In This Week's Edition of Snapshot…
- An Update on Tax Reform 2.0
- Kyl to Fill Vacant Arizona Senate Seat Left by McCain
- Rocky start for Kavanaugh’s Confirmation Hearings
- Federal Reserve Board Releases New Publication
- Primary Upset in Massachusetts
- SALT Workaround Proposed Regulations Cause Surprise, Concern
- How Will Foundations and Nonprofits Fare After Wayfair?
House Ways and Means Committee Chairman Kevin Brady (R-TX) has indicated that the Committee intends to release legislative text for their “tax reform 2.0” plan early next week. According to The Hill, Brady stated, “It's full steam ahead on 2.0 because the main question here is, will we make tax cuts for families and small businesses permanent as we did for corporations? The answer is yes."
Prior to the August recess in the House, Chairman Brady released a listening session framework for tax reform 2.0, which indicated three priorities for these legislative efforts: 1) making permanent the temporary individual and small business tax cuts that were passed at the end of 2017 and currently expire in 2025; 2) providing incentives for people to save money; and 3) providing incentives for new business innovation.
One particularly contentious provision that will almost certainly resurface in tax reform 2.0 debates is whether to make permanent the $10,000 cap on the state and local tax (SALT) deduction (which is currently set to expire in 2025). The provision faced opposition from Democrats and a number of Republicans during the first round of tax cuts in 2017. Although Chairman Brady has expressed commitment to permanency for this measure, it is unclear whether House Republicans will want to ignite that debate prior to the midterm elections in November.
On Wednesday, former Sen. Jon Kyl (R-AZ) was sworn in to fill the seat left vacant by the death of Sen. John McCain. Sen. Kyl, who served three terms in the Senate before retiring in 2012, was appointed by Arizona Gov. Doug Ducey.
Sen. Kyl agreed to serve through the end of this congressional session—which ends Jan. 3, 2019. At that point, he may agree to serve through 2020, when a special election will be held to fill the seat through the end of the seat’s six-year term—which ends in 2022.
The confirmation hearings for Supreme Court nominee Brett Kavanaugh—who, if confirmed, would succeed retired Justice Anthony Kennedy—had a contentious start on Tuesday. During the hearing, Democrats expressed their discontent with the lack of time given to review the more than 42,000 pages of documents from Kavanaugh’s time as an aide to former President George W. Bush. Police also removed protesters who were shouting in opposition to Kavanaugh’s nomination—more than 70 people were arrested.
Throughout the hearing Republicans praised the nominee’s credentials and accused Democrats of obstructing and politicizing the confirmation hearing. According to the Wall Street Journal, Sen. John Cornyn (R-TX) said “If this were a court of law, every member on that side of the dais would be held in contempt of court. This whole process is supposed to be a civil one.”
Brett Kavanaugh, who remained silent for most of the day, spoke at the end of the hearing to say, “I don’t decide cases based on personal or policy preferences. I am not a pro-plaintiff or pro-defendant judge. I am not a pro-prosecution or pro-defense judge. I am a pro-law judge. If confirmed to the court, I would be part of a team of nine, committed to deciding cases according to the Constitution and laws of the United States.”
The confirmation hearings will last the rest of this week and may be extended if the contentious climate between Democrats and Republicans continues.
In July, the Federal Reserve Board released a new publication, the Consumer Compliance Supervision Bulletin. The aim is to provide “high-level summaries of issues for senior executives in banking organizations and [it] serves to complement other aspects of the Federal Reserve’s robust outreach program for its supervised institutions…” This particular edition discusses issues of fair lending, unfair or deceptive acts or practices pertaining to student financial products, overdrafts, loan office misrepresentations, and regulatory and policy developments.
According to the publication, “The Federal Reserve Board’s Division of Consumer and Community Affairs publishes the Consumer Compliance Supervision Bulletin to enhance transparency regarding the Federal Reserve’s consumer compliance supervisory activities by sharing information about our examiners’ observations and other noteworthy developments related to consumer protection, and providing practical steps that institutions may consider when addressing certain consumer compliance risks.”
This comes after statements from administration officials caused concerns that the Trump administration “is planning to suspend routine examinations of lenders for violations of the Military Lending Act, which was devised to protect military service members and their families from financial fraud, predatory loans and credit card gouging, according to internal agency documents.”
In the weeks ahead, we will include updates from the midterm election trail. This is intended to provide nonpartisan, matter-of-fact election news about the primary races that will play a key role in the outcome of the November elections.
