Tax Reform Working Groups Ready Recommendations; Highway Funding in Focus
Senate Finance Committee Working Groups to Submit Tax Reform Proposals
After having been provided additional time to finalize their proposals for consideration by the full Committee, the Senate Finance Committee Tax Reform Working Groups are due to submit their proposals by this Friday, June 26. The Working Group that appears to have made the most progress is the International Tax Working Group. Senator Rob Portman (R-OH), the Working Group’s Co-Chair, has indicated that his group’s proposal will include: (1) an “innovation box”; a “hybrid territorial system”; and a repatriation tax on companies’ overseas profits. According to Senator Portman, the recommendations will be “options,” not legislation.
The Debate Over Highway Funding Continues
Last week, tax-writers in both the House and Senate held the first hearings this Congress to examine “long-term financing” options for the Highway Trust Fund. Among various ideas for highway funding, lawmakers discussed: (1) repatriation; (2) various types bonds, including Private Activity Bonds (PABs), Build America Bonds (BABs), and municipal bonds; (3) public-private partnerships (PPPs); and (4) the gas tax. This week, the House Ways and Means and Senate Finance Committees have scheduled additional hearings on highway funding, with the Senate set to focus on private sector solutions to highway funding, while the House will look specifically at the possibility of using repatriation as a source of funding.
As tax-writers search for a source of funding, lawmakers focused on transportation are “still working out the details” and plan to press forward expediently with a markup of a multi-year surface transportation reauthorization bill. In considering whether tax reform could be addressed during that same period, Senator Chuck Schumer (D-NY) indicated that the Committee is “making very good progress” and encouraged Republicans to “sit down and talk…about the parameters.”
Notably, even if Republicans are ultimately able to coalesce around a way to fund a long-term surface transportation reauthorization, the likelihood that they are able to do so before July 31 is slim. As such, regardless of their long-term solution to highway funding, it is almost certain that lawmakers will be forced to do a short-term extension to keep the Highway Trust Fund operational. The Congressional Budget Office (CBO) estimates that by the end of September, the Department of Transportation will be forced to begin “cash management” procedures, including the potential delay of payments to states.
Tax-Writers Talk Tax Extenders
Despite an earlier indication by House Ways and Means Committee Chairman Ryan (R-WI) that lawmakers would “find common ground” and come together on tax extenders as part of efforts to reform business tax provisions this summer, it no longer appears that business tax reform is a viable option. As such, Chairman Ryan this week indicated that the lawmakers are likely to turn to tax extenders in the fall, so as to avoid a last minute deal and provide businesses with much-needed certainty. However, according to Representative Steve Stivers (R-OH), “[t]here seems to be a partisan divide on [tax extenders] so we’ll probably end up with one-year extenders again at the end of the year, which is really sad for businesses that want certainty.” While several bills making certain tax extenders permanent – including Section 179 expensing and the Research and Development (“R&D”) Tax Credit – have already passed the House this year, the current political dynamic makes it uncertain whether any such proposals will become law this Congress.
House Passes Medical Device Tax Repeal; Lawmakers Consider State Taxing Power and Sales Tax Legislation
On June 18, the House voted 280-140 to pass the Protecting Medical Innovation Act (H.R. 160), which would repeal the Affordable Care Act’s excise tax on medical devices. The bill now heads to the Senate, where its path forward is uncertain. Moreover, should the bill pass the Senate, the White House has promised to veto the legislation.
Additionally, last week, the House Judiciary Committee marked-up and approved three bills related to states’ taxing powers:
R. 2584, the Business Activity Tax Simplification Act of 2015 (approved 18-7), which expands the federal prohibition against state taxation of interstate commerce to: (1) include taxation of out-of-state transactions involving all forms of property, including intangible personal property and services (currently, only sales of tangible personal property are protected); and (2) prohibit state taxation of an out-of-state entity unless such entity has a physical presence in the taxing state;
R. 2135, the Mobile Workforce and State Income Tax Simplification Act (approved 23-4), whichprovides a clear, uniform framework for when states may tax nonresident employees who travel to the taxing state to perform work by: (1) preventing states from imposing income tax compliance burdens on nonresidents who work in a foreign state for fewer than 30 days in a year; and (2) substantially simplifying state income tax laws by imposing a uniform standard for when a state can tax a nonresident taxation and employer withholding;
R. 1643, the Digital Goods and Services Tax Fairness Act (approved by voice vote), which: (1) prohibits a state or local jurisdiction from imposing multiple or discriminatory taxes on the sale or use of a digital good or service delivered or transferred electronically to a customer; (2) excludes from the definition of “digital service” a service that is predominantly attributable to the direct, contemporaneous expenditure of live human effort, skill, or expertise, a telecommunications service, an ancillary service, an Internet access service, an audio or video programming service, or a hotel intermediary service; (3) restricts taxation of a digital good or service to taxation by a state or local jurisdiction whose territorial limits encompass a customer tax address; (4) makes the seller of digital goods or services responsible for obtaining and maintaining such address; and (5) provides for the taxation of digital goods and services transactions that are aggregated and not separately stated.
Additionally, last week, Representative Jason Chaffetz (R-UT) introduced the Remote Transactions Parity Act (H.R. 2775), which is modeled after the Marketplace Fairness Act. The legislation would require online retailers who do not already collect sales tax from customers to start doing so. Presently, H.R. 2775 has bipartisan support from 19 co-sponsors (10 Democrats and 9 Republicans) and is awaiting action by the House Ways and Means Committee.
This Week’s Hearings:
Wednesday, June 24: The House Ways and Means Subcommittee on Select Revenue Measures will hold a hearing titled “Repatriation of Foreign Earnings as a Source of Funding for the Highway Trust Fund.”
Thursday, June 25: The Senate Finance Committee will hold a hearing titled “Unlocking the Private Sector: State Innovations in Financing Transportation Infrastructure.”
Treasury Considering Country-by-Country Template
According to Brian Jenn, Attorney-Adviser, Office of Tax Policy, Department of the Treasury, U.S. officials are considering whether to require U.S. companies that file a country-by-country template to do so when filing their tax returns. While Mr. Jenn stated that the requirement is “reasonable,” he also noted that it is a decision for the Internal Revenue Service (IRS) to make. Presently, the government is developing regulations that would require companies to file the template – a requirement resulting from the Organisation for Economic Co-operation and Development’s (OECD) efforts to address base erosion and profit shifting (BEPS). Separately, Mr. Jenn noted that the U.S. has no plans to change its rules governing transfer pricing documentation to go further than the OECD has suggested.
IRS to Hold Meeting of ETAAC
On Thursday, June 25, the IRS will hold a meeting of the Electronic Tax Administration Advisory Committee (ETAAC) to discuss recommendations for electronic tax administration, which will be published in their Annual Report to Congress on June 30.