Weekly Legislative Update - May 7, 2018
Federal Lobby Day- June 20, 2018
Mark your calendars for Wednesday, June 20 as TIA and supporters visit Capitol Hill to discuss key issues currently impacting the tire and automotive industry. Early that day, TIA and supporters will first meet at the US Dept. of Transportation (DOT) headquarters at 10:00am to discuss infrastructure.
Important issues that will be discussed on Capitol Hill include:
Estate Tax | Infrastructure Funding | Online Sales | Health Care | LIFO Repeal | Tariffs | Work Opportunity Tax Credit | Lawsuit Abuse | Retroactive Liability Provisions Superfund | Scrap Tires and Used Oil | National Energy Bill | Urge Strong Enforcement of the Magnuson - Moss Warranty Act | Halt the Activist NLRB's Efforts to Ease Unionization of Businesses | Support the Motor Vehicle Owner's Right to Repair Act | Comp Time | RPM Act | ...and more
Lobby Day gives you a unique opportunity to met face to face with Senators, Congressmen, administration officials, and congressional staffers to discuss issues of concern to you. TIA will host a luncheon on Capitol Hill, and also that evening a reception for you to talk informally to Senators, Congressmen, and Hill Staffers. There will be no fee for any Washington D.C./Capitol Hill function that day. There will also be free transportation to and from the Bowie offices.
Comfort Inn Conference Center
4500 Crain Hwy
Bowie, MD, 20716
Going rate $109.00
Phoenix Park Hotel
520 N. Capitol St NW
Washington, DC 2001
Going rate $339.00
Hyatt Regency Washington On Capitol Hill
400 New Jersey Avenue, NW
Washington, D.C., USA, 20001
Going rate $419.00
For more information and to RSVP please contact:
Roy Littlefield IV, email@example.com
FTC Responds to Association Complaints and Issues a Magnuson Moss Warranty Act Parts Complaint to Hyundai
On April 9, 2018, the Federal Trade Commission (FTC) issued a "compliance warning" to Hyundai Motor Company regarding violations of the Magnuson Moss Warranty Act (MMWA)'s prohibition against tie-in sales of branded products and services as a condition of warranty coverage. FTC specified the following
website statement as problematic: "The use of Hyundai genuine parts is required to keep your Hyundai manufacturer's warranties and any extended warranties intact." Should Hyundai fail to eliminate such statements, FTC may take "legal action."
While AOCA, Auto Care and the Tire Association of America wish that the FTC action had been stronger, we are pleased that the agency has publicly warned the companies that it is illegal under the Magnuson Moss Warranty Act to require the use of a manufacturer part or service in order to maintain a warranty.
The associations had filed complaints with FTC and the National Highway Traffic Safety Administration in 2012 and 2016 over Hyundai and Kia Motors' Technical Service Bulletins #114 and #12-EM-006 which directed their dealerships to assume aftermarket oil filters were the cause of any engine knocking noise and to refuse warranty coverage associated with oil system maintenance and repairs. Many of the vehicles impacted by those bulletins became the subjects of class action lawsuits (Wallis v. Kia and Mendoza v. Hyundai) and subsequent recalls and settlements which determined the engine knocking noises were the result of engine defects, not aftermarket oil filters or non-dealership service.
The associations hope that the FTC action will serve as a wake-up call to the vehicle manufacturers and their authorized service providers about the Act's anti-tying provisions; and will also help educate consumers that they can have their vehicles maintained by their trusted independent technician using high quality non-original equipment parts without fear of voiding their new car warranty.
WOTC And The Base Erosion Anti-Abuse Tax
In this election year our goals have necessarily been limited due to absence of any moving tax bill (so far). Nevertheless, we're determined to use the most available vehicle, FY 2019 government funding, to extend the Empowerment Zone Tax Credit, Indian Employment Tax Credit, and additions to WOTC law for dependents of active-duty service members, people with disabilities, transitioning foster youth, and other provisions we outlined in our statement to the House and Senate.
Today we report on a matter we've been working on since February to find a way to correct what we believe to be a grave error in the new tax law that has the effect of denying WOTC and other Section 38 tax credits (those included in the General Business Credit, except for four credits treated specially), to most corporations, banks, and securities dealers with foreign branches and affiliates and more than $500 million in gross receipts-in other words, large multinational firms, many of which are also large WOTC employers.
This new tax, effective for tax years beginning in 2018 through 2027, is the Base Erosion Anti-Abuse Tax or BEAT. It is payable in cash in addition to all other taxes, and is computed in a manner that amounts to a 100 percent tax on the full value of WOTC and other Section 38 tax credits claimed by the taxpayer. In our view, a taxpayer confronted with this tax will likely choose no to claim their credits but carry them forward in the hope BEAT will be repealed. But this is not a happy situation for taxpayers who are denied their credits currently.
BEAT was a Senate provision, and you'll recall the Senate was writing and re-writing it's TCJA bill down to the final minute. Few people saw it coming, including Finance Committee senators.
We explain the details of BEAT, and our objections to it, in the attached fact sheet. Its impact on large employers committed to WOTC can be highly detrimental, not only to concerned employers, but to the value of the WOTC program for expanding opportunity to targeted workers.
