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Welcomes Guidance on Main Street Deduction – Suggests Improvements

Today, the Parity for Main Street Employers coalition of national trade groups submitted comments to Treasury and the IRS in response to the notice of proposed rule-making on the qualified business income deduction under Section 199A.

PMSE commends Treasury for crafting rules that will help Main Street businesses get the pass-through deduction Congress intended. To improve the rules, PMSE recommends that Treasury streamline the test for aggregating trades or businesses by dropping the “majority ownership” requirement and eliminating the requirement that all aggregated trades or businesses use the same tax year.

You can read the full press release here.

The Parity for Main Street Employers coalition today wrote the Ways and Means Committee in support of making the 199A pass-through deduction permanent.  The provision is part of the Committee’s “Tax Reform 2.0” effort being debated by the Committee.

Making the Section 199A permanent is a key part of the PMSE coalition agenda in the coming years, and a critical component of making sure the tax reform effort as successful as possible.  As the letter says:

The American economy is growing at a remarkable pace, thanks in large part to tax reform and its focus on reducing taxes on employers and employees alike. But continuation of this growth is at risk because the centerpiece of tax relief for Main Street – the 20 percent pass-through deduction – is temporary and is scheduled to expire in a few years. Business needs certainty to plan and grow.

The 20 percent pass-through deduction is critical for the success of Main Street employers. Businesses organized as S corporations, partnerships and sole proprietorships comprise 95% of American companies, employ the majority of American workers, and are a vital part of the American economy. Making this deduction permanent will help put these businesses on a more level playing field with publicly trade C corporations and help them to fully contribute to economic expansion.

You can read the full letter here.

By Chris Smith

“The Parity for Main Street Employers Coalition welcomes Treasury’s guidance applying the new 20% tax deduction to thousands of U.S. businesses organized as pass-throughs—the S-corps, sole proprietorships, and partnerships that comprise 95% of all businesses and who employ the majority of American workers.

“Importantly, the proposed rules permit many business owners to aggregate–or group–their business units for purposes of the deduction. Applying the deduction broadly helps put Main Street businesses on a more level playing field with public companies traded on Wall Street.

“This is only the start of the process, and we look forward to reviewing the specifics of the proposed rule in greater detail to ensure that the final rules apply the deduction as broadly as possible, while minimizing compliance burdens. And it is essential for Congress to make the deduction permanent.”

Parity for Main Street Employers

Today, PMSE released an analysis by EY of the Tax Cut and Jobs Act’s effect on the taxation of pass-through businesses, with a focus on S corporations.  The EY study found that even for businesses getting a full 20-percent deduction, the tax rate on pass-throughs is still higher than for the average C corp.  This is especially true after the deduction expires in 2026.  That’s why it is essential that the deduction applies as broadly as possible, and that Congress makes the deduction permanent.  A copy of the full EY study can be found here.

Parity for Main Street Employers

On Tuesday, July 31st, we will convene a Capitol Hill briefing and panel discussion on “Main Street Businesses & the Tax Cuts and Jobs Act: How Did They Fare and Where do We Go from Here?” featuring a keynote from Senator Ron Johnson (R-WI).  EY’s Bob Carroll will unveil a new study, followed by a panel discussion with Bob, Doug Holtz-Eakin, and Brian Reardon moderated by Richard Rubin of the Wall Street Journal.  Details on the event can be found here.  Please RSVP to info@mainstreetemployers.org.  Look forward to seeing you there.

Parity for Main Street Employers

Today, the Parity for Main Street Employers coalition submitted a comment letter to the New York State Department of Taxation and Finance on its draft legislation to restore the ability of employers organized as pass-through businesses to deduct their State and Local income taxes (SALT) on their federal tax returns.

Read the full press release here.

Connecticut Paves Way for Other States to Act

Parity for Main Street Employers

Today, the Parity for Main Street Employers coalition of national trade groups released model legislation to preserve the federal State and Local Tax Deduction (SALT) for Main Street Employers organized as pass-throughs.  This comes on the heels of action by Connecticut last week to become the first state in the country to enact similar legislation, paving the way for other states to act.

Read the full press release here.

