Yesterday, President Trump signed two proclamations imposing steel (25 percent) and aluminum tariffs (10 percent). AED is concerned about the impact these actions could have on equipment distributors, manufacturers and their customers and the effect on the cost of future infrastructure projects. The association will closely monitor implementation of the tariffs and work with other industry organizations, the administration and Congress to limit its impact on construction equipment dealers. However, AED was pleased that certain countries were exempted, particularly Canada, and that the administration has indicated a willingness to be flexible in excluding more countries.
Following the White House announcement, AED’s President and CEO Brian P. McGuire said:
“The United States operates in a global economy and when a country takes protectionist measures it will always raise concerns about the negative impacts. However, similar to legislative and regulatory actions, the details matter and implementation is crucial. The coming weeks will be important to assess the Trump administration’s commitment to accommodating the concerns of our key trading partners and allies and the impact it will have on on-going trade agreement negotiations, such as NAFTA. Accessible and efficient international trade is critical to continued economic growth and international competitiveness.”
This morning, the Trump administration unveiled it’s much anticipated “Legislative Outline for Rebuilding Infrastructure in America.” The proposal is a broad “infrastructure plan” that isn’t limited to roads and bridges, but addresses other projects including drinking and wastewater systems, waterways, water resources, energy, rural infrastructure, public lands, veterans’ hospitals and Brownfield and Superfund sites. The set of principles tracks closely with what AED and other stakeholders have advocated for since last year.
“I commend President Trump for focusing on rebuilding our nation’s crumbling infrastructure,” said AED’s President Brian P. McGuire. “The administration’s proposal is just the start of the conversation. It’s now Congress’ responsibility to pass legislation that incorporates many of the principles outlined by the president combined with substantial, sustained investment and new revenue to provide long-term certainty to the construction industry. Americans are craving bipartisan leadership and this will show the country that Washington is serious about rebuilding our infrastructure. It’s time to turn words into action for America.”
Key components of the president’s plan include:
- $200 billion in total funding that will be offset by cuts to federal programs (in other words, no new revenue streams for the Highway Trust Fund or other infrastructure programs);
- Incentivizing states and localities to take on greater responsibility in the design, build and maintenance of infrastructure projects ($100 billion);
- Establishing a “Rural Infrastructure Program” ($50 billion) for capital investments in rural infrastructure investments and a “Transformative Projects Program” ($20 billion) to fund “ambitious, exploratory, and ground-breaking project ideas that have significantly more risk than standard infrastructure projects, but offer a much larger reward profile”;
- Expanding the use of private activity bonds (PABs) and existing federal credit programs, including Transportation Infrastructure Finance and Innovation Act (TIFIA) and Water Infrastructure Finance and Innovation Act (WIFIA) ($20 billion);
- Providing greater flexibility to toll on interstates and streamlines the permitting process by establishing a “One Agency, One Decision” environmental review structure;
- Encouraging reforms to address the nation’s skills gap, including expanding the use of Pell Grants to short-term programs that lead to a credential or certification in an in-demand fields and modernizing the Carl D. Perkins Career and Technical Education (CTE) program.
Infrastructure investment will be at the top of the agenda at the 2018 AED/EDA Washington Fly-In on March 20-22. Register today and help push Congress to provide the necessary resources to rebuild our nation’s infrastructure.
Brian P. McGuire, president and CEO of Associated Equipment Distributors, issued the following statement following President Donald J. Trump’s State of the Union address.
“While AED commends President Trump for continuing to focus on infrastructure investment, the time is long overdue for words to become action. Every day there are numerous examples of structurally deficient bridges, dams and levees and inadequate roads, airports and pipes. Time is wasted in traffic or sitting on an overcrowded runway. Clean water is squandered as water mains break. Lives are put at risk.
