New U.S. Buyback Tax Hits Companies With $3.5 Billion Burden

livemint.com:

A new 1% tax on stock buybacks is starting to increase companies’ anticipated tax burdens, to the tune of over $3.5 billion in the first half of the year among the largest U.S. public companies. Businesses in recent weeks have disclosed what they are expecting their tax bills for share repurchases to be for the first half of the year, offering a first glimpse at the levy’s midyear impact on their financials.

Booking Holdings estimates a tax liability of $47 million for the six months ended June 30, according to a regulatory filing. PayPal anticipates a $24 million bill tied to buybacks for that period, while MetLife expects a tax hit of $13 million. The tax, which went into effect Jan.

1, is set to cost S&P 500 companies $1.6 billion in the second quarter, according to preliminary data from S&P Dow Jones Indices, a unit of ratings firm S&P Global. That figure, which is down from around $1.98 billion in the first three months of the year, represents around 0.34% of the companies’ collective operating income for the second quarter, according to Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices. Despite the higher tax obligations, companies are largely shrugging off the tax.

From April through June, S&P 500 companies are expected to spend around $169 billion on stock buybacks, down about 20% from both the first quarter of this year and from a year ago, the preliminary S&P data show. Companies have pulled back some because of macroeconomic uncertainties, but the tax isn’t significantly deterring share repurchases among S&P 500 companies, according to Silverblatt. “It’s an annoyance, a payment, but compared to earnings this quarter of about $458 billion, the $1.6 billion is not a lot," he said.