New Survey Highlights Importance of Guidance in Making Pass-Through Provisions Successful

Parity for Main Street Employers

The Parity for Main Street Employers (PMSE) coalition released a new survey highlighting the pass-through business community’s initial reaction to the tax Cuts and Jobs Act (TCJA).  Early results indicate that the tax relief promised to non-corporate employers is in danger absent clear guidance from IRS and Treasury.  Key results include:

• Half of the businesses surveyed were still unsure whether their tax burden would go up or down under the new tax law.
• More than one-third responded that they are unsure if they will get the new pass-through deduction.
• For those businesses reporting that they will not get the full deduction, one in four reported they were subject to the wage limit.

Read the full press release here.

Today, on behalf of over 40 national trade associations, the Parity for Main Street Employers coalition submitted a comment letter to Treasury and the IRS on the need to permit pass-throughs to aggregate business entities when claiming the new 20 percent tax deduction.

This guidance is necessary because it is common for businesses to separate back office functions like real estate or payroll in different entities from operations.  If businesses aren’t allowed to group them together to calculate the new tax deduction, it could be severely limited, resulting in tax increases.  Aggregation is already allowed when using other parts of the tax code.  The U.S. Chamber of Commerce and American Institute of Certified Public Accountants have submitted similar comments.

A copy of the letter can be found here.

Focus on Need for Tax Parity for Pass-Through Businesses

Parity for Main Street Employers

Today the Parity for Main Street Employers (PMSE) coalition, comprised of trade groups representing American Main Street businesses, named Chris Smith as its new Executive Director. Smith is a Washington public affairs veteran and a former Chief of Staff for both the U.S. Treasury Department and the House Ways and Means Committee.

“Chris’s expertise and extensive experience will bring a whole new dimension to the PMSE effort,” said PMSE Steering Committee Chairman Brian Reardon. “His appointment marks a new phase for PMSE’s mission to inform policymakers on the value of pass-through businesses and the need for tax parity between Main Street employers and corporations.”

“I am excited by this new role to highlight the important contribution of Main Street employers to jobs and growth across America,” said Smith. “Pass-throughs are a unique American innovation, making it possible for businesses of all shapes and sizes to start, grow, and thrive. They are essential to keeping family businesses in the family.”

Read the full press release here.

Today an op-ed authored by PMSE Executive Director Chris Smith appeared in The Hill entitled: “Main Street Businesses Deserve Tax Parity with American Corporations,” making the case that implementation of the newly revised tax code should support Main Street employers, and not work against them.

Now that historic tax reform is done, it’s time for the Congress, the Treasury, and the IRS to work through how to implement the details of the new law.  For Main Street employers, the stakes couldn’t be higher.  As the dust settles, it is becoming clear that there is unfinished business when it comes to tax parity for American employers…

The Parity for Main Street Employers coalition is committed to improving the new law by focusing on three key areas.  First, we will work with the Congress and the Administration to ensure the new deduction applies broadly, and benefits bone fide Main Street businesses with real payrolls and real profits…Second, we will seek to restore parity by allowing pass-through businesses to fully deduct their state and local income taxes, just like all C corporations…Third, we will begin work now with Main Street allies to make permanent a workable and sustainable pass-through deduction…

While the corporate reforms in the new tax law are positive and pro-growth, the treatment of pass- through businesses still remain a work in progress.  We need a tax system where employers on Main Street have tax parity with those traded on Wall Street.  The three steps outlined above will help move us closer to that important goal.

Rules around key deduction for many small firms has high earners, experts puzzled; ‘As clear as mud’

The Wall Street Journal
By Ruth Simon

The owner of a successful chain of tanning salons should qualify for a new tax deduction, but someone who makes the same amount from a group of dermatology clinics won’t.

A high-earning architect can generally claim that same tax break, but the designer who collects a big fee for working on the building’s interior probably can’t. A chef who owns her restaurant can also expect to pay less, but that may not be true if she is a celebrity chef.

Tax experts and accountants are scratching their heads over these and other quirks in how the new federal tax law treats high-income owners of so-called pass-through businesses, which are firms that pay tax through individual, not corporate, returns.

Read the full article here.