“Our infrastructure is the lifeblood of our economy. It impacts our quality of life, the competitiveness of our businesses and the safety and security of our country. Our leaders in Washington can no longer forsake their responsibility to invest in the nation’s infrastructure in a long-term, sustainable manner. AED members are ready to work with members of both parties to help make President Trump’s vision of a world-class infrastructure for the United States a reality. Further delay in Washington is unacceptable.”
Associated Equipment Distributors (AED) elected Diane Benck to serve as 2018 Chairwoman last week at their annual Summit held in Las Vegas. Benck, Vice President of General Operations at West Side Tractor Sales in Naperville, Illinois, becomes the first woman to lead AED. She replaces outgoing Chairman Wes Stowers, President of Stowers Machinery in Knoxville, Tennessee.
“I am honored my colleagues in the industry have put their faith in me, and I am up to the task,” stated Benck. She plans to focus on enhancing educational opportunities for the next generation of equipment technicians along with working to promote AED’s positions with legislative leaders in Washington. “AED has really done a great job of enhancing our programs and offering new educational opportunities, and I want to continue that trajectory,” said Benck. “I want to continue to offer top-notch education for the next generation entering the industry,” she added.
“I think staying on top of advocacy and continuing to enhance our government affairs program has always been a prime objective for me with AED and definitely will be during my chairmanship as well,” Benck concluded.
“We are very pleased to have Diane taking the reins at AED. Her experience and leadership skills will help our association maintain its position as the leader in the equipment distribution industry,” stated AED President & CEO Brian P. McGuire. “Based on the comments out of Washington, D.C. recently in regard to an infrastructure bill, it will be a busy year for our association. We are glad to have Diane at the helm as we expand our reach in government affairs, ramp up our training offerings and continue to grow The AED Foundation.”
AED’s President and CEO Brian P. McGuire issued the following statement after congressional approval of the Tax Cuts and Jobs Act:
“Every major piece of legislation will have some positives and some negatives. The Tax Cuts & Jobs Act is no different. While AED didn’t get everything we wanted, I have no doubt that had we not been at the table throughout the process the industry would be in a far worse position.
“The tax reform process isn’t over. The Tax Cuts & Jobs Act will need to be refined, and many important provisions are temporary. The administration will be issuing guidance on many aspects of the new law in the coming year. AED will remain engaged, but it’s important that construction equipment dealers also continue to be involved. As this process has shown, there’s too much at stake not to advocate for your company and your industry.”
To review the final Tax Cuts and Jobs Act conference report visit: docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf
To see highlights of the new law for the construction equipment industry visit: aednet.org/aed-alert-final-tax-conference-committee-agreement-released/
To view AED’s letter of support for the Tax Cuts and Jobs Act visit: aednet.org/wp-content/uploads/2017/12/AED-TaxCutsJobsActSupport.pdf
On the evening of Dec. 15, congressional leaders unveiled the final conference committee report for Tax Cuts and Jobs Act.
As with any major piece of legislation, there are positive and negative aspects. However, the final agreement contains many of AED’s recommendations to the conference committee, including a lower rate for most pass-throughs (including trusts and estates), the ability for construction equipment dealers to take advantage of full expensing of new and used equipment and business interest initially capped at 30 percent of earnings before interest, tax, depreciation and amortization (EBITDA), as opposed to significantly more restrictive proposals.
Additionally, the final agreement is a significant benefit to your customers and manufacturers, which should spur growth in the broader construction sector. The House and Senate are poised to approve the bill and send it to the president’s desk by the end of the week.
AED strongly encourages you to have your CPA/tax attorney review the final agreement to determine its effect on your company. Be sure to join AED in Las Vegas, Jan. 15-19, for the 2018 Summit & CONDEX where there will be educational sessions on the new tax law and its impact on AED members.
Highlights of the Tax Cuts and Jobs Act final conference agreement include:
Rates. For pass-through entities, there will be a 20 percent deduction for business income. This deduction is subject to a limit based on the greater of 50 percent of W-2 wages paid in your business or the sum of 25 percent of W-2 wages plus 2.5 percent of the basis of your depreciable property (expires after 2025). There is no limitation on trusts and estates receiving the 20 percent deduction. A permanent corporate rate of 21 percent is effective January 1, 2018.
