WINE INDUSTRY FINANCIAL SYMPOSIUM THE POLITICAL CLIMATE AND RESULTING ECONOMIC CHANGES

Transcription

1 WINE INDUSTRY FINANCIAL SYMPOSIUM THE POLITICAL CLIMATE AND RESULTING ECONOMIC CHANGES David Pardes, Tax Partner, PricewaterhouseCoopers, LLP, Moderator Bobby Koch, President and CEO, Wine Institute Andrew Prior, Director, PricewaterhouseCoopers, LLC, Washington DC National Tax Services Legislative and Regulatory Practice,

2 Big Six joint statement on tax reform July 27, 2017 GOP leaders are trying to avoid mistakes of failed ACA repeal-and-replace Trump Administration US House of Representatives US Senate Treasury Secretary Mnuchin NEC Director Cohn Speaker Ryan Ways &Means Chairman Brady Majority Leader McConnell Finance Chairman Hatch No border adjustment tax (BAT) exempting exports and taxing imports Business and individual tax rate reduction ( as much as possible ) Increased ( unprecedented ) capital expensing International reform (territorial tax system with anti-base erosion and mandatory repatriation) Revenue-neutral ( priority on permanence ) tax reform PwC 2

3 Where to set the dials on tax reform? Lower Rates vs. Broader Base Permanent vs. Temporary Retroactive vs. Prospective Corporate vs. Pass-Thru Expensing vs. Interest Deductibility Territorial vs. Base Erosion PwC 3

4 Comparison of selected GOP tax reform proposals President Trump (April 2017) 2016 House GOP Blueprint 2014 Camp Bill (H.R. 1) Three individual tax rates: 10%, 25% and 35% 20% maximum tax rate on capital gains and dividends (repeal 3.8% net investment income tax) 15% business tax rate Territorial tax system One-time tax on previously untaxed foreign earnings (deemed repatriation) Three individual tax rates: 12%, 25% and 33% Tax capital gains and dividends as ordinary income with 50% exclusion (16.5% top rate); apply to interest income 20% corporate tax rate, with 25% rate for passthru business income Full expensing for investments (tangible and intangible) excluding land Non-deductibility of net business interest expense with special rules for financial services Territorial tax system (100% dividend exemption system) Deemed repatriation tax (8.75% cash and 3.5% non-cash) Border adjustment tax (exempt exports and tax imports) Three individual tax rates: 10%, 25% and 35% Tax capital gains and dividends as ordinary income with 40% exclusion 25% corporate tax rate (phased in over 5 years) Replace current accelerated cost recovery rules (MACRS) with alternative depreciation system Territorial tax system (95% dividend exemption system) Deemed repatriation tax (8.75% cash and 3.5% non-cash) paid over 8 years Anti-base erosion measures, including 15% minimum tax on foreign market intangible income and thin cap rules 4

5 Congress must adopt budget in order to move GOP tax reform but some GOP lawmakers want tax reform details before approving budget GOP lacks filibuster-proof Senate majority and faces internal divisions in House and Senate Even under budget reconciliation, Republican leaders can only lose 2 Senate GOP votes and 22 House GOP votes Budget could affect definition of revenue-neutral tax reform by adopting current-policy vs. current-law baseline Benefits Requires simple majority vote in Senate (cannot be filibustered) Expedited consideration (time limits for floor amendments and debate) Limitations Deficit increases not permitted outside budget period (e.g. 10 years) All provisions must have an effect on federal spending or revenue PwC 5

6 Competing priorities may affect tax reform timing There are few legislative days remaining and a crowded legislative agenda Hurricane Relief Debt Limit Government Funding FAA Reauthorization Flood Insurance Reauthorization Student Loan Reauthorization CHIP Reauthorization Border Wall Funding DACA NAFTA Renegotiation Infrastructure Funding 2018 Midterm Election 6

7 Selected tax reform issues impacting the wine industry If you re not at the table, you re probably on the menu Fixed assets/cost recovery (bonus depreciation, section 179 expensing) Last-in, first-out (LIFO) inventory accounting Tax treatment of flow-through business entities (S corporations, LLCs) Estate and gift taxes Domestic production activities deduction (section 199)

