The tax bill released by the Conference Committee last Friday has cleared both the US House and Senate. It is now headed to the President's desk to be signed into law. Although it may be signed in 2017, it may remain pending until January 3 in order to preserve direct subsidy payments provided in the PAYGO statute. Please see below for the bill text and interpretations of the text from the GFOA Federal Liaison.
Deductibility of State and Local Taxes (SALT):
Initially, the House bill capped the deduction at $10,000 and only applied to property taxes. The Senate version completely eliminated the deduction. While GFOA advocated to fully preserve the SALT deduction, the conference bill essentially adopted a modified version of current law with a $10,000 capped “bucket” applied to property AND income OR sales taxes. The provision is effective beginning December 31, 2017, and expires December 31, 2025. An individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.
Advanced Refunding of Municipal Bonds:
To the surprise of GFOA and many within the public issuer community, both House and Senate versions included a repeal of advance refunding bonds. GFOA sought to fully preserve advance refunding, given the significant savings public issuers have historically experienced as a result. Unfortunately, the conference bill repeals advance refunding bonds after December 31, 2017 and provides no transition relief.
Private Activity Bonds (PABs):
Under the initial House proposal, the tax-exemption for PABs was repealed while the Senate bill retained current law. GFOA advocated to fully preserve PABs as they are an important finance mechanism that many issuers and 501(c)(3) organizations use to provide essential services in communities across the country. The final conference bill ultimately retained current law, leaving PABs unchanged.
Tax Credit Bonds:
Tax credit bonds are another important finance mechanism used by various public issuers that were also impacted by the conference bill. Initially, only the House version repealed the ability to issue tax-credit and direct-pay bonds, while the Senate retained current law. The conference bill prospectively repeals the authority to issue bonds, such as clean renewable energy bonds and qualified school construction bonds, after December 31, 2017. Any tax-credit bonds issued as direct-pay bonds prior to January 1, 2018 will still be eligible to receive interest subsidy payments.
Tax Exempt Bonds Used For Stadiums:
The initial House bill sought to repeal the ability to issue tax-exempt bonds that would be used to finance or refinance capital expenditures for a professional sports stadium. The Senate bill did not contain this provision, leaving current law in place. The final conference bill did not follow the House bill and leaves this provision of the law unchanged.
Unrelated Business Income Tax (UBIT):
Another provision included in the House bill but not the Senate version was language that sought to “clarify” that all entities exempt from taxation under section 501(a) are subject to the UBIT rules, notwithstanding an entity’s exemption under any other provision in the code, include section 115. Proponents suggested this was intended to clarify UBIT’s application to state and local pension plans. Several in the public pension community raised concerns about this language and the negative impact it would have. The final conference bill did not follow the House bill, which leaves current law unchanged.
Click below for a copy of the bill text. The above, although not exhaustive, is a review by GFOA’s Federal Liaison of issues particularly important to public finance officials.