“Amazon Tax” Could Harm 5G Broadband Buildout

As the midterms approach, the White House may resurrect earlier proposals to overhaul the corporate tax program. One component, sometimes called the “Amazon tax,” would impose a 15 percent minimum tax on large corporations’ book income (the income reported to investors on financial statements) rather than taxable income, to ensure all companies pay each year. This impulse may seem egalitarian, but because of a quirk in accounting rules governing spectrum licenses, this proposal disproportionately harms wireless companies and could deter broadband buildout. While the book-income tax targets large corporations generally, wireless companies and others that hold spectrum licenses are uniquely affected by the proposal. This is because unlike most other corporate assets, the costs of spectrum licenses are not deducted for book-income purposes when calculating a firm’s financial income. As a result, the shift to taxing book income would effectively make spectrum licenses more expensive. The effect is also likely to fall disproportionately on the broadband industry. Spectrum markets will be distorted by the difference in bids offered by firms subject to the book minimum tax versus those that are not. And because the effect will be felt uniquely by spectrum licensees, it will tilt future broadband investment away from wireless solutions and toward wired broadband deployment, reducing the intermodal competition that has historically propelled industry growth.

[Daniel Lyons is a nonresident senior fellow at the American Enterprise Institute.]