Tax Bill Omits Provisions That Most Concerned Associations
The tax bill rolled out by House Republicans on November 2 includes a number of provisions that will affect tax-exempt organizations. But what’s absent in the legislation is just as important for associations.
After weeks of closed-door meetings, House Republicans rolled out their much-anticipated tax bill [PDF] on November 2.
Some provisions in the bill apply directly to the tax-exempt sector. For example, one would impose a 20 percent excise tax on tax-exempt organizations’ compensation in excess of $1 million paid to any of its five-highest-paid employees. Another stipulates that tax-exempt organizations’ income from research is only excluded from unrelated business income tax (UBIT) if it’s made available to the public.
In addition to these provisions, tax-exempt organizations will be affected by others in the bill. Among them is a 1.4 percent excise tax on net investment income of private colleges and universities; a provision effectively repealing the so-called Johnson amendment, permitting churches to engage in political speech; and a provision repealing the deduction for lobbying expenses at the local level.
While these provisions will concern some tax-exempt groups, the bill is also notable for what is absent in the legislative text. For example, there is no attempt—at the moment—to expand the UBIT statute to tax royalty income or to change the tax treatment of certain qualified sponsorship payments.
Sponsorship payments and royalties in particular were identified in the 2014 tax reform discussion draft authored by then-Ways and Means Chairman Dave Camp (R-MI). That they are not in the bill text introduced in the House is significant. ASAE delivered a letter, signed by 330 associations, to leaders of the House and Senate Finance Committees on October 28 that assessed the impact possible tax changes could have on associations.
“Depending on various changes that may be considered, associations could be forced to make stark changes related to their activities and income sources, and may have difficulty continuing the work they do in communities across the country,” the associations stated in the letter. “Most associations depend on income from passive royalties to advance their tax-exempt purpose, and changes in this area could have broad and negative ramifications for the entire association community.”
Outside of provisions directly related to tax-exempt groups, the bill contains a vast number of tax changes and offsets to pay for the deep tax cuts for corporations and individuals that are at the root of the legislation.
As expected with any complex piece of legislation, there are some potential flash points in the bill, including a proposal to cut in half the amount of mortgage interest Americans can deduct for new home purchases up to $500,000. The bill would also allow people to deduct their local property taxes, but would cap this benefit at $10,000.
Late last month, the National Association of Home Builders, which had said it would support a bill that included changes to the mortgage interest deduction as long as a tax credit took its place, announced it could not support the bill after GOP leaders said the measure would not include the credit.
Republican leaders have begun selling their tax plan to rank-and-file legislators and have an aggressive timeline to get legislation to President Trump’s desk this year. The Senate is expected to roll out its own tax plan on November 8.
(imagedepotpro/iStock/Getty Images Plus)