Dealer floor plan. “Construction machinery and equipment” was omitted from the dealer floor plan provision in the final agreement, ensuring construction equipment dealers can take advantage of the conference report’s full expensing provision (the House-passed proposal would have carved out construction dealers from utilizing full expensing in exchange for higher business interest).
Expensing. Full expensing for new and used property acquired between September 28, 2017 and December 31, 2022. Thereafter, the bonus depreciation percentage decreases by 20 points per year, phasing out entirely by 2027. Section 179 expensing levels were also increased to $1 million with a $2.5 million phaseout.
Interest deductibility. The final bill caps business interest at 30 percent of EBITDA through 2021 before moving to a 30 percent of EBIT formula thereafter. Disallowed business interest is allowed to be carried forward indefinitely.
Estate tax. Doubles the estate tax exemption levels to about $11 million per individual/$22 million per couple through 2025.
AMT. Corporate AMT is repealed
LKE. Repeals LKE for personal property. The provision doesn’t apply to an exchange if (A) the property disposed of by the taxpayer in the exchange is disposed of on or before December 31, 2017, or (B) the property received by the taxpayer in the exchange is received on or before December 31, 2017
The final conference report doesn’t touch LIFO and also continues to permit the tax exempt status of private activity bonds, an important tool for infrastructure investment.
For questions about this or other legislative issues, please contact AED’s Vice President of Government Affairs Daniel B. Fisher.
From the beginning of the tax reform process, AED has worked hard in Washington representing the interests of our membership. We have done this with input from our Public Policy Council (PPC), Board of Directors and individual members who have responded to our alerts. I think we can all agree this has been a very quick and at times confusing process, so thank you to all that have helped us with your feedback.
This week, AED delivered a comprehensive letter to conference committee members detailing our concerns with the House and Senate-passed Tax Cuts & Jobs Act and our recommendations for ensuring the best possible outcome for AED members.
Thank you to everyone for your engagement in the process.
Brian P. McGuire
President and CEO
On early Saturday morning, the U.S. Senate approved its version of the Tax Cuts & Jobs Act. The legislation differs from the House bill in many ways. Yesterday evening, the Senate released its final bill, as amended: https://www.finance.senate.gov/imo/media/doc/12.2.17%20HR%201.PDF.
Outlined below are some of the key areas for AED members and comparisons between the House and Senate provisions:
Pass-Through Rate. The Senate bill allows for pass-throughs to deduct 23 percent of their income, although the provision sunsets after 2025. The House legislation lowers the pass-through rate to 25 percent, but excludes certain business income from the lower rate. Net income derived from a passive business activity would be treated entirely as business income and fully eligible for the 25 percent maximum rate. Owners or shareholders receiving net income derived from an active business activity (including any wages received) would determine their business income by reference to their “capital percentage” of the net income from such activities. Under the provision, owners or shareholders generally may elect to apply a capital percentage of 30 percent to the net business income derived from active business activities to determine their business income eligible for the 25 percent rate. That determination would leave the remaining 70 percent subject to ordinary individual income tax rates. Alternatively, owners or shareholders may elect to apply a formula based on the facts and circumstances of their business to determine a capital percentage of greater than 30 percent. That formula would measure the capital percentage based on a rate of return (the Federal short-term rate plus seven percent) multiplied by the capital investments of the business. Once made, the election of the alternative formula would be binding for a five-year period.
Corporate Tax Rates. Both the House and Senate legislation permanently reduce the C-Corp rate to 20 percent, but the Senate reduction starts in 2019.
Business Interest. The House bill caps net interest deduction at 30 percent of earnings before interest, taxes, depreciation and amortization (EBITDA). The Senate bill limits it to 30 percent of earnings before interest and taxes (EBIT). Companies with less than $25 million in gross receipts (House) and less than $15 million in gross receipts (Senate) are exempted from business interest limitations. Under the House bill, excess interest expense can be carried forward for five years. The Senate bill allows excess interest expense to be carried forward indefinitely.
