How a major beer importer is planning for tax reform

With the inauguration of President Donald Trump on Friday, the same political party now controls the White House and both houses of Congress for the first time in six years. As a result, many businesses with operations in the United States are planning for policy changes that could affect their bottom lines.

Some companies are hoping that the new Republican administration, which has billed itself as more friendly to industry, will work with congressional leaders to lower corporate tax rates. Meanwhile, multinational manufacturers and distributors are bracing for the possibility of higher border taxes.

Constellation Brands, the third-largest beer seller in the United States, for instance, is modeling several scenarios related to a possible increase in taxes on imported goods. One of Constellation’s labels, Corona Extra, is the best-selling imported beer and the fifth best-selling beer overall in the United States. In addition to owning five of the 15 most popular imported beers, Constellation has numerous well-known wine brands in its portfolio.

Constellation has considered raising prices or changing to more U.S. suppliers—a move that could offset costs of a proposed border adjustment tax that might eat away at Constellation’s profit on beer brewed in Mexico. The border adjustment tax, still being discussed by legislators in the Republican-controlled House of Representatives and Senate, would tax imports while exempting exports, which could result in substantially higher tax bills in certain industries.

Constellation isn’t the only company making plans, or making statements, about potential tax changes.

Koch Industries, a multinational manufacturer, voiced concern in December over a border adjustment tax provision, which the company said would force American consumers to pay higher prices on everyday products that are produced elsewhere and imported.

“While companies like Koch who manufacture and produce many products domestically would greatly benefit in the short term, the long-term consequences to the economy and the American consumer could be devastating,” the company statement said. “… The proposed border tax adjustment will distort the market, increase consumer prices, and create an uneven playing field for companies and consumers alike.”

Carmaker Toyota, which announced in 2015 that it would open a new plant in 2019 in Guanajuato, Mexico, released a statement this month saying the plant’s opening wouldn’t affect jobs or production volume in the United States. The statement came after a Toyota-related message from Trump via social media, which read in part: “Build plant in U.S. or pay big border tax.”

Lower corporate tax rate?

The CFO at Pfizer, the multinational pharmaceutical maker, said that, overall, tax reform could be beneficial to business. He cited the tax plan of Paul Ryan, speaker of the House of Representatives, as one that could save Pfizer millions on earnings.

The current top U.S. corporate tax rate is 35%, but Republican plans could lower that rate to 15% or 20%.

“Obviously, the lowering of the corporate tax rate would be a good thing,” Pfizer CFO Frank D’Amelio said at the J.P. Morgan Healthcare Conference on Jan. 10, according to a transcript of the event. 

Jeff Boyd, the interim CEO at Priceline Group Inc., a global provider of travel booking services, is keeping an eye on how the change in administration could affect international travel. He also expects tax reform to be good for his company, he said on a conference call just after the election.

“With a Trump administration and Republican Congress, I think it would be fair to expect a generally more favorable environment to business in the United States, which I think would be a good thing for our business and for other businesses,” Boyd said.

—Neil Amato (Neil.Amato@aicpa-cima.com) is a JofA senior editor.