Monopoly Tax: Who Pays, How It’s Calculated, and Filing Steps
Learn who must pay monopoly tax, how it's determined, key filing steps, common exemptions, and the consequences of noncompliance.
While “monopoly tax” isn’t a formal category in the U.S. tax system, certain companies face specific levies due to dominant market positions, regulated status, or profits deemed excessive. These measures aim to address market power concentration and ensure contributions to public funds. Understanding these obligations is relevant as governments consider how to regulate large corporations.
This article outlines who might face such levies, how they are calculated, the filing processes, potential penalties for noncompliance, and common exemptions.
Who Is Subject to Monopoly Tax
Specific taxes or fees can apply to businesses based on market position or regulatory oversight, even without a formal “monopoly tax.” These often involve sectors with high entry barriers or government supervision.
A historical example is the Crude Oil Windfall Profit Tax Act of 1980.1Congress.gov. H.R.3919 – Crude Oil Windfall Profit Tax Act of 1980 This excise tax applied to the difference between oil’s market price and a statutory base price, targeting revenues resulting from oil price decontrol. It affected nearly all domestic oil producers until its repeal in 1988.2Congressional Research Service. Crude Oil Windfall Profits Taxes: Background and Policy Considerations While similar proposals targeting large oil companies have emerged recently, none have been enacted.
Regulated public utilities, often considered “natural monopolies,” face distinct financial obligations. State Public Utility Commissions (PUCs) or federal agencies like the Federal Energy Regulatory Commission (FERC) oversee these entities.3Environmental Protection Agency. Background Document: An Overview of PUCs for State Environment and Energy Officials Utilities frequently pay assessments or fees, often based on gross receipts from consumer sales within a jurisdiction, which fund the regulatory bodies.
Entities regulated by the Federal Communications Commission (FCC), such as those in broadcast, cable, and wireless services, pay annual regulatory fees. These fees recover the FCC’s operational costs for its regulatory activities, with the total amount mandated by Congress.
Standard corporate income tax applies broadly, but certain provisions can have a greater impact on larger firms. The accumulated earnings tax, for instance, targets corporations retaining earnings beyond reasonable business needs primarily to avoid shareholder income tax. C-corporations pay corporate income tax directly, whereas income from pass-through entities like partnerships and S-corporations is taxed at the owner level.
How the Tax Is Calculated
Calculating levies for entities with significant market presence or regulated status varies, as no single “monopoly tax” calculation exists.
The historical Crude Oil Windfall Profit Tax was figured on a per-barrel basis. It involved finding the “windfall profit”—the difference between the oil’s selling price and its adjusted base price plus state severance tax adjustments.4Internal Revenue Service. Crude Oil Windfall Profit Tax Overview (1980) This amount was multiplied by a tax rate that varied by oil type and producer status, subject to a net income limitation.
Federal Communications Commission (FCC) regulatory fees follow a different path. The FCC determines its total required collections based on its congressional appropriation. This amount is allocated across regulated industries based on the agency resources dedicated to each sector.5Federal Communications Commission. Regulatory Fees Within industries, fees are assessed using units relevant to that sector, such as population served for TV broadcasters, service type and class for radio stations, or subscriber counts and revenues for others.
State public utility commission assessments are typically calculated based on a utility’s gross intrastate operating revenues from end-user sales during the prior year. A percentage rate is often applied to these revenues to cover the commission’s estimated expenditures. Methods can vary, sometimes involving flat fees or minimum assessments.
The accumulated earnings tax is calculated at a flat 20 percent rate on “accumulated taxable income,” as defined in Internal Revenue Code Section 531. This taxable income is adjusted for certain items and reduced by deductions for dividends paid and an accumulated earnings credit. The credit generally shields earnings retained for reasonable business needs or up to a minimum floor ($250,000 for most corporations).
The basic corporate income tax, under Internal Revenue Code Section 11, applies a flat 21 percent rate to a corporation’s taxable income (gross income minus allowable deductions). While applying broadly, this structure means larger corporations generally pay more tax.
Filing Steps
Filing procedures for taxes and fees related to market position or regulation differ for each type of levy.
The historical Crude Oil Windfall Profit Tax required quarterly filings using Form 720, Quarterly Federal Excise Tax Return, with payments often due semi-monthly. Detailed production records were necessary.
Entities paying Federal Communications Commission (FCC) regulatory fees must do so annually and electronically via the FCC’s Commission Registration System (CORES).6Federal Communications Commission. CORES Payment System Users need an FCC Registration Number (FRN) and username. Payments are accepted via credit card (with limits), ACH debit, or pre-arranged wire transfer. The FCC announces fee schedules and deadlines, typically requiring payment by late September.
