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Timeshare Sellers May Have a Vacation From Minimum Tax—Part 2

Sept. 21, 2022, 8:45 AM

The corporate alternative minimum tax (CAMT) usually does not apply to US corporations whose average three-year applicable financial statement income is less than $1 billion. For example, calendar year corporations generally will be exempt from 2023 CAMT if their average 2020, 2021, and 2022 AFSI does not exceed $1 billion.

AFSI is pretax generally accepted accounting principles (GAAP) income with certain adjustments, such as the use of tax depreciation. Although the 2021 gross revenue for Hilton Grand Vacations Inc., a major US timeshare seller, was $2.3 billion, the company has average 2020, 2021, and annualized 2022 GAAP net income before taxes of about $100 million. For 2023 and absent a large jump in profitability, HGV’s three-year average GAAP net income before taxes seems poised to fall well below $1 billion for several years. The company does not seem to be a likely candidate for impending CAMT exposure.

A similar GAAP-income based size exemption from the CAMT seems available to some of HGV’s competitors, such as Travel & Leisure Inc. and Bluegreen Vacation Holding Corp., which also are vacation ownership intervals-focused corporations traded on the New York Stock Exchange and based in Florida. Travel & Leisure, HGV’s larger competitor, had 2021 GAAP gross revenue of $3.0 billion and first half 2022 annualized 2022 GAAP net income before taxes of $400 million. It had 2021 GAAP net income before taxes of $400 million and a 2020 GAAP loss before taxes of $300 million.

Bluegreen had 2021 gross revenue of $800 million, first half 2022 annualized 2022 GAAP net income before taxes of $100 million, 2021 GAAP net income before taxes of $100 million, and a 2020 GAAP loss before taxes of $100 million. Because the CAMT has a very large GAAP net income size threshold, and this threshold is a three-year average that still reflects the adverse effects of Covid-19 on the VOI industry, CAMT often is not a concern in the short term.

Not all large VOI sellers fall below the $1 billion CAMT net income threshold in the short term. For example, Disney Vacation Resorts’ VOI sales business is owned by Walt Disney Co., which had companywide first half 2022 annualized 2022 GAAP net income of $8.4 billion. For each VOI seller, any commonly controlled corporations required to be aggregated will have to be identified, and the required adjustments from GAAP to AFSI will have to be made, to conclude on whether the CAMT threshold is reached.

CAMT Groupwide Computation

The CAMT is not a transaction-based tax, a segment-based tax, or a subsidiary-based tax; it applies based on consolidated GAAP statements, making some timeshare companies less likely to be subject to it. It may depend on the existence of a large volume of GAAP income items that are not included in taxable income. Selling VOIs on the installment plan produces significant GAAP-over-tax income. But HGV, Travel & Leisure, Bluegreen, and Disney also have large amounts of resort management fee income and other revenue that don’t produce significant GAAP-over-tax income. Moreover, Disney’s media business and theme park operating business are far larger than their VOI sales business, and those businesses might or might not involve material GAAP-over-tax income.

The CAMT does not apply where the regular 21% tax on the consolidated group taxable income exceeds 15% tentative alternative minimum tax on GAAP income. When one business segment with a large volume of GAAP-over-tax items, such as a VOI installment sales business, which is within the same GAAP-consolidated group as other segments that generate a significant volume of income not derived from a GAAP-over-tax excess, such as a resort management fee business, the corporate tax rate in excess of 15% on the latter may offset the effects of the 15% tentative minimum tax rate on the former.

This phenomenon is especially important where the GAAP-over-tax excess is attributable to a reversible timing difference, such as VOI installment obligations, and where the comparably GAAP-profitable business, such as a US resort management fee business, continuously has little or no GAAP-over-tax income. In that case, the 15% CAMT tentative tax rate GAAP-over-tax item is based to a significant extent on the growth of that VOI sales business rather than the absolute volume of that VOI sales business. This is because the collection of tax-deferred VOI installment receivables from earlier years’ sales will trigger a CAMT-creditable regular corporate tax and not generate significant GAAP income. By contrast, the 21% regular tax credit against the CAMT for a continuing fully taxed resort management fee or other business is based on that entire current net income.

On the other hand, the VOI seller group may have other GAAP-over-tax income items, such as executive stock options and GILTI from foreign subsidiary resort management fees. Subject to future CAMT guidance, the items could cause the timeshare seller to be in a marginal CAMT provision, even where the US VOI sales GAAP-over-tax income, if combined only with the US resort management fee GAAP income would not create any CAMT liability. A comprehensive study of each covered VOI seller would be necessary to project its CAMT liability.

Pillar Two

OECD Pillar Two could impose a tax with respect to the US group of US-based multinationals if their effective US tax rate was below 15%, even if their net income was below $1 billion. The tax could be collected from the US parent, such as through the qualified domestic minimum tax (QDMT) proposal contained in the president’s FYE 2023 budget or, from the US parent’s foreign subsidiaries, based on the Pillar Two Undertaxed Profits Rule (UTPR).

Pillar Two generally would only apply to a US based multinational if gross revenue exceeds 750 million euros. The lower OECD Pillar Two gross-revenue-based size threshold likely would reach Disney and also could reach Travel & Leisure, HGV, and perhaps Bluegreen. However, Pillar Two has a temporary exclusion from the UTPR rules that can apply where the US group has subsidiaries in no more than five non-US jurisdictions, and the aggregate book value of group assets located outside the US does not exceed 50 million euros.

All those corporations’ ability to blend higher-taxed resort management fee pretax income and other higher-taxed income, with the lower-taxed VOI installment obligation GAAP-over-tax income, would be available under Pillar Two as it is under the CAMT. The Pillar Two tax base computation also favorably excludes timing differences that will reverse within five years. This would exclude a large portion of VOI deferred installment gain from the QDMT and UTPR tax base. Unlike the CAMT, which will be effective in 2023, a US QDMT and foreign UTPRs have not yet been enacted, and their effective date is uncertain.


Many US corporations with segments generating significant GAAP-over-tax income, like HGV’s VOI sales business, may escape the CAMT in the near future because of the $1 billion AFSI threshold. With respect to the CAMT and Pillar Two, the general application on a group-wide basis may permit other businesses within the group to block the application of the CAMT and Pillar Two to the VOI sales business.

One might question as a policy matter whether the VOI installment sale deferral allowed by Section 453(l)(2)(B) should be included in the CAMT tax base, and to the extent such deferral extends beyond five years, should be included as a Pillar Two item—particularly in view of the Section 453(l)(3) deferred corporate tax liability interest charge. Perhaps forthcoming IRS CAMT guidance, such as that issued under the regulatory authority of Section 56A, could provide some CAMT relief on timing differences in general and the VOI installment sales in particular.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Alan S. Lederman is a shareholder at Gunster, Yoakley & Stewart, P.A. in Fort Lauderdale, Fla.

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