Please be advised: Washington Snapshot will be taking a break next week due to the Thanksgiving holiday. We wish all of our readers a safe and happy Thanksgiving and will return with Snapshot on Nov. 29!
In This Week's Edition of Snapshot...
- House Leadership Elections Taking Place Over Next Few Weeks
- Brady Not Giving Up on Tax Legislation in the Lame Duck
- Council Submits Comments on Notice 2018-67, UBIT “Siloing” Provision
- President Trump Appoints a Kavanaugh Replacement
- Impact of 2018 State Elections
- More States Enforce Sales Tax Collections Under Wayfair
Yesterday, House Republicans held elections within their caucus to elect members to leadership positions for the 116th Congress.
With Democrats taking the majority in the House and claiming the Speakership, the election for the top seat in Republican leadership became less contentious than it was prior to the elections. Current House Majority Leader Kevin McCarthy (R-CA) was able to win the position—fending off a bid from former Freedom Caucus Chair Jim Jordan (R-OH). Rep. McCarthy will be House Minority Leader when the new Congress starts. Rep. Steve Scalise (R-LA) ran unopposed to maintain his position as Whip, and the Caucus welcomed Rep. Liz Cheney (R-WY) to become Conference Chair—replacing Rep. Cathy McMorris Rodgers (R-WA), who decided to step down from her leadership position despite winning her reelection to the House.
House Minority Leader McCarthy will have to navigate tricky waters in the new Congress—balancing the priorities of the most conservative members of his party, many of whom backed Rep. Jordan’s insurgent bid against him for the top leadership position, while also pushing back against Democrats expected attempts to repeal certain Republican-backed legislation passed in the 115th Congress (such as tax cuts for corporations).
House Democrats are set to hold their leadership elections on Nov. 28—with current House Minority Leader Nancy Pelosi (D-CA) expected to win back her gavel as Speaker of the House. Rep. Steny Hoyer (D-MD) is also expected to retain his position as the number two in Democratic leadership as House Majority Leader. Current Whip Jim Clyburn (D-SC) is facing a challenge from Rep. Diana DeGette (D-CO) to maintain his number three seat but is anticipated to be successful in maintaining his position.
Although both caucuses vote on their leadership this month, the House floor vote to officially install new leadership for each party will take place on Jan. 3, 2019, when the new congressional session begins.
Current Chairman (soon-to-be Ranking Member) of the House Ways and Means Committee Kevin Brady (R-TX) is not ready to give up on trying to pass tax legislation during the lame duck session. On Tuesday, Chairman Brady outlined several tax policy items that he hopes to tackle before the end of the year, including legislation to improve the IRS, advancing a package of tax extenders (which expired at the end of 2017), making technical corrections to fix errors in the tax reform bill that passed last year, and negotiating a retirement savings bill.
Although Chairman Brady has expressed optimism about passing something before Republicans turn over their majority in the House, they would still need bipartisan support in the Senate to meet the 60-vote threshold needed to advance such measures. However, Democrats do not seem likely to provide that necessary support for any attempt to fix or strengthen the new tax law, given that they were excluded from process of drafting that legislation. Time will tell whether both parties are interested in working across the aisle to reach any sort of agreement on the tax priorities that Chairman Brady discussed.
Yesterday, the Council submitted comments to the Department of Treasury and Internal Revenue Service (IRS) regarding the proposed rules for calculating multiple streams of unrelated business income for tax purposes.
The Council’s recommendations included a framework for classifying unrelated business income streams, criteria for identifying different trade or business activities, and input on the rules for allocating deductions between multiple trades or business activities, among other things.
On Tuesday, President Donald Trump nominated Neomi Rao—the head of the White House’s Office of Information and Regulatory Affairs (OIRA)—to the D.C. Circuit Court of Appeals. If confirmed, Ms. Rao would fill the seat vacated by Justice Brett Kavanaugh’s ascension to the Supreme Court. Prior to joining the Trump administration, Ms. Rao was a constitutional and administrative law professor at George Mason University. She previously served as associate White House counsel under President George W. Bush and clerked for Justice Clarence Thomas.
Since being confirmed as the head of OIRA in July 2017, Ms. Rao has led President Trump's deregulatory efforts across the federal government. This includes rewriting or rolling back key environmental regulations at the Environmental Protection Agency and the Interior Department, lowering the social cost of carbon used in rulemakings, and enforcing directives like President Trump's two-for-one deregulatory executive order. If confirmed to the D.C. Court of Appeals, Ms. Rao would have to recuse herself from cases related to any regulatory lawsuits she worked on while at OIRA.
The next step in the Ms. Rao’s nomination process will be a Senate Judiciary Committee hearing. If the Committee votes to advance the nomination, it will then be considered by the full Senate. Her confirmation process will likely take several months.
Exclusive from our colleagues at the National Council of Nonprofits.
Democrats picked up some statewide offices and flipped a few hundred state legislative seats, but the wave was not as dramatic as some had predicted. While the political leadership changes were not on par with historic shifts, the workload for state policymakers, nonprofits, and foundations will be enormous in 2019 due to two major changes at the federal level. The federal tax law enacted in late 2017 reduced federal tax receipts, but at the same time is generating additional revenues in many states because of the way their tax codes are structured. States that haven’t done so already will need to conform their laws to the revised Internal Revenue Code if they want to avoid tax hikes on their citizens. Many states will also have to decide whether to cancel automatic tax hikes on individuals and nonprofits by, among other things, promoting greater charitable giving and “decoupling” the state’s tax from the federal tax on unrelated business income. It is anticipated that the new $10,000 federal cap on deducting state and local taxes (SALT) will generate a large outcry, with people seeking relief wherever they can find it.
Separately, the U.S. Supreme Court decision in South Dakota v. Wayfair allows states to tax internet sales beyond their borders, incentivizing the states to revise their sales tax laws to access their share of the estimated $23 billion in new revenue. See the related article below about efforts already underway in some states seeking to tap into the Wayfair windfall. Also, learn more about how the elections affect the 2019 legislative agenda in your state by checking with your state association of nonprofits.
The U.S Supreme Court decision in South Dakota v. Wayfair is less than six months old, but many states have already taken action to reap the financial gains that the Court’s decision makes available to them. The Wayfair decision held that states have the power to collect sales taxes for online purchases of goods and services from sellers that don't have a physical presence in the state. Since the decision was published in June, states have been looking to tap into the estimated $23 billion dollars per year that could be gained from the Court’s ruling. It is important for 501(c)(3) organizations—charitable nonprofits, houses of worship, and foundations—to recognize that states are not consistent in which organizations 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.
Approximately 32 states have adopted or proposed laws to tax out-of-state sellers, while an additional three have other statutes or rules that may require sellers to collect and remit sales taxes to the foreign state. As of the beginning of November, 22 of those states have begun enforcing remote sales tax requirements on out-of-state sellers, either by statute or regulation. Additionally, some states attach notice and reporting requirements for retailers to collect and submit purchasing records for the state to collect use taxes. Five states (Alaska, Alabama, Arizona, Colorado, and Louisiana) authorize municipalities to set and impose various taxes, further complicating the matter as those localities also look to grow their tax revenues. The Multistate Tax Commission, an intergovernmental state tax agency that works on state tax administration, met last week to discuss uniformity and consistency among the states, particularly for marketplace providers like Amazon and eBay, which may affect 501(c)(3) organizations that sell or purchase supplies online from out of state.