Some issuers that have come to market during the last few weeks were forced to add last-minute updates to offering statement disclosure after passage of major legislation that carries implications for the tax exemption on municipal bonds.
After a few weeks of
The legislation includes a 15% minimum tax on the adjusted financial statement income for corporations with three-year average incomes of more than $1 billion. It takes effect in 2023.
The law
"Industry-wide, everyone is thinking about disclosure about this new alternative minimum tax," said a tax attorney.
"It's pretty rare" for standard tax-exemption language to be revamped, the attorney added. "There has to be a change in law that has some impact on the tax status of the bonds, which doesn't happen very often."
Cook County, Illinois and the Colorado Housing and Finance Authority were two of the issuers forced to supplement, or "sticker," their official statements to outline how the law may affect potential buyers.
"In the ordinary course, people try to move heaven and earth to avoid making changes to an offering document already out in the market," said Johnny Hutchinson, partner at Nixon Peabody LLP. But "if it's something like how part of your tax-exempt interest is going to get taxed, that's a high priority, red alert kind of thing that speaks directly to why the investor is reading the disclosure docs in the first place."
The Cook County supplement, crafted by co-bond counsel Nixon Peabody and Hardwick Law Firm LLC, added language saying that starting next year, "interest on the Series 2022A bonds will be taken into account in computing the alternative minimum tax imposed on certain corporations under the code to the extent that such interest is included in the 'adjusted financial statement income' of such corporations."
Going forward, issuers that come to market will include the new language as a matter of course. The law's changes are significant enough that they will be featured in the so-called banner at the top of the first page of the OS as well as deeper in the disclosure section, Hutchinson said.
"The pattern has been every five to 10 years there will be some change to the tax-exempt bond universe and anytime there's a change to the underlying law you may need to tweak some things here and there," he said.
The Inflation Reduction Act's 15% corporate AMT in some ways marks a return to pre-2017 Tax Cuts and Jobs Act, attorneys said. The c
"In a way it takes us full circle," said Dee Wisor, partner at Butler Snow. "After the 2017 Tax Cuts and Jobs Act, we had to change our opinions for this AMT purpose and now we're back to that point," he said.
"There's a bit of activity right now," Wisor added, "but eventually it won't even be discussed, it will become a practical matter – until it changes again."
