Senate Tax Reform Bill a Significant Upgrade over House Version for NMTC

Published by Brad Elphick, Michael Novogradac on Monday, November 13, 2017 - 12:00am

Today the Senate Finance Committee began its discussion and markup of the chairman’s mark of the Tax Cuts and Jobs Act. The chairman’s mark is significantly better for the New Markets Tax Credit (NMTC) program than the related House version released Nov. 2. The House bill, which was approved by the Ways and Means Committee last Friday, includes a termination of the NMTC after 2017, eliminating the 2018 and 2019 rounds. Fortunately, the chairman’s mark preserves the NMTC legislation passed as a result of the Protecting Americans from Tax Hikes (PATH) Act of 2015 by not including any language changing the NMTC program.

The House bill’s termination of the NMTC program would have devastating effects on distressed communities throughout the nation. The House will debate and possibly vote on its legislation this week, but even if it passes, there are some significant steps ahead, including reconciliation with the Senate version–which retains the NMTC for two more years.

There could still be changes in the Senate legislation. On Sunday, the Senate Finance Committee released more than 350 amendments, of which 10 would potentially impact the NMTC directly. While it’s unlikely many of these amendments will be considered individually, it’s possible that some form of the language included in them could make it into an amended chairman’s mark, expected to be released this week. Of particular note is an amendment proposed by Chairman Orrin Hatch, R-Utah, referred to as the Tribal Economic Assistance Act of 2017. This amendment would “repeal the essential government function test for Indian Tribal governments with respect to issuance of tax-exempt bonds, make permanent accelerated depreciation business property on an Indian reservation and the Indian Employment Tax Credit, modify the New Markets Tax Credit Program, and create Tribal School Construction Bonding Accounts.”

The modification of the NMTC program would add to the current list priorities in making NMTC allocations those CDEs intending to make QLICIs within a reservation or to an entity established by a tribe or an economic enterprise which intends to make such investments in a reservation. In addition to Hatch’s amendment, Sen. Rob Portman, R-Ohio, and Sen. Ben Cardin, D-Md., each offered their separate amendments to make the NMTC a permanent part of the Internal Revenue Code.

In addition to the direct impact the chairman’s mark has on the NMTC program by retaining the remaining two years of allocation, there may be other impacts that could affect NMTC transactions. For example, the Senate version includes a change on the deductibility of interest expense but further limits who can exempt out of the limitation for those with $15 million in gross receipts versus $25 million in the House bill. The limit on deductibility of interest as well as other components of tax reform legislation proposed in the Senate and the House and their impact on NMTC transactions is still being reviewed and we will provide further analysis in future updates.

In the meantime, continue advocacy efforts by reaching out to members of Congress and reminding them of the benefits that will be lost if the NMTC program is eliminated.