Tax Reform Bill Released, House Ways and Means Markup Begins
On November 2, 2017, House Ways and Means Committee Chairman Kevin Brady (R-Texas) released the much-anticipated tax reform bill H.R. 1, the Tax Cuts and Jobs Act. The comprehensive draft proposes substantial changes to the federal tax code governing individuals and corporations. As expected, the committee began the process of marking up the bill (i.e., considering potential changes) on November 6. When the process is completed, the bill is expected to go to the floor for a vote before the full House of Representatives. Although the process appears to be developing fairly quickly, it remains uncertain whether the bill will pass the House, as Democrats will likely be unified in voting against it, and a number of Republicans have already expressed either concern about or opposition to the bill as drafted. This early uncertainty could be further compounded in the Senate when the chamber begins considering its own version of a tax reform bill in the coming weeks.
One of the primary issues with the bill is the repeal of the state and local tax (SALT) deduction, which GFOA has been actively engaged with in recent months. On the individual side, the bill proposes to eliminate the deduction for state and local income and sales taxes paid, and it would cap the deduction for local property taxes at $10,000 per itemizing taxpayer. Corporations would retain the ability to deduct those taxes. GFOA will continue opposing this change, especially given the significant impact it would have on the ability of state and local governments to set tax policy. Click here for GFOA resources on the impact of eliminating the SALT deduction.
With respect to public finance, the bill does not repeal the current exclusion for interest earned on municipal bonds; however, it does make some changes that are of concern to GFOA. The most notable of these are a repeal of the ability to advance refund municipal bonds and the termination of the ability to use private activity bonds (PABs). Advance refunding allows public issuers to take advantage of fluctuations in interest rates to realize considerable savings on debt service, which ultimately benefits taxpayers. PABs are used for a wide variety of projects like airports, seaports, affordable housing, and non-profit health and education facilities, all of which provide essential public services. Some of the other changes related to finance are the repeal of tax credit bonds and a prohibition on the use of tax-exempt bonds to finance and build professional sports stadiums. GFOA and other public issuers are weighing in with Ways and Means Committee members on these proposed changes.
GFOA will continue to monitor the process and report developments as they occur.
GFOA Joins Brief Asking Supreme Court to Hear Remote Sales Tax Case
The State and Local Legal Center (SLLC) has filed an amicus brief asking the U.S. Supreme Court to agree to hear South Dakota’s petition in South Dakota v. Wayfair. In this case, South Dakota is asking the Supreme Court to hold that states may require out-of-state retailers to collect sales tax. GFOA is an associate member of the SLLC and joins other groups that represent state and local governments on the brief, which makes two main points. First, it explains why this is the right case for the court to take. Numerous cases (and state laws) in recent years have challenged the holding in Quill. Second, the brief argues now is the right time for the court to consider overturning Quill because states and local governments are failing to collect billions of dollars in tax revenue annually, at an increasing rate, because of rising online sales.
In September 2017, South Dakota’s highest state court ruled that the South Dakota law is unconstitutional because it violates Quill Corp. v. North Dakota, which held that states cannot require retailers that don’t have an in-state physical presence to collect sales tax. It is up to the Supreme Court to overrule it. In October 2017, South Dakota filed a certiorari petition asking the Supreme Court to hear its case and overrule Quill.
Uncollected sales taxes from remote sales totaled nearly $26 billion in 2015. States and local governments remain unable to collect most taxes due on sales from out-of-state vendors.
Supreme Court review is discretionary; four of the nine Supreme Court Justices must agree to hear any case. If the Supreme Court refuses to do so, the South Dakota Supreme Court ruling that South Dakota’s law is unconstitutional will stay in place. The Court could hear this case this term, which would mean an opinion by June 30, 2018.
Your Help Is Still Needed in Washington DC. – Municipal Bonds at Risk
Today – November 16, 2017 – Congress will vote on a measure that will: 1) repeal of the ability to advance refund municipal bonds; 2) terminate the ability to use private activity bonds (PABs); and 3) place significant limitations on the ability for individuals to deduct their state and local taxes. Also at risk is direct subsidy payments, such as Build America Bonds.
Call your member of Congress today. Urge them to consider amending the Tax Bill (HR1) to remove these provisions.