The full edition of this week’s Tax Policy Update is up! Read it here.
Previous editions are available in the links below:
The full edition of this week’s Tax Policy Update is up! Read it here.
Previous editions are available in the links below:
On April 13, House lawmakers introduced the FAA Reauthorization Act of 2018 (H.R. 4). The bill would provide a five-year reauthorization of the Federal Aviation Administration (FAA). Of note, the measure does not contain the controversial proposal to privatize the air traffic control system — an issue that snarled up previous reauthorization bills. Current reauthorization for the FAA is set to expire on Sept. 30.
The 2018 FAA bill contains a revenue title (Title VIII) that would extend the taxes that fund the Airport and Airway Trust Fund (e.g., fuel tax, airfare tax, etc.). More importantly, the revenue title provides a placeholder for other tax provisions — Republicans are looking to use it for technical corrections and extenders.
The House is aiming to take up the bill as soon as possible. However, timing on the Senate side remains uncertain.
House Speaker Paul Ryan (R-WI) announced that he would not be seeking re-election in 2018. While it was not a complete surprise to those in the know, the decision sent a shockwave through Washington. Ryan is now part of the growing list of Republicans (about 46) who will not be returning to Congress next year.
Ryan’s retirement appears to reinforce the GOP’s fear that a “blue wave” will hit Congress come November, taking away the party’s majority status in both chambers. Yet, interestingly, the latest poll conducted by ABC News and Washington Post shows that the Democrats’ advantage in the midterm elections may be shrinking: The 12-point advantage held in January has dropped to a four-point lead.
So far, Ryan has resisted calls for him to step down as speaker and allow an early leadership election to proceed. The GOP establishment is taking bets on whether the party will be able to force Ryan to hand over the gavel — some suspect that he may cave to the pressure by summer.
Based on most accounts, Majority Leader Kevin McCarthy (R-CA) is the likely successor, despite the personal scandal that helped sink his candidacy last time around. Majority Whip Steve Scalise (R-LA) is also getting a lot of buzz, but he’s unlikely to put up a fight against McCarthy, who has already secured Ryan’s blessing. Now McCarthy must bend the knee to the House Freedom Caucus to seal the deal.
A 51-year old tax decision may finally be overturned as the Supreme Court takes a third look at a highly controversial sales tax issue: Should companies be required to remit sales taxes to states in which they sell products to residents, but do not have a physical presence? On April 17, the Supreme Court will hear legal arguments for South Dakota v. Wayfair, with a decision to follow this summer.
The Wayfair case began when South Dakota passed a law requiring Internet sellers to collect state sales tax for goods sold to residents. The lower court struck down the law as violating a prior 1992 Supreme Court decision – Quill v. North Dakota. Earlier this year, the Supreme Court accepted the Wayfair case, essentially agreeing to revisit the Quill decision.
In Quill, the Supreme Court limited a state’s ability to collect sales tax to retailers with a physical presence (e.g., a warehouse or store) in the taxing jurisdiction. Quill itself followed the 1967 Bellas Hess v. Illinois case in which the Supreme Court determined that states cannot tax mail order companies for in-state sales, unless they maintained a physical presence in the state.
Of course, this was long before the Internet and the growth of online retail. Given technological advancements, will the Supreme Court overturn its previous decision?
For starters, the makeup of the high court has changed quite a bit since the Quill decision. Only Justices Thomas and Kennedy remain from the Quill decision. However, since then, Justice Kennedy has invited the court to revisit the Quill and Bellas Hess decisions. In Direct Marketing Association v. Brohl, Justice Kennedy noted that in light of technological and social changes that have taken place in an increasingly interconnected economy, the Supreme Court should reconsider its previous decisions. Justice Kennedy also noted that as a result of the court’s decisions, states have been unable to collect sales taxes on Internet purchases, which has major financial repercussions. According to the Government Accountability Office (GAO), states could have collected $13 billion in sales taxes in 2017 alone from out-of-state companies.
Despite Justice Kennedy’s concurrence in Brohl, no other justices joined his concurrence. However, some of the other justices seem to be reconsidering their position based on opinions in other cases, including the Supreme Court’s 2015 decision in Maryland v. Wynne.
Barring congressional action, the fate of cash-strapped states and retailers seems to be in the hands of the high court. Earlier this year, lawmakers made a final attempt to attach a sales tax legislation to the FY 2018 omnibus. However, the provision did not make it into the final deal.
The House and Senate convene today at noon and 3 p.m., respectively.
Bills Under Consideration. April 17 is Tax Day, and the House has lined up a series of votes on bills related to IRS reform. See the full list here. Most of these bills will be considered under suspension of the rules. Three measures, however, will be debated under rules specified by the House Rules Committee:
Quarles Speaks. On Tuesday, Federal Reserve Vice Chairman for Supervision Randal Quarles will testify before the House Financial Services Committee to discuss the Fed’s agenda.
Extenders Roundtable. The House Ways and Means Committee will hold a closed meeting with members to discuss tax extenders.
FY 2019 Appropriations. The House Appropriations Committee has scheduled a slew of appropriations hearings for various federal agencies. See the complete schedule here.