Full Expensing. The Senate legislation allows for full and immediate expensing of new equipment purchases until 2022; at that point, bonus has a gradual phase-out (80 percent, 60 percent, 40 percent, 20 percent from 2023-2026). The House legislation allows for full expensing of new and used equipment purchases for five years.
Sec. 179 Expensing. The Senate raises the Sec. 179 small business expensing cap to $1 million with a phaseout starting at $2.5 million. The House increases Section 179 expensing to $5 million, with the phaseout beginning at $20 million.
Estate tax. The Senate maintains the federal estate tax, but doubles the current exemption to about $11 million per individual and $22 million per couple through 2025 before sunsetting. In the House bill, the basic exclusion amount is similarly doubled from about $11 million per individual/$22 million per couple, which is indexed for inflation. Furthermore, beginning after 2023, the estate and generation-skipping taxes are repealed while maintaining a beneficiary’s stepped-up basis in estate property. The gift tax is lowered to a top rate of 35 percent and retains a basic exclusion amount of $10 million and an annual exclusion of $14,000 (as of 2017), also indexed for inflation.
Like-Kind Exchanges. Both the House and the Senate repeal like-kind exchanges for personal property while maintaining it for real property. The provision doesn’t apply to an exchange if (A) the property disposed of by the taxpayer in the exchange is disposed of on or before December 31, 2017, or (B) the property received by the taxpayer in the exchange is received on or before December 31, 2017.
Dealer Floor Plan Indebtedness Carveout. The House included language that would have prevented construction equipment dealers from taking advantage of the legislation’s full expensing provision in exchange for an increased business interest deduction. AED’s Board instructed the association to work to strike “construction equipment dealers” from the list in the carveout. We were successful in keeping “construction equipment dealers” from being included in the Senate bill, thus allowing construction equipment dealers to have 100 percent expensing in the upper chamber’s legislation.
Alternative Minimum Tax. The Senate legislation retains the corporate alternative minimum tax (AMT) in its current form, and retains the individual AMT with higher exemption amounts (about 40 percent higher than current law). The House bill repeals both the individual and corporate AMTs.
Private activity bonds. The House bill includes the termination of private activity bonds (PABs), which are often used to fund infrastructure projects. The Senate doesn’t touch PABs.
Affordable Care Act Individual Mandate. The Senate bill repeals Obamacare’s individual mandate. The House doesn’t have a similar provision.
The action now proceeds to a conference committee, where House and Senate members will negotiate a conference report to present to each chamber for final passage. The process is moving full steam ahead, but reconciling differences between the chambers’ bills while ensuring it complies with the Senate’s arcane budget rules will be difficult.
AED will be weighing-in with House and Senate conferees on all of the issues mentioned above. The association remains concerned about the treatment of pass-throughs, the limitations on the business interest deduction, retaining the AMT, the elimination of like-kind exchanges for personal property, the temporary nature of many of the key provisions and the repeal of private activity bonds. We encourage everyone to consult with their CPA, CFO or tax expert to determine how this plan impacts your business operations and convey any concerns or comments to AED’s Vice President of Government Affairs Daniel Fisher.
To view the House-passed bill visit: https://www.congress.gov/115/bills/hr1/BILLS-115hr1eh.pdf
Earlier today, the House of Representatives passed the Tax Cuts & Jobs Act (H.R. 1). While a noteworthy milestone in the tax reform process, it’s only a first step. The Senate Finance Committee continues to work on its proposal, which differs from the House in significant areas. If the Senate does pass legislation, it will still have to be reconciled with the House before reaching the president’s desk.
Upon House passage, AED’s President and CEO Brian P. McGuire said, “As with any major piece of legislation, the Tax Cuts & Jobs Act has some good and some bad. As the process moves forward, AED will continue to work with lawmakers to ensure a final bill benefits the capital intensive, small-to-medium-sized companies that dominate the construction equipment industry. There’s a lot of work yet to be completed and AED will remain at the table to help Congress, not just get tax reform done, but to get it done right.”
