Many Americans are familiar with the federal alternative minimum tax (AMT)The Alternative Minimum Tax (AMT) is a separate tax system that requires some taxpayers to calculate their tax liability twice—first, under ordinary income tax rules, then under the AMT—and pay whichever amount is highest. The AMT has fewer preferences and different exemptions and rates than the ordinary system. as a calculation that they have to do at the end of their individual taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. form if they take “too many” deductions. Not everyone is aware that the federal government also subjects corporate entities to the AMT, and a few handfuls of states do too. This week’s map shows which states levy a corporate AMT as of July 1, 2014, the snapshot date of our 2015 State Business Tax Climate Index. Just eight states have them.
While corporate AMTs are designed to be a “backstop,” they represent a fundamental failure in the tax code. The stated reason for the AMT is to protect against firms that are able to take “too many” deductions or credits, but those credits are ostensibly placed there by policymakers for a reason. Instead of admitting that the code has too many holes, however, policymakers have instead constructed a parallel tax code called the AMT, and forced firms to comply with all its complexities in addition to the already hectic state corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. .Share