Vote. Lawmakers will resume consideration of S. 140, a tribal labor bill that would amend the White Mountain Apache Tribe Water Rights Quantification Act of 2010 to clarify the use of the WMAT Settlement Fund.
Nominations Hearing. On Tuesday, the Senate Banking Committee will consider the nominations of Jeffrey Nadaner to be assistant secretary of Commerce for export enforcement; Thelma Drake to be federal transit administrator; and Seth Appleton to be assistant secretary of HUD for policy development & research.
Pensions Hearing. On Wednesday, the Joint Select Committee on Solvency of MEPs will hold a hearing on the history and structure of the multiemployer pension system.
The Treasury Department and the Office of Management and Budget (OMB) released a Memorandum of Agreement (MOA) establishing a new process for the review of tax regulations. The MOA brings an end (at least for now) to the recent power struggle between the two agencies over who should get the final say in approving tax regulations. In the MOA, the OMB has gained new authority to give final approval to certain tax regulations issued by the Treasury.
Under the new framework, a tax regulatory action will be subject to review by the OMB’s Office of Information and Regulatory Affairs (OIRA) if it is likely to result in a rule that may:
A tax rule that is subject to OMB’s additional review cannot be published in the Federal Register until OIRA notifies the Treasury that it has waived or concluded its review. OMB’s review will generally take 45 days after Treasury’s submission of a rule. The MOA also explains that any “policy disagreement that could not be resolved during the review process” will be resolved via a “principals meeting.” OIRA would facilitate such a meeting and, if needed, elevate any outstanding issues to the president.
This new MOA supersedes the 1983 Memorandum of Agreement between the Treasury and OMB with respect to tax regulatory actions.
A copy of the MOA is available here.
The agencies’ official press release can be viewed here.
Many of us in the executive compensation field have been busy these past few months preparing proxy statements and corresponding executive compensation disclosures. Now that the crush of proxy season is largely behind us, and companies have either made it through their first pay ratio disclosures or are about to file proxies with pay ratio disclosures, you might be tempted to take a pause and catch your breath. But wait! An unnerving and growing trend has emerged in which state and local governments have either passed or are considering new taxes and other rules that are tied to a company’s pay ratio.
Most of these new or proposed bills would add surtaxes based on a company’s pay ratio. For example, Portland, Oregon adopted a new tax in which it will levy:
Other states either have followed or are considering following suit (in their own unique fashions), including:
We flagged this issue prior to the pay ratio rules becoming effective (see our comment letter here) as one of the many problems associated with the pay ratio rules. Unfortunately, the trend of states and localities seeking to levy punitive taxes based on pay ratio disclosures, that even the SEC admits, are simply estimates, is troubling and may ultimately grow in prevalence. We are continuing to monitor all pay ratio taxes and will provide updates as warranted.
Talks of doing another round of tax cuts bubbled up again over the spring break recess. As the Tax Policy Update team previously reported, House Republicans are considering teeing up a second package of tax cuts for a vote this summer.
The GOP fully appreciates the fact that another tax bill has little to no chance of passing the Senate. But still, they want to put Democrats on the record for voting against tax cuts — it’s a good talking point for the campaign trail. The forthcoming package is expected to focus on making the temporary provisions in the new tax law permanent. As a refresher, provisions affecting the individual side of the tax code are set to expire at the end of 2025.
The House Ways and Means Committee will hold a markup for a series of bills related to IRS reform on April 11 at 10 a.m. Among the bills to be considered is The Taxpayer First Act – a bipartisan measure to improve IRS operations and tax administration procedures.
House Ways and Means Oversight Subcommittee Chairwoman Lynn Jenkins (R-KS) and Ranking Member John Lewis (D-GA) released a discussion draft of the bill over the spring break recess. The measure would overhaul the tax collection agency and modernize its information technology infrastructure. The overall goal is to improve taxpayer services and customer experience with the IRS.
The discussion draft is the product of 11 subcommittee hearings and roundtables over the past three years. The six-title bill includes provisions to reform the independent appeals process; improve customer service; promote sensible enforcement; enhance cybersecurity protection; modernize the IT infrastructure; and update the Tax Court. Most of the provisions in the bill have bipartisan and bicameral support.
Here are some noteworthy highlights:
Interestingly, the bill does not include any provisions to regulate paid tax return preparers — an issue that has been hotly debated in recent years.
A full section-by-section summary of the discussion draft is available here.
The Senate convenes today at 3 p.m., and the House returns Tuesday at noon.
Financial Services Bills. The chamber will take up consideration of the following bills:
Balanced Budget Amendment. The House will vote on H.J. Res 2, which would add a balanced budget amendment to the U.S. Constitution. This is a political messaging exercise for the GOP ahead of the midterm elections.
Tariffs Hearing. The House Ways and Means Committee will hold a Thursday hearing to discuss the effects of tariff increases on the U.S. economy.
Nomination. The chamber will consider the nomination of Claria Horn Boom to be U.S. District Judge for the eastern and western districts of Kentucky. A cloture vote has been scheduled for 5:30 p.m. today.
IRS Hearing. The Senate Finance Committee will hold a hearing Thursday to discuss the 2018 filing season and the future challenges of the IRS.
Mulvaney at Banking. CFPB Acting Director Mick Mulvaney will deliver his semiannual report to the Senate Banking Committee on Thursday.