AED remains concerned with how both the House and Senate proposals treat tax pass-through’s, limits business interest and expensing, eliminates like-kind exchanges for personal property and restricts the use of private activity bonds for infrastructure projects. The temporary nature of many provisions in both bills is also a major concern.
While the process is moving quickly by congressional standards, there’s still ample time to weigh-in and seek modifications. AED recommends you have your CPA or tax attorney review the legislative proposals to determine the impact it will have on your individual company. Please provide feedback to AED’s Vice President of Government Affairs Daniel B. Fisher, as AED is working to craft an industry response to the bills.
To view the House-passed Tax Cuts & Jobs Act, visit: https://www.gpo.gov/fdsys/pkg/BILLS-115hr1rh/pdf/BILLS-115hr1rh.pdf
To view the current Senate proposal, visit: https://www.finance.senate.gov/imo/media/doc/11.14.17%20Chairman’s%20Modified%20Mark.pdf
To view the letter AED delivered to Senate Finance Committee members regarding like-kind exchanges, visit: http://aednet.org/wp-content/uploads/2017/11/AED-SenateLKELetter.pdf
To view the letter AED delivered to House Ways & Means Committee members regarding like-kind exchanges, visit: http://aednet.org/wp-content/uploads/2017/11/AED-LKELetter2.pdf
To view AED’s letter regarding the importance of the business interest deduction, visit: http://aednet.org/wp-content/uploads/2017/09/AED-BusinessInterestTaxReformLetter.pdf
To view AED’s comments to the Senate Finance Committee regarding tax reform priorities, visit: http://aednet.org/wp-content/uploads/2017/07/AED-FinanceCommitteeTaxReformComments-20170717.pdf
Last week, House Republican leadership introduced comprehensive tax reform legislation, known as the “Tax Cuts & Jobs Act” (H.R. 1).
While H.R. 1 has provisions beneficial to AED members, there are also some troubling portions. AED is particularly concerned with Sec. 3303, which prevents the use of like-kind exchanges (LKE) for personal property starting in 2018. While the provision doesn’t apply to an exchange if (A) the property disposed of by the taxpayer in the exchange is disposed of on or before December 31 2017, or (B) the property received by the taxpayer in the exchange is received on or before December 31, 2017, eliminating personal property LKE from the tax code will create uncertainty and could detrimentally impact capital investments.
In a letter delivered on Nov. 7, AED’s President & CEO Brian P. McGuire wrote, “While we strongly support efforts to simplify and restore long-term certainty to the nation’s tax code, repealing LKE for personal property, particularly construction equipment, we don’t think is a positive step.”
H.R. 1 is expected to be considered by the full House next week. The tax reform process is just beginning, as the House must pass its bill, the Senate must introduce and approve its own legislation, and differences between the House and Senate must be worked out before ever reaching the president’s desk for signature.
Now is the time to weigh-in with your member of Congress to express your concerns related to preventing LKE for personal property in the Tax Cuts & Jobs Act. Visit https://www.house.gov/representatives/find/ to get contact information for your lawmaker. Call their office, ask to speak with the tax legislative assistant and discuss the importance of LKE for your business.
The AED alert regarding the tax legislation is available here.
For a section-by-section summary visit of H.R. 1 visit: https://waysandmeansforms.house.gov/uploadedfiles/tax_cuts_and_jobs_act_section_by_section_hr1.pdf
For the full bill text visit: https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf
For a policy highlights document visit: https://waysandmeansforms.house.gov/uploadedfiles/policy_highlights.pdf
We encourage everyone to consult with their CPA, CFO or tax expert to determine whether this plan in its entirety is beneficial to your business operations. Please convey any concerns or comments about the Tax Cuts & Jobs Act, to AED’s Vice President of Government Affairs Daniel Fisher.