On Tuesday, Massachusetts held primary elections for Congress and governor. In the most closely watched race of the night, Boston Councilwoman Ayanna Pressley defeated 10-term incumbent, Rep. Mike Capuano (D-MA), in a surprising upset. According to the New York Times, “Ayanna Pressley upended the Massachusetts political order on Tuesday, scoring a stunning upset of 10-term Representative Michael Capuano and positioning herself to become the first African-American woman to represent the state in Congress. … Her victory carried echoes of the surprise win in June by Alexandria Ocasio-Cortez, who trounced a longtime House incumbent, Joseph Crowley, in New York. … There is no Republican on the November ballot in this storied Boston-based district, which was once represented by John F. Kennedy and is one of the most left leaning in the country.”
In another House race, dean of the Massachusetts delegation, Rep. Richie Neal (D-MA), easily beat back a primary challenge, receiving almost 71% of the vote. Rep. Neal has been in Congress since 1989.
For further election coverage, see the recently released “POLITICO Predicts” ratings of all of the 2018 midterm races. According to the site, “POLITICO analyzed every midterm race for the House, Senate, and governor to determine who we think will win. We used historical trends, the latest polling data, evaluations of both parties' campaign strategies and extensive reporting in our analysis. ... Every race is rated on a scale. Solid seats heavily favor a particular party. The party has a narrow edge in a Lean seat. Likely seats fall somewhere in between while Toss-ups are races we think are too close to call.”
Exclusive from our colleagues at the National Council of Nonprofits.
Nonprofits across the country responded with surprise, and many with concern, to the news that the U.S. Treasury Department and the IRS proposed regulations that would reverse prior decisions and change the tax treatment of state tax-credit programs that promote giving to various charitable organizations. The proposal reportedly was drafted to target new tax laws in Connecticut, New Jersey, and New York that seek to convert some state and local tax (SALT) payments that are capped at $10,000 under the 2017 federal tax law into uncapped charitable deductions. As written, however, the draft regulations appear also to apply to many programs in the 32 states and the District of Columbia that provide a state or local tax credit when a taxpayer makes a donation to certain nonprofits. Among these are Arizona, Georgia, and South Carolina that allow taxpayers to take a 100 percent state tax credit for donations to charities supporting private schools. Iowa, Kentucky, Maryland, Montana, and North Dakota provide tax credits ranging from 20 percent to 40 percent for donations to qualified endowed funds.
The draft of the proposed regulations was informally released on Thursday, August 23, with an effective date four days later. Some organizations in states with tax-credit programs immediately reached out to their past supporters urging them to take advantage of the giving incentive before the window closed at the end of the 27th. Other organizations alerted their members to the proposed changes and offered analysis. Liz Moore of the Montana Nonprofit Association wrote to explain that “in Montana, many contributions associated with the Montana Endowment Tax Credit are from donors who will not itemize, so this won’t impact them.” She went on to stress, “It will however impact our larger donors,” which led her to write: “MNA will be submitting public comment and we encourage you to do the same.” Comments from interested parties should be submitted electronically, via the Federal eRulemaking Portal (REG-112176-18) by October 11.
Editor’s Note: The Council will be submitting comments to Treasury about the proposed rules and the negative effects they would have on charitable giving. If you are a Council member and have examples of how your foundation and community will be affected by reducing this tax incentive, please contact us at email@example.com so we can include your examples in our comments. We also encourage you to submit your own comments, and our staff would be happy to assist members wishing to do so.
States are beginning to take advantage of the Supreme Court decision in South Dakota v. Wayfair, Inc., which allows them to collect sales taxes for online purchases of goods and services from sellers that don't have a physical presence in the state. It is important for 501(c)(3) organizations to recognize that states are not consistent in whether or which foundations and nonprofits they exempt from sale taxes, so the question of whether an individual organization must collect taxes when it sells to buyers out-of-state or pay taxes on purchases it makes in other states is about to change significantly.
More than half of the states with sales taxes have taken steps to implement the new freedom to tax out-of-state sales. In South Dakota, the impetus of the Supreme Court case, the Governor has called a special session of the Legislature for September 12, to finalize and clarify lingering litigation issues. Nevada has issued guidance prospectively, applying sales and use taxes on remote sellers not already registered with the state. Maryland has issued an emergency regulation to begin collection and remittance on October 1, and in North Carolina, the Department of Revenue issued a directive making state collection mandatory for out-of-state sellers meeting a certain threshold.
Most states with laws similar to the one in South Dakota will begin implementing the law effective October 1. States that have not already taken action will likely legislate in this area next year, giving nonprofits both opportunities and challenges as state tax codes are opened to make changes.