Our immediate legislative goal is to pass an amendment repealing BEAT in the coming FY 2019 government spending bill or bills, or at minimum, rescinding its provisions denying WOTC and other Section 38 tax credits.
NEW BASE EROSION ANTI-ABUSE TAX (BEAT) DENIES WORK OPPORTUNITY AND OTHER TAX CREDITS FOR MANY LARGE CORPORATIONS, BANKS, AND SECURITIES DEALERS
Public Law 115-97, Tax Cuts and Jobs Act (TCJA), section 59A, imposes generally on US corporations, banks, and securities dealers averaging $500 million or more in gross receipts during the prior three tax years, a Base Erosion Anti-Abuse Tax (BEAT) to curb structuring of transactions with related parties to minimize US taxes. BEAT must be paid in addition to all other taxes, including regular corporate tax, Subpart F, GILTI, etc. BEAT is effective for tax years beginning in 2018 through 2027 and is estimated by the Joint Committee on Taxation to raise $150 billion over ten years.
Our view is that BEAT is imprudent policy for three reasons: first, BEAT absorbs the total value claimed by applicable corporations on WOTC and most other tax credits included in the General Business Credit, section 38 of the Code (exceptions are the research credit, low-income housing, renewable electricity, and energy investment credits which are treated specially). Because claiming WOTC and other Section 38 credits increases, dollar for dollar, the BEAT tax amount to be paid in cash, it's likely most taxpayers will choose carryforward rather than claim their credits so long as BEAT exists, negating the purpose of these credits intended by Congress.
Second, BEAT reduces indiscriminately every tax deduction, other than for inputs for production or sale, on transactions with a foreign branch or affiliate by classifying such transactions as "base-erosion tax benefits" without looking into their character as whether they can, in fact, contribute to base erosion. This broad reach, abetted by forthcoming standards for "base erosion tax benefits" to be set by Treasury, can cost applicable companies thousands of dollars without achieving the aim of reducing the incentive to structure transactions to escape a legitimate tax. for making such determinations, differences in interpretation can arise transaction by transaction. The BEAT tax on legitimate deductions for transactions considered to be base-eroding is set at 5% for 2018, 10% for 2019-2025, and 12.5% for 2026-1027, meaning tax money will be raised on the assumption that applying a haircut to valid deductions will curb tax-minimizing transactions and make the tax base less eroded.
Third, the likelihood that BEAT in its present form can achieve its aim must be set against burdensome administrative costs on taxpayers and their affiliates because the law allows Treasury an excessively broad scope to require reporting not only on transactions, but also details of organization of every affiliate. To make base-erosion determinations, we can expect Treasury to set definitions and standards in forthcoming regulations and, as differences in interpretation can arise over their application, a morass of litigation may follow. To avoid this, and adhere to the Administration's policy of reducing the regulatory burden, Treasury should take the path of narrowing the concept of "base erosion tax benefit" to the maximum extent.
As enacted, BEAT requires computation of "modified taxable income", which excludes any "base erosion tax benefit," such as a tax deduction for a "base erosion payment," defined as "any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer and with respect to which a deduction is allowable." This means accounts must be reviewed to identify all tax-deductible payments other than those for purchase of inputs for production or sale; then, gross amounts (without tax deduction) are added to regular taxable income, which is one component of "modified taxable income." Other components of "modified taxable income" are total depreciation charges on property acquired from a foreign related party, any reduction in gross amount of premiums or other consideration on insurance and reinsurance contracts, any reduction in gross receipts resulting from transactions with a related party surrogate foreign corporation, and a percentage of any net operating loss deduction--all are disallowed for purpose of computing modified taxable income. (A "related party" is, generally, a 25% or more owner of another party.)
For 2018, BEAT is computed by subtracting regular income tax liability (reduced by tax credits) from 5% of "modified" income tax liability; the difference is the BEAT tax, which is thus larger by the amount of tax credits claimed. The total amount of any General Business Credit, including WOTC (except for the previously mentioned four credits treated specially), if claimed by an applicable corporation, is absorbed into the BEAT tax amount and is thus fully taxed away, if claimed, when BEAT is paid in cash.
BEAT has serious consequences for tax credit programs: nullifying the aims of credits established by law, undermining their contribution to the economy, halting program progress, throwing firms and managers into confusion, denying impacted corporations around $100 billion in legitimately earned credits over ten years. For example, the Work Opportunity Tax Credit is a key component of the social safety net, stimulating annual hiring of 1.6 million veterans, people with disabilities, ex-felons, the homeless, unemployed single parents, welfare and food stamp recipients, disadvantaged youth, and the long-term unemployed. Like WOTC, each of the section 38 credits is aimed at a specific policy goal determined by Congress, but that aim is nullified when BEAT effectively denies their being claimed for a decade under this law.
Repealing BEAT and fully restoring WOTC is our goal. To accomplish this, we're working to add to the FY 2019 government funding bill or bills, an amendment repealing BEAT or, at minimum, restoring WOTC and other Section 38 tax credits. This is in addition to extending the Empowerment Zone Tax Credit and Indian Employment Tax Credit.