The National Multistate Tax Symposium West Move forward with confidence State implications of tax reform. April 30 May 2, 2018

Transcription

1 The National Multistate Tax Symposium West Move forward with confidence State implications of tax reform April 30 May 2, 2018

2 Infrastructure and domestic reinvestment What you should know Mike Bryan, Deloitte Tax LLP Bruce Kessler, Deloitte Tax LLP Marcus Panasewicz, Deloitte Tax LLP May 2, 2018

3 Agenda Tax Reform Potential Impact on Incentives Specific Tax Reform-Related Opportunities in the 2017 Tax Reform Act Multistate Approach to Infrastructure Proposals Vehicle Emission Mitigation Trust Settlement 3

4 Tax Reform: Potential Impact on Incentives 4

5 The 2017 Tax Reform Act s Impacts upon Incentives Decisions Nearly every company will need to weigh the Act s impact on their current incentives and planned expansions 100% Bonus Depreciation Effective through 2022, qualified property may be immediately expensed instead of depreciated over several years Corporate Tax Rate Reduction to 21% Limitation on Individual State Tax Deductions State & Local Incentives The federal corporate income tax rate was reduced from 35% to 21%, effective for tax years after 12/31/17 Average effective rates of many F500 may decrease Deduction limited to $10k (MFJ) for the aggregate of nonbusiness: (1) state and local property taxes, and (2) state and local income taxes or sales tax This may stimulate individual and business relocation from higher-tax states (such as CA, NY, and NJ) to lower-tax jurisdictions With the repeal of Section 118, state and local incentives may not qualify as contributions to capital; thus companies may consider restructuring their incentives packages 5

6 Post tax reform, companies may need to reevaluate their footprint Tax is one of numerous, interrelated variables that lead to either an effective or sub-optimized footprint Variables that Drive Corporate Footprint Outcomes Risk Taxes Services Market Access Regulatory Environment Talent IP Protection Incentives Real Estate Infrastructure Guiding Principles of Enterprise Footprint Optimization The optimization process must align with corporate strategy while also considering market, cost, talent, organization structure, and risk factors Structural costs and operating conditions are a function of location understanding how these interrelated factors drive asset performance is critical Ultimately, footprint optimization should be a continuous process creating competitive advantage by keeping structural costs in check and assets aligned with market realities 11 6

7 Specific Tax Reform-Related Opportunities in the 2017 Tax Reform Act 7

8 Opportunity Zones Overview: Opportunity Zones are a new community development program established by Congress in the Tax Reform Act of 2017 to encourage long-term investments in low-income urban and rural communities nationwide The Opportunity Zones program provides a tax incentive for investors to re-invest their unrealized capital gains into Opportunity Funds that are dedicated to investing into designated Opportunity Zones. Opportunity Funds are private sector investment vehicles that invest at least 90% of their capital in Opportunity Zones. A qualified opportunity fund will be organized for the purpose of investing in qualified opportunity zone property. Qualified opportunity zone property includes qualified opportunity zone, qualified opportunity zone partnership, or qualified opportunity zone business property. The investments can comprise of new or substantially improved tangible property, equipment, and multi-family complexes. State governors had until March 22, 2018 to designate up to 25 percent of the total number of lowincome census tracts in a state as Opportunity Zones. 8

9 Opportunity Zones The Opportunity Zones program offers investors: A temporary tax deferral for capital gains reinvested in an Opportunity Fund o The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is sold, or December 31, 2026 A step-up in basis for capital gains reinvested in an Opportunity Fund o The basis of the original investment is increased by 10% if the investment in the qualified opportunity zone fund is held by the taxpayer for at least 5 years, and by an additional 5% if held for at least 7 years, excluding up to 15% of the original gain from taxation A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in a qualified opportunity zone fund, if the investment is held for at least 10 years This exclusion applies to the gains accrued from an investment in an Opportunity Fund, not the original gains 9

10 Other 2017 Tax Reform Act Notes Historic Rehabilitation Tax Credit The Act retains the 20% credit for qualified rehabilitation expenditures with respect to certified historic structures o But provides that credit must be taken over 5 years, rather than when the project is placed in service o Eliminates the 10% credit for qualified rehabilitation expenditures for buildings built before 1936 Qualified Tax Credit Bonds The Act eliminates qualified tax credit bond program New Markets Tax Credit No changes to NMTC program Renewable Energy Production Tax Credit No changes to PTC program Renewable Energy Investment Tax Credit No changes to ITC program 10

