "Squawk Box" on Tuesday.

Reinstating the AMT saved about $40 billion under the Senate bill, according to the congressional scorekeeper Joint Committee on Taxation. The money helped to pay for provisions like limited state and local tax deductions.

But House Majority Leader Kevin McCarthy told CNBC on Monday that the AMT "eliminated because that would destroy" research and development.

—CNBC's Jacob Pramuk contributed to this report.