State-level assessments on public utilities involve procedures set by each state. Utilities usually file annual reports detailing gross intrastate receipts with the Public Utility Commission (PUC). The commission then calculates and bills the assessment. Payment deadlines are set by statute or rule, sometimes allowing installments. Filing may occur via mail, in person, or increasingly through online portals, with payments accepted via check, EFT, or sometimes credit card.
The accumulated earnings tax is usually assessed by the IRS during an examination, not self-reported on a specific annual form. Corporations should maintain documentation justifying earnings retention. If assessed, payment follows standard IRS procedures.
Standard corporate income tax requires annual filing using Form 1120, U.S. Corporation Income Tax Return, generally due by the 15th day of the fourth month after the tax year ends (April 15 for calendar-year entities). An automatic six-month filing extension is available via Form 7004, but this doesn’t extend the payment deadline. Corporations expecting $500 or more in tax liability must typically make quarterly estimated tax payments. Electronic filing is common and may be required for larger corporations.
Penalties for Noncompliance
Failure to meet tax and fee obligations can result in financial penalties and interest charges.
Non-payment or late payment of Federal Communications Commission (FCC) regulatory fees incurs a mandatory 25% penalty on the unpaid amount. Interest accrues on both the unpaid fee and the penalty. Persistent non-payment can lead to the FCC halting application processing (“Red Light” status) and potentially revoking licenses.
Late payment of state-level public utility assessments typically triggers penalties, such as a percentage fee (e.g., 10%) on the overdue amount, plus interest on the delinquent balance. Continued non-payment can result in further state commission actions.
Federal tax noncompliance carries penalties outlined in the Internal Revenue Code. Failure to file a return on time generally results in a penalty of 5% of the unpaid tax per month (capped at 25%), subject to a minimum if the return is over 60 days late, per Internal Revenue Code Section 6651. Failure to pay on time incurs a penalty of 0.5% of the unpaid tax per month (capped at 25%). Interest is charged on underpayments and penalties.
Corporations may face penalties for failing to pay sufficient estimated income tax under Internal Revenue Code Section 6655. This penalty depends on the underpayment amount, duration, and applicable interest rates.
Accuracy-related penalties can apply to corporate income tax filings involving negligence, disregard of rules, or substantial understatement of tax. This penalty is generally 20% of the underpayment attributable to the error. It may be avoided if the taxpayer shows reasonable cause and good faith.
The accumulated earnings tax itself functions as a penalty, imposing a 20% tax on earnings improperly retained to avoid shareholder tax. Standard underpayment penalties could also apply if this tax is assessed and not paid promptly.
Common Exemptions
Exemptions from specific taxes and fees vary depending on the levy.
The historical Crude Oil Windfall Profit Tax exempted oil produced by state or local governments for public purposes, certain tribal interests, specified charitable and educational institutions, and later, stripper oil production.7U.S. Department of Health & Human Services. The Crude Oil Windfall Profit Tax of the 1980s: Implications for Current Energy Policy Independent producers received lower rates on some oil compared to integrated companies.
Federal Communications Commission (FCC) regulatory fees do not apply to governmental entities, most Internal Revenue Code Section 501 nonprofit organizations (documentation may be required), amateur radio operators, and noncommercial broadcast stations.8Federal Communications Commission. Assessment and Collection of Regulatory Fees for Fiscal Year 2023 Entities whose total calculated fee liability falls below a de minimis threshold (e.g., $1,000 for FY 2023) are also exempt for that year.
State public utility commission assessments may exempt utilities with very low gross intrastate revenues or certain types of revenue, such as that from transporting specific materials under defined conditions. Municipal and cooperative utilities are often exempt from PUC regulation and related assessments.
The accumulated earnings tax does not apply to personal holding companies, tax-exempt organizations under Subchapter F of the Internal Revenue Code (including Section 501 entities), and passive foreign investment companies. Corporations can also avoid the tax by demonstrating that earnings are retained for reasonable business needs (like working capital, expansion, or debt retirement). An accumulated earnings credit further reduces the income subject to the tax, providing a minimum floor ($250,000 for most corporations) that can be accumulated without specific justification.
Regarding standard corporate income tax, organizations exempt under Internal Revenue Code Section 501 (like charities and educational institutions) are generally not subject to it, though unrelated business income may be taxed. Businesses structured as pass-through entities (S corporations, partnerships, most LLCs) typically do not pay corporate income tax; income passes through to owners. S corporations must meet specific eligibility requirements to elect this status.