By Richard Rubin and Theo Francis
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 totaling 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 analyzing 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.
Write to Richard Rubin at richard.rubin@wsj.com and Theo Francis
at theo.francis@wsj.com
(END) Dow Jones Newswires
May 13, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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