8 Comprehensive Tax Legislation Wine Institute Priorities Inclusion of CBMTRA in final bill Preservation of LIFO accounting; if abolished, ensure acceptable transition rules - Approximately 1/3 of Wine Institute members still use LIFO Many have significant LIFO reserves ; transition rules must take this into account Equitable treatment for Pass-through entities; cannot be corporate rate reduction only Further reduction in Estate Tax burden

9 Craft Beverage Modernization and Tax Reform Act Background What started as internal beer industry dispute 6+ years ago has become comprehensive FET reform for all sectors Wine Institute opposed initial version of CBMTRA due to the insufficient support it provided the wine industry Sen. Wyden and bill sponsors worked with us to make significant changes to the wine provisions in the bill All six major industry groups now supporting CBMTRA 262 Cosponsors in the House; 49 in Senate Coalition working to add CBMTRA to broader tax legislation

10 CBMTRA Wine Provisions SMALL PRODUCER TAX CREDIT $.90 credit available on first 100,000 gallons produced. CURRENT LAW ORIGINAL WYDEN BILL (S. 1562) CBMTRA TODAY (S.236) Eligibility for credit phases out from 150,000 to 250,000 gallons produced. New $1.00 credit on first 30,000 gallons produced available to all producers regardless of size. $.90 credit available from 30,001 up to 130,000 gallons. Eligibility for $.90 credit phases out from 1 million to 2 million gallons produced. Expanded credit available to all producers and importers (phase out eliminated): $1.00 on first 30,000 gallons; $.90 on 30,001 to 130,000 gallons; $.535 on 130,001 to 750,000 gallons. Total value of annual credit is $451,700 ABV THRESHOLD BETWEEN $1.07 & $1.57 TAX RATES 14.0% ABV 14.25% ABV 16.0% ABV CARBONATION LIMIT FOR STILL WINE.392 grams/hundred milliliters No Change from Current Law Increased carbonation of.64 grams/hundred milliliters allowed ONLY for wine below 8.5% ABV SPARKLINE WINE/ CHAMPAGNE TAX RATE $3.40 per gallon, not eligible for small producer credit No Change from Current Law Rate remains at $3.40 per gallon, but would be eligible for expanded credit

11 Trade Landscape Has Shifted Protectionism on the rise in US and abroad Focus no longer on major multilateral agreements TPP, TTIP Administration focus is on NAFTA and bilateral agreements Japan, UK NAFTA renegotiation could help with critical market access barriers in Canada Grocery store access and tax & mark-up exemptions must be addressed; NAFTA outcome uncertain; will continue to pursue WTO challenge if necessary In US absence, EU concludes Japan FTA immediate removal of wine tariffs Brexit creates significant uncertainty in another major export market

12 International Public Policy Engagement FIVS Education / Relationships / Collaboration: World Wine Trade Group APEC Wine Regulatory Forum International Wine Technical Summit

13 California Wine Industry National Economic Impact of CA wine = $114 billion annually, and 786,000 jobs CA is the 4 th largest producer in the world and the US is the world s largest market for wine since 2010 $34 billion in US retail sales of CA wine 2016 US exports totaled $1.6 billion to 138 countries; 97% of exports from CA Exports up 75% in last six years, and up over 200% since 2001

14 Wine Institute Wine Institute members include 1,000 CA wineries and associated businesses CA accounts for 85% of US wine production Wine Institute is only wine organization active at the local, state, federal and international levels Offices in San Francisco, Sacramento, Washington, DC 40+ staff spread across country and around the world Contract lobbyist in 46 state capitals

15 Non-member Wineries Need To Know DTC Wine Shipping Wine Institute is responsible for the 44 state laws that allow DTC wine shipping 95% of the adult population can now purchase wine direct from wineries Excessive Taxes and Fees In 2016, Wine Institute defeated tax and fee bills in 29 states