Tax Update (October 7)
Several pieces of taxation legislation were released in recent weeks, including a proposal to repeal the excise tax on university investment income and two separate tobacco tax bills. In other tax news, House members have united to push lawmakers in the Senate to vote to repeal a tax on Gold Star military families. Additionally, Puerto Rico’s Department of Treasury has delayed the implementation of new requirements for lease fee tax exemptions, and all eyes are on Paris as the Organization for Economic Co-operation and Development (OEDC) prepares to release its first report on digital taxation solutions next week.
On Sep. 20, 2019, House Ways and Means Committee member Brendan Boyle (D-PA) introduced H.R. 4438, the Don’t Tax Higher Education Act. This measure would repeal the excise tax on investment income of private colleges and universities. Under current law, certain educational institutions are taxed equal to 1.4 percent of the net investment income for the taxable year. Boyle’s district encompasses the University of Pennsylvania, which has an endowment of nearly $15 billion.
Two new pieces of legislation aimed at regulating the e-cigarette industry were recently introduced.
2517, the Tobacco Tax Equity Act of 2019, was introduced by Senate Democratic Whip Dick Durbin (D-IL). His bill would increase excise taxes on cigarettes and equalize the excise tax rates for all tobacco products. This includes roll-your-own tobacco, pipe tobacco, smokeless tobacco, cigars, and specific processed tobacco. “I’ve learned that the most effective tool to prevent children from starting this insidious habit is to price it out of their range. This bill would do that and help reduce tobacco and e-cigarette use by ending loopholes that the industry has exploited to target our children.” Durbin said in a press release.
2519, the Ending New Nicotine Dependencies (ENND) Act of 2019, was introduced by Sen. Mitt Romney (R-UT), and would apply the tobacco excise tax to electronic nicotine delivery systems, among other provisions. Romney and Sen. Jeff Merkley (D-OR), a co-sponsor of the bill, said these measures are aimed at curbing teen vaping. In a statement, Merkley said, “Vaping companies have hooked millions of our children on nicotine using e-cigarette flavors like ‘gummy bear,’ ‘scooby snacks,’ and ‘strawberries and cream.’ This means massive health consequences for the next generation, and we have to end this addiction crisis.”
The legislation builds on the growing concern around vaping products. The Trump administration has promised “quick action” against flavored e-cigarettes, all happening at odds with the vaping industry.
A bipartisan group of House members are working to convince Senate Majority Leader Mitch McConnell (R-KY) to act on a broad retirement savings bill. H.R. 1994, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, would reverse an error in the Tax Cuts and Jobs Act of 2017 (TCJA) that taxed Gold Star military families at rates as high as 37 percent. The SECURE Act passed the House in May but has been delayed in the Senate due to policy differences. Currently, the legislation is being held up by Sen. Ted Cruz (R-TX) due to the exclusion of a provision that would expand college savings accounts to include home schooling and other educational expenses.
Moving Towards a Global Digital Tax Plan
On Oct. 9, the Organization for Economic Co-operation and Development (OEDC) will release its highly anticipated report on their multilateral approach to taxation challenges in the digital age. The report will cover pillar 1, which addresses new profit allocation and nexus rules as a solution digital taxation, part one of their two-part work plan. The unified pillar 1 approach outlined in the report will likely be discussed by G20 finance ministers Oct. 17 during the International Monetary Fund (IMF)/World Bank annual meetings that same week. The OEDC will hold a two-day public consultation on the paper the week of Nov. 18 at its headquarters in Paris. In recent weeks, OEDC officials have dropped hints about the report. Pascal Saint-Ames, the OEDC’s Tax Chief, noted that tax certainty will be at the core of pillar 1’s approach and central to the organization’s overall solution. The forthcoming report comes after Canadian Prime Minister Justin Trudeau requested a cost estimate for a 3 percent digital services tax proposal that would be implemented in April 2020 and adds Canada to the ever-growing list of countries seeking unilateral action on taxation of the digital economy. The OEDC aims to deliver the complete work plan for a multilateral solution by the end of 2020. Should global discussions fail, the European Commission will begin drafting an EU digital tax in the third quarter of 2020. EU tax initiatives typically need unanimity to become law, however the parliament’s advisory body has recommended switching to majority voting on energy and climate change tax issues.
Puerto Rico Lease Fee Tax Exemptions
Puerto Rico’s Treasury Department said it will delay a requirement for lease fee tax exemptions that was scheduled to take effect on Tuesday (Oct. 1). The change, now postponed until July 1, 2020, requires a lessee of a property to prove to the lessor that they maintain a tax terminal in order to qualify for a sales tax exemption on lease fees. The delay was made due to regulatory time constraints and concern from merchants over the type of evidence that they will be required to provide to prove eligibility for the tax exemption, the department said in a statement on Monday (Sep. 30).
This week, the IRS issued proposed regulations relating to the repeal of section 958(b)(4) of the Internal Revenue Code by the TCJA. The proposed regulations would make changes to various regulations to define controlled foreign corporation without regard to downward attribution from a foreign person. The areas addressed include the section 267 rules for payments to related foreign persons, section 367(a) triggering events, and chapter 61 reporting provisions.
 LaVito, Angelica “Romney, Merkley introduce bill that would tax vaping industry and ban flavored e-cigarettes” CNBC Markets, 19 Sep 2019 https://www.cnbc.com/2019/09/19/romney-merkley-introduce-bill-that-would-ban-flavored-e-cigarettes.html
 Everett, Burgess “Senate eyes e-cigarette crackdown” Politico, 19 Sep 2019 https://www.politico.com/story/2019/09/19/senate-e-cig-vape-crackdown-1502670
 Moroses, Dylan “House Lawmakers Urge Senate Vote on Retirement Plan Bill” Law 360 Tax Authority, 30 Sep 2019 https://www.law360.com/tax-authority/articles/1204113/house-lawmakers-urge-senate-vote-on-retirement-plan-bill
 Johnston, Stephanie Soong “OEDC to Unveil Unified Pillar 1 Proposal for Consultation Soon” Tax Notes Today, 1 Oct 2019 https://www.taxnotes.com/tax-notes-today-international/digital-economy/oecd-unveil-unified-pillar-1-proposal-consultation-soon/2019/10/01/29zxs?highlight=A%20hotly%20anticipated%20OECD%20paper%20will%20be%20published%20October%209%20proposing%20a%20unified%20approach%20on%20new%20profit%20allocation%20and%20nexus%20rules%20as%20part%20of%20a%20solution%20to%20adapt%20global%20tax%20rules%20to%20the%20digital%20age.
 Smith-Meyer, Bjarke “Digital tax backup plan in the works for 2020, Gentiloni says” Politico Pro, 3 Oct 2019 https://subscriber.politicopro.com/article/2019/10/digital-tax-backup-plan-in-the-works-for-2020-gentiloni-says-3953194
 Flesch, “Puerto Rico Delays Requirement For Lease Fee Tax Exemption” Law360 Tax Authority, 1 Oct 2019 https://www.law360.com/tax-authority/articles/1204836/puerto-rico-delays-requirement-for-lease-fee-tax-exemption