The new law represents the culmination of a lengthy process in pursuit of business tax reform over the course of more than 20 years.
The legislation includes substantial changes to the taxation of individuals as well as U.S. businesses, multi-national enterprises, and other types of taxpayers. Overall, it provides a net tax reduction of approximately $1.456 trillion over the 10-year “budget window” (according to estimates provided by the Joint Committee on Taxation (JCT) that do not take into account macroeconomic/dynamic effects). Highlights of provisions that impact the power and utility industry include:
- A permanent reduction in the statutory C corporation tax rate to 21% with statutory provisions requiring that excess tax reserves associated with public utility property be normalized
- Repeal of the corporate alternative minimum tax (AMT)
- Expensing of capital investment with an exception for property predominantly used in certain rate regulated trade or businesses
- Limitation of the deduction for interest expense with an exception for interest expense properly allocable to certain rate regulated trade or businesses
- Modification to the capital contribution rules under section 118
- Fundamental changes to the taxation of multinational entities, including a shift from the current system of worldwide taxation with deferral to a hybrid territorial system, featuring a participation exemption regime with current taxation of certain foreign income, a minimum tax on low-taxed foreign earnings, and new measures to deter base erosion and promote U.S. production
The following discussion provides initial analysis and observations regarding the tax law changes in H.R. 1 that are considered to be of greatest importance for the power and utility industry.
Read a 167-page report prepared by KPMG that examines the provisions in the new tax law and provides observations: New tax law (H.R. 1) – Initial observations [PDF 1.4 MB] To read the full report, click here.