(TNS) — Eagle Materials Inc., a leading supplier of cement, concrete and wallboard, says the market for its products has been “robust” during the coronavirus pandemic because many governments have deemed the construction industry essential even as they have forced other businesses to shut down.
Yet the Dallas company says it expects to get a $100 million tax refund using tax breaks included in the economic rescue plan that Congress passed last month.
Eagle Materials isn’t alone. Three weeks after President Trump signed the mammoth aid package, companies across the country are racing to claim big tax refunds under the new law.
An Orlando Sentinel review of investor filings found 10 companies — including chicken producer Sanderson Farms Inc., music broadcaster iHeartRadio Inc., and Miami Herald publisher McClatchy Co. — that have already calculated more than $420 million in anticipated tax refunds and savings under the “Coronavirus Aid, Relief and Economic Security Act,” the rescue package more commonly known as the CARES Act.
A number of other companies — from Bed Bath & Beyond Inc. to Welbilt Inc., a New Port Richey-based manufacturer of industrial kitchen equipment — have also said they are pursuing CARES Act tax refunds but have not estimated how much they expect to save.
This is merely the opening salvo. Congressional analysts have estimated that the business tax cuts baked into the CARES Act will save companies and their owners — but cost the federal treasury — roughly $275 billion over the next 10 years. And a number of tax experts, on both the left and the right, predict the final bill will end up being far higher.
Companies began filing amended returns on Friday. The IRS set up dedicated fax lines to accommodate corporate refund requests.
“The bottom line is, if you can do it, you’d be crazy not to,” said David Brunori, a senior director at the accounting firm RSM. “It’s free money.”
The $2.2 trillion CARES Act passed Congress in a single week last month. Most of the discussion during the rushed debate focused on a handful of features — sending checks of up to $1,200 to most Americans, beefing up unemployment benefits, handing out potentially forgivable loans mostly to small businesses, and lending larger amounts to big companies and governments.
The tax cuts in the bill didn’t attract much attention in public. But they were the subject of lobbying in private. Defense contractor General Dynamics Corp., casino operators Caesars Entertainment Corp. and MGM Resorts International, and consumer-products giant Procter & Gamble Co. all lobbied Congress on the CARES Act tax changes, according to congressional disclosure records.
The CARES Act contains a number of tax breaks. One of the biggest changes is the way corporations can use losses from one year to offset profits in other years.
More specifically, the legislation allows companies that lost money in 2018 or 2019 — whether because their business struggled or because they found enough deductions in the tax code to create a loss on paper — to take those losses back in time and use them to completely offset profits they earned in any of the previous five years. That allows them to file for immediate tax refunds.
Companies could already carry losses forward to reduce their taxes in future years. But letting them carry losses backward doesn’t just accelerate the savings — it magnifies them.
That’s because the tax rate changed at the start of 2018, when President Trump and the then-Republican-controlled Congress cut the federal corporate income tax rate from 35 percent to 21 percent. Under the CARES Act, losses that would have cut a company’s taxes at some undetermined point in the future by 21 cents on the dollar are now worth tax refunds at 35 cents on the dollar.
“That’s just giving money out — and in a pretty non-targeted fashion,” said David Kamin, a law professor and federal tax expert at New York University.
Companies will also be able to carry back losses they incur this year — which are likely to be enormous because of the pandemic — to pre-2018 tax years.
Sanderson Farms shows how the provisions of the law can play out.
One of the largest chicken producers in the country, the company sold a record 4.5 billion pounds of poultry last year and turned a profit of more than $50 million. But thanks to generous tax breaks on capital investment that were included in the 2017 corporate tax cut, the Mississippi-based agribusiness reported a loss for tax purposes.
Now, using the provisions in the CARES Act, Sanderson says in regulatory filings that it will be able to turn those paper losses into a cash refund of $78 million.
Skeptics of the CARES Act tax cuts point out that companies get the cash without any of the conditions that are attached to other forms of government aid — like grants that must be spent paying workers or loans that prohibit companies from rewarding shareholders with stock buybacks or dividend payments.
They also say the tax cuts end up subsidizing companies that aren’t necessarily struggling — such as Eagle Materials, the Dallas concrete manufacturer that says demand has remained healthy during the pandemic yet expects to get a tax refund of about $100 million under the CARES Act.
How can it qualify for such a windfall? The company bought a smaller rival earlier this year that had accumulated a lot of tax losses. Eagle can now use the losses it acquired to cancel its own profits from earlier years.
The company has not been completely immune to the crisis. While business has remained strong so far, Eagle says it has cut capital spending and negotiated extra borrowing capacity with its banks given what it called the “obvious uncertainty” about future demand.
The company still plans to go forward with a 10-cents-a-share dividend payment to shareholders that it announced in February.
Eagle executives did not respond to requests for comment.
To be sure, many of the companies expected to get refunds have been battered by the coronavirus and the economic chaos it has caused.
iHeartMedia, which has told investors that it expects to save $100 million in taxes this year because of the CARES Act, says sales have fallen as advertisers cancel radio spots and concert sponsorship revenue vanishes. Franchise Group Inc., which expects to get more than $40 million in tax refunds, has many of its Liberty Tax Service, American Freight furniture and Vitamin Shoppe stores in states subject to stay-at-home orders. AMC Entertainment Holdings Inc., which expects $19 million in refunds, and Cinemark Holdings Inc., which expects a $20 million refund, have temporarily closed all of their nearly 1,000 movie theaters across the country.
McClatchy was in bankruptcy even before the economy ground to a halt. The publisher, whose newspapers include the Miami Herald, the Kansas City Star and the Sacramento Bee, has told investors that it expects a $9 million refund.
Business has slowed “significantly" at Consumer Portfolio Service Inc., a Las Vegas-based company that finances consumer car loans, said Chief Financial Officer Jeff Fritz. The company expects to get a roughly $23 million tax refund.
“This just gives us significant additional runway of liquidity because who knows how long this is going to last,” Fritz said.
Mortgage banker Redwood Trust Inc. anticipates a $24 million refund. Restaurant-and-arcade operator Dave & Buster’s Entertainment Inc. expects $10 million in CARES Act tax savings.
“The interest has been unprecedented,” said Dustin Stamper, a managing director in the Washington national tax office of accounting firm Grant Thornton. “This is by far the busiest tax season I’ve ever had.”
The IRS is expected to begin sending corporations their refunds within the next two months or so.
In the meantime, some companies are already pushing for more.
The National Retail Federation — which is led in part by executives from Walmart Inc., Macy’s Inc. and Ralph Lauren Corp. — asked Congress earlier this month to let companies get refunds on taxes they paid a full decade ago.
©2020 The Orlando Sentinel (Orlando, Fla.). Distributed by Tribune Content Agency, LLC.