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Tax reform is on everyone’s agenda in Washington, DC this legislative session. House Republicans have released their Blueprint for Tax Reform targeted at stimulating economic growth. Whether it will get done is anyone’s guess, but serious discussions are underway in Congress and NMMA is closely monitoring and engaging to protect our members’ interests.  

 

NMMA surveyed its members in late December and early January on a number of topics related to tax reform to find out what was most important to them and what wasn’t as critical. The survey provides insight on NMMA members’ priorities as NMMA navigates tax reform on their behalf as there will be a number of tradeoffs on the way to a final bill.

 

Survey respondents closely mirror NMMA’s membership with 92% of respondents classified as small businesses (less than 500 employees), with the majority having less than fifty employees. Fifty-seven percent have sales less than $10 million a year. NMMA heard from the public and (mostly) private companies in its membership. More than half the respondents were S-corporations, and slightly more than half export their product. There were members from thirty-three states with Florida having the largest representation among respondents.

 

Concerning deductions and credits important to marine manufacturers, Section 179 bonus depreciation and the R&D tax credit are the most used tax benefits by NMMA members. Since all of these programs relate to investments into new products and production methods, it’s clear marine manufacturers are investing to remain innovative and competitive. These are programs NMMA will work to keep in tax reform.

 

In recent years, there has been discussion within Congressional tax committees regarding eliminating the LIFO method of inventory accounting. The vast majority of NMMA members have some inventory accounting in place and, while the first-in, first-out method was the most popular method, there is no clear preference. NMMA is a member of the LIFO coalition but the survey results indicate this may not be that important if other reform objectives are met.

 

Overwhelmingly, NMMA members seek a reduction in their overall tax obligation, even at the expense of eliminating certain deduction programs. This was reconfirmed on several questions as manufacturers overwhelmingly desire a reduction in the complexity of the tax code and lower tax rates in return for giving up some deductions. There was very little support for a “territorial” system for foreign sourced income or shifting to a European style VAT tax system.

 

Current proposals in the House Republicans’ Blueprint call for reducing the top individual tax rate from 39.6% to 33%, the top business pass through rate to 25% from 39.6%, and the top corporate tax rate to 20% from 35%. The proposed immediate write off of business investments would be welcomed by NMMA members, likely even at the expense of foregoing deductibility of interest expense in most situations.

 

In the end, while NMMA members do take advantage of a number of deductions allowed in the tax code, they are open to eliminating many of them in return for a reduction in complexity, less compliance burdens, and lower tax rates.  As NMMA continues to engage in discussions with Congressional tax committees about tax reform, the association is armed with the knowledge there is a willingness to “give up” specific deduction benefits in exchange for reduced rates.

 

Repeal of the estate tax, which is widely supported by marine industry businesses, and preservation of the mortgage interest deduction are also being considered, though the mortgage interest deduction on second homes (boats) may be limited to the interest on $500,000 of principal. Most feedback NMMA has received from the industry indicates a willingness to give on the mortgage interest deduction on second homes in return for lower tax rates and reduced complexity.

 

One of the biggest concerns is the suggestion to deny deductibility for costs of goods sold on imports via so-called “border adjustments” while exempting export profits from US taxes.

 

If you have thoughts or comments on tax reform, or on these survey results, please share them with Nicole Vasilaros ([email protected]) or Thom Dammrich ([email protected]). NMMA is also forming a Tax Reform Task Force to work with its government relations team to advise on the relative importance of things being considered in a tax reform bill. If you are interested in being part of the NMMA Tax Reform Tax Force, please contact Nicole Vasilaros at the email above. Time is of the essence as there is active consideration of tax reform ongoing and a tax reform bill is expected as soon as this summer.