This report details changes we’re making to our Company Models based on the recently passed Inflation Reduction Act.

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The Inflation Reduction Act of 2022 instituted a new minimum corporate tax rate, among other things. Beginning in 2023, companies with a three-year average adjusted financial statement income of over $1 billion will be subject to a 15% minimum income tax.

The Update

We updated our models to account for this new minimum tax rate. Beginning in 2023, companies that have an average pre-tax net income of over $1 billion over the last three years will be held to the minimum tax rate. For companies that meet the pre-tax net income threshold and already have a tax rate higher than the minimum, the higher rate will be used.

Impacts on our Models

The impact on our models is minimal. Based on trailing-twelve-month financials through 3Q22, only 62 companies in our coverage universe had an average pre-tax net income over $1 billion and none of those companies would be impacted by the application of the minimum tax rate.  

This article was originally published on December 20, 2022.

Disclosure: David Trainer, Kyle Guske II, Matt Shuler, Italo Mendonça, and Robbie Woodward receive no compensation to write about any specific stock, style, or theme.

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