11 Multistate Approach to Infrastructure Proposals 11

12 Multistate Approach to Infrastructure Legislative Outline for Rebuilding Infrastructure in America (White House, Feb 2018). $200 Billion of federal funds Total of $1.5 Trillion from federal, state & local governments and/or private sector 10 year plan Infrastructure projects to include: roads & bridges; airports; transit systems; ports & waterways; flood control; water supply; water resources - drinking water and waste water facilities; storm water facilities; brownfields & superfund sites Some underlying concepts included in this proposal: 1. Remove regulatory barriers 2. Encourage state & local governments to partner with private sector 3. Focus on rural development 4. Return decision-making authority to the states 5. Streamline permitting 6. Support workforce through education programs and expanding Pell Grant program 12

13 Multistate Approach to Infrastructure Legislative Outline for Rebuilding Infrastructure in America (February 2018) Infrastructure Incentives Program $100 Billion (to be divided among DOT, USACE, EPA) Attracting new, non-federal revenue streams dedicated to infrastructure investments Leverage from federal investments Assuring long-term performance of capital infrastructure investments Modernizing delivery, increasing economic growth, accountability Evaluation criteria: weighted across 6 categories - $ value, new non-federal revenue, procurement, technology and economic and social returns 13

14 Multistate Approach to Infrastructure Legislative Outline for Rebuilding Infrastructure in America (February 2018) Rural Infrastructure Program $50 Billion provided to governor of each state via formula distribution Rural projects align with Incentives Program Transformative Projects Program $20 Billion (DOC), Interagency selection committee Projects would fundamentally transform the way infrastructure is delivered - ambitious, exploratory and groundbreaking project ideas - offer a much larger reward profile 14

15 Vehicle Emissions Mitigation Trust 15

16 Vehicle Emissions Mitigation Trust Settlement Overview: $2.925 billion will be placed in an Environmental Mitigation Trust The $2.9 billion is allocated to beneficiaries (all 50 states, tribes, and certain territories) based on the number of impacted vehicles in their jurisdictions Funding amounts range from $8M to $422M per state The trust will support specific chosen projects that mitigate or reduce NOx emissions in the beneficiary states The mitigation plans allow states to choose the projects (public and/or private) that fall within eligible mitigation categories as submitted for funding Up to 100% reimbursement for repower or replacement of government-owned diesel vehicles/equipment Up to 75% reimbursement for repower or replacement of privately-owned diesel vehicles/equipment Repower and replacement options include vehicles/equipment powered by alternative fuels, newer diesel, or all-electric but requires scrapping of old engines The Trust and each respective state agency will determine which funding requests are granted 16

17 State allocations from the Vehicle Emissions Mitigation Trust Settlement Funds are allocated based on the number of impacted vehicle registrations in each jurisdiction.* Eligible beneficiary Total Eligible beneficiary Total Eligible beneficiary California $ 422,636, Arizona $ 56,660, Idaho $ 17,349, Texas $ 209,319, Connecticut $ 55,721, Kansas $ 15,662, Florida $ 166,278, Minnesota $ 47,001, Arkansas $ 14,647, New York $ 127,701, Tennessee $ 45,759, Rhode Island $ 14,368, Pennsylvania $ 118,569, Missouri $ 41,152, Montana $ 12,602, Washington $ 112,745, Indiana $ 40,935, Nebraska $ 12,248, Illinois $ 108,679, Utah $ 35,177, West Virginia $ 12,131, Virginia $ 93,633, South Caroline $ 33,895, Mississippi $ 9,874, North Carolina $ 92,045, New Hampshire $ 30,914, Delaware $ 9,676, Maryland $ 75,714, Alabama $ 25,480, Alaska $ 8,125, Ohio $ 75,302, Nevada $ 24,874, District of Columbia $ 8,125, Massachusetts $ 75,064, Iowa $ 21,201, Hawaii $ 8,125, Oregon $ 72,967, Maine $ 21,053, North Dakota $ 8,125, New Jersey $ 72,215, Oklahoma $ 20,922, Puerto Rico $ 8,125, Colorado $ 68,739, Kentucky $ 20,378, South Dakota $ 8,125, Wisconsin $ 67,077, Louisiana $ 19,848, Wyoming $ 8,125, Michigan $ 64,807, Vermont $ 18,692, Georgia $ 63,624, New Mexico $ 17,982, Total * Data from Appendix 2, Initial Allocation of Mitigation Trust Funds, in Volkswagen Settlement Beneficiary Plan Toolkit, published by National Association of State Energy Officials (pages 46 and 47 of that document) 17

18 Contact information Michael Bryan Deloitte Tax LLP Bruce Kessler Deloitte Tax LLP Marcus Panasewicz Deloitte Tax LLP 18

19 This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. 19

20 About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the Deloitte name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see to learn more about our global network of member firms.