Washington, D.C., Update - September 29, 2017

GOP Unveils Tax Reform Framework: SALT in Danger

On September 27, 2017, Republican leaders released the next iteration of a tax reform framework, setting up what will likely be a contentious Fall as they push to achieve a signature win before the end of the year.

What remains in question are details regarding the offsets that will be used to achieve the proposed substantially lower rates, which means there is still room for debate and negotiation before the final vote. The exemption for municipal bond interest appears to remain untouched, but unfortunately, the state and local tax (SALT) deduction is marked for repeal.

What Can You Do?

Call Your Representative on the House Ways and Means Committee. Is your Congressional representative on the House Ways and Means Committee? Call them right away and ask them to oppose repealing the SALT deduction urge them to voice their opposition to eliminating deductibility. The GFOA Report, “The Impact of Eliminating the State and Local Tax Deduction,” shows the percentage of tax filers in their districts that use the deduction and the potential impact of eliminating it.

Call Your U.S. Senators and Representatives. Even if your Congressional representation is not on the committee, it is still important to let them know how important this issue is. It’s important to bring as much attention as possible to this threat. To make more of an impact, make an appointment to visit with or call their district staff directors.

Activate Your Community. Congress also needs to hear from voters, taxpayers, businesses, realtors, homebuilders, educators, and anyone else in your cities and counties who will be harmed by this proposal.

Share Feedback. Please let GFOA’s Federal Liaison Center know about any actions you take and commitments or feedback you receive by e-mailing Emily S. Brock or Michael Belarmino.

Talking Points

  • If our taxpayers lose the federal deduction for their state and local income, property, and sales taxes, they will face “double taxation.”
  • Simply put, this change would basically be forcing taxpayers – who make up the backbone of our economy – to pay taxes a second time on the same income instead of allowing working families in every one of our communities to deduct the amount they pay in state and local taxes.
  • Research shows that 39% of taxpayers with annual earnings between $50,000 to $75,000 use this deduction, as do 70% of taxpayers with annual earnings between $100,000 and $200,000.
  • The proposal to eliminate deductibility would have a drastic impact on home ownership and the value of current homes. Reducing or eliminating this deduction is a tax hike for homeowners.
  • This deduction has existed for more 100 years, since the federal tax code was established.
  • States and local governments use revenues from property, sales, and income taxes to help finance long-term infrastructure projects, local law enforcement, emergency services, education, and many other services.
  • By eliminating the federal deductibility of these taxes, Congress would shift the intergovernmental balance of income taxation and force cuts in critical state and local services.
  • Federal laws or regulations should not preempt, limit, or interfere with the constitutional or statutory rights of states and local governments to develop and operate our own tax systems.
  • This is not just a fight over money and taxes. It is perhaps the most important debate about the proper balance and true partnership between local governments, states, and the federal government.

 

Next Stop for Remote Sales Tax Collection Challenge: U.S. Supreme Court

The South Dakota Sixth Judicial Circuit ruled earlier this year that a law passed by South Dakota, which would have required remote retailers to collect and remit sales tax if they exceed a statutory threshold of sales into the state each year, is unconstitutional. The case, South Dakota v. Wayfair, Inc., potentially brings the decades-long debate on taxing remote sales a step closer back into the U.S. Supreme Court.

The law was ruled unconstitutional because it clearly violates the 1992 U.S. Supreme Court decision in Quill Corp. v. North Dakota, and “Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes.” In 1992, Quill stipulated that states cannot require retailers that don’t have an in-state physical presence to collect sales tax. Internet sales have risen astronomically since 1992 and states and local governments still can’t collect most taxes due on sales from out-of-state vendors.

Following this predictable loss before the State Supreme Court, South Dakota is expected to ask the U.S. Supreme Court to rule that its law requiring out-of-state retailers to collect sales tax is constitutional. Doing so will require the U.S. Supreme Court to take the unusual step of overruling precedent. A U.S. Supreme Court review is discretionary; four of the nine Supreme Court justices must agree to hear the case. If the petition for the court to hear this case is filed soon, the case will be decided by June 30, 2018.