Washington Update July 2015

GFOA Needs Your Help in Supporting Online Sales Tax Legislation!

The GFOA continues to press for Congressional support of legislation that would enable state and local governments to collect taxes from retailers on remote sales. The Remote Transaction Parity Act (RTPA) (HR 2775), sponsored by Congressman Chaffetz (R-UT-3) and introduced last month, is similar to the Marketplace Fairness Act (S 698) introduced in January 2015. Under RTPA, the state in which the consumer resides could compel out-of-state retailers to collect remote sales taxes, either as a member of the Streamlined Sales Tax Governing Board or through the use of certified software providers. Also like the Marketplace Fairness ActRTPA enjoys bi-partisan support, including that of Congressman John Conyers (D-MI-13), who serves as the Ranking Member of the House Judiciary Committee. This legislation is essential to giving states and localities the access to collect over $23 billion in unpaid sales and use taxes each year.

It is time to pass this important legislation and we need your help! Your direct outreach to your members of Congress is critical to advancing this legislation through the federal legislative process this year.

In order to assist you in your outreach efforts, the GFOA has assembled a Marketplace Fairness/RTPA Resource Page on the GFOA Federal Government Relations website. This resource center contains a suite of materials to assist you in your advocacy efforts, including:

  • A letter to your Representative in support of HR 2775
  • A letter to your Senator in support of S 698
  • A draft Op-ed for your local news source
  • Talking points for a face-to-face meeting with your Representative or Senator
  • A factsheet to assist in your continued dialogue with colleagues and members of Congress

We continue to work closely with our colleagues at the National League of Cities, U.S. Conference of Mayors, National Association of Counties, and National Governors Association, along with our partners in the retail community, to urge Chairman Goodlatte to consider moving forward with the Remote Transactions Parity Act. As congressional discussions continue on these legislative proposals, the GFOA will continue to keep you informed on the status of these discussions and continue to encourage you to engage your members of Congress and urge their support of this very important legislation. If you are able to send a letter in support, please also send it to Emily Brock, Senior Policy Advisor, GFOA Federal Liaison Center.

Senate Finance Committee Working Groups Spare Tax Exempt Municipal Bonds

Following up on efforts that began in January of this year, the Senate Finance Committee unveiled the reports of the committee’s bipartisan tax reform working groups. The groups were assembled more than six months ago to evaluate and identify portions of the federal tax code that are ripe for reform. GFOA led joint discussions with the working groups and our colleagues at the National League of Cities, U.S. Conference of Mayors, and National Association of Counties to educate working group members on the priority federal tax provisions of local governments, including the tax exemption on municipal bond interest and the state and local tax deduction. Our groups, along with the International City/County Management Association, submitted formal comments to the working groups on April 14. Last week working group members reported their recommendations, which are available here. None of the working groups suggested repealing the tax exemption on municipal bond interest in any of their tax reform recommendations.

Urge Federal Policy Makers to Classify Municipal Securities as High Quality Liquid Assets

The GFOA unveiled a new federal advocacy resource center designed to engage members in our efforts to see that municipal securities are classified as high quality liquid assets. The need for this advocacy effort emerged last fall, when the Federal Deposit Insurance Corporation, the Federal Reserve System, and the Office of the Comptroller of the Currency approved a rule establishing minimum liquidity requirements for large banking organizations. The new rule was designed to ensure that large banks maintain liquid assets that can easily be converted to cash during times of national economic crisis. The rule identifies high quality liquid assets to meet this requirement but fails to include municipal securities in any of the acceptable investment categories (despite including foreign sovereign debt).

Not classifying municipal securities as high quality liquid assets will increase borrowing costs for many GFOA members financing important infrastructure projects, as banks will likely demand higher interest rates on yields on the purchase of an issuer’s bonds during times of national economic stress, or even forgo the purchase of our securities during these times. The resulting cost impact on GFOA members could be significant, as bank holdings of municipal securities and loans have increased dramatically over the past five years.

GFOA is asking for your help in engaging federal policy makers and requesting that they change this rule through two advocacy efforts: supporting House legislation HR 2209 and submitting comment letters to the Federal Reserve Board. Learn more about these advocacy efforts by visiting GFOA’s new resource center and by contacting GFOA’s Federal Liaison Center.

An Affordable Care Act Excise Tax Update

On June 25th, the Supreme Court ruled in a 6-3 decision that health insurance tax credits are available on 34 Federal Exchanges. The Court’s opinion in King v. Burwellaffirmed that a Federal Exchange is "an Exchange established by the State" and that such an established exchange may offer tax credits. As a result of this decision, the status quo remains. If an individual otherwise eligible for a tax credit buys health insurance on a State Exchange or a Federal Exchange, the tax credit will be available. Justices Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan joined the majority opinion. Justices Scalia, Thomas, and Alito dissented. Stay up-to-date on Supreme Court cases important to state and local governments through the State and Local Legal Center.

Now that ACA is once again established as law of the land, GFOA continues to monitor a mechanism built into the ACA that would partially fund the law. The so-called "Cadillac Tax" (arguably a misnomer due to its broad potential impact) is a non-deductible excise tax of 40 percent of the value of employer-sponsored health coverage that exceeds certain benefit thresholds: $10,200 for self-only coverage and $27,500 for family coverage.

The Excise Tax is expected to affect the health plans of employers of all types, but it will hit health plans of state and local governments especially hard, as benefits serve as a main tool for recruitment and retention in the public sector.

GFOA continues to monitor legislation sponsored in the 2015 Congress to eliminate the Excise Tax, including two bills introduced that would indicate bi-partisan support. In May, Congressman Joe Courtney (D-CT-2) introduced H.R. 2050 and Congressman Frank Guinta (R-NH-1) introduced H.R. 879 earlier this year. Both bills would effectively repeal the Excise Tax and are gaining support, but neither has bi-partisan support standing alone. As discussions continue on this legislation, the GFOA will continue to keep you informed on the status of the legislation and encourage you to engage your members on the potential impact of the Excise Tax on your jurisdiction.

If you are able to send a letter on behalf of your jurisdiction, please also consider sending it to Emily Brock, Senior Policy Advisor, GFOA Federal Liaison Center.