Industry Clamors for Fixes to GOP Tax Law

Industry groups are pushing for lawmakers to include changes to the new tax law in the government funding package that is expected to pass this month.

Republicans enacted the tax overhaul at breakneck speed last year, turning it into law in less than two months. Since then, drafting errors in the law have emerged, while other provisions have come under scrutiny for their potential unintended consequences.

Stakeholders want to see changes to the law passed as soon as possible and view the funding omnibus as a prime opportunity. Among those pushing for action are groups in the agriculture and retail sectors.

A top issue with the tax law that stakeholders hope to see addressed involves a provision impacting the agriculture industry. This issue has become known as the “grain glitch.”

The law created a 20-percent deduction for the gross payments that farmers receive from cooperatives. Cooperatives are businesses owned by farmers that perform functions such as buying and marketing their members’ commodities.

The provision was added to the tax law in an effort to address the fact that under the old tax code, co-ops could claim the domestic production deduction, which was repealed under the new law. But the provision had the unintended consequence of creating an incentive for farmers to sell their commodities to cooperatives rather than to private companies.

Stakeholders and lawmakers identified the provision as an issue fairly quickly, and talks about a fix have been taking place among private companies, cooperatives and House and Senate tax writers since January.

The National Council of Farmer Cooperatives (NCFC) and the National Grain and Feed Association (NGFA) issued a joint statement Tuesday afternoon announcing a proposal that they expect to be included in the omnibus. The proposal, whose legislative language was developed by the congressional tax-writing committees, would be retroactive to Jan. 1 and is designed to replicate the benefits co-ops received under the domestic production deduction while also removing tax incentives for farmers to do businesses with companies just because they are co-ops.

Retailers, meanwhile, are hoping to see drafting errors in the tax law fixed.

Under the old tax code, improvements to retail stores and restaurant properties could be written off over 15 years. The authors of the new law intended for the full costs of those improvements to be written off immediately after they are made. But due to a drafting mistake, the law states that those property improvements instead have to be written off over 39 years.

Dave Koenig, vice president for tax at the Retail Industry Leaders Association, said the drafting mistake poses a “cash flow issue” for retailers.

He said the tax bill “clearly was meant to encourage investment,” but until the provision is fixed, it would have the opposite effect.

Retailers also want to see a change made to the effective date of a provision largely barring businesses from carrying back net operating losses to prior years.

Lawmakers wrote in their conference report on the law that the provision applies for taxable years beginning after Dec. 31, 2017, but the actual text of the statute mistakenly said it applies for taxable years ending after Dec. 31, 2017.

Many retailers have fiscal years that end Jan. 31, so for them, the prohibition on net operating loss carry-backs would apply for their fiscal years that just ended. This is essentially a retroactive change, said Bernstein.

She added that the drafting error could be harmful for retailers in bankruptcy, who may have planned using net operating loss carry-backs to help finance their inventory.

The tax law passed Congress through a process called reconciliation that allowed the measure to clear the Senate with a simple majority. But technical changes to the law can’t be passed through reconciliation and instead would have to get 60 votes in the Senate. Republicans only have 51 seats.

Because the changes would need some Democratic votes to pass, stakeholders think it would be best to include them in must-pass legislation such as the government spending bill.