WASHINGTON — The Senate Finance Committee on Thursday passed a bill that extends many expired and expiring tax provisions, including five related to bonds, state and local governments, and Puerto Rico.
The committee approved the tax extenders package, the "Expiring Provisions Improvement and Reform Efficiency Act," on a voice vote. The legislation will now go before the full Senate.
The bill would extend the qualified zone academy bond program by providing $400 million of volume per year for 2014 and 2015. The bonds would have to be issued as traditional tax-credit bonds and not as direct-pay bonds.
For bonds to be QZABs, all of the bond proceeds must be used to finance renovations, equipment purchases, course material development and teacher training for schools in a "qualified zone academy." A qualified zone academy is a public school that meets several requirements, including that it provides education and training below the college level and reasonably expects at least 35% of its students will be eligible for free or reduced-cost lunches.
Historically for QZABs, private entities have had to contribute property or services equal to at least 10% of the bond proceeds. But the extenders bill would reduce that amount to 5%.
An amendment added to the legislation would extend through 2015 empowerment zone tax incentives. These include the ability to issue empowerment zone facility bonds, but the extension would only help in empowerment zones with remaining volume capacity, said Linda Schakel, a partner at Ballard Spahr LLP.
The extenders package would also extend through 2015 the ability for taxpayers to elect to deduct state and local sales taxes in lieu of state and local income taxes.
Sen. Maria Cantwell, D-Wash., said during the markup of the bill that the state and local sales tax deduction is particularly important to Washington and other states without income taxes. She supports making the deduction permanent.
Two tax breaks for Puerto Rico would be extended by the bill.
The first involves extending the deduction allowable for income attributable to domestic production activities in the territory. The proposal would extend special domestic production activities rules for Puerto Rico to apply for the first ten taxable years of a taxpayer between Dec. 31, 2005 and Jan. 1, 2016. It would be effective for taxable years after Dec. 31, 2013.
The deduction effectively reduces the tax rate for U.S. manufacturing companies doing business in Puerto Rico to 32% from 35%, said Pedro Pierluisi, the commonwealth's representative in Congress.
"This deduction will save companies with operations in Puerto Rico that are not organized as Controlled Foreign Corporations about $222 million in 2014 and 2015, thereby providing them with the same tax treatment they would receive if they were operating in a U.S. state," he said in a release.
The second would extend the temporary increase in the limit on the payment of rum excise tax revenues to Puerto Rico and the U.S. Virgin Islands. It would extend the additional $2.75 per proof gallon that the territories can receive, increasing the grant from $10.50 to $13.25.
Doing this would "translate ... into about $200 million in funding to Puerto Rico in 2014 and 2015," Pierluisi said. The higher payment limit would be extended for rum brought into the U.S. after Dec. 31, 2013 and before Jan. 1, 2016.
The bill expresses the sense of the committee that the next Congress should take up tax reform that aims to eliminate temporary provisions, making some of them permanent and dropping the rest.
Senate Finance Committee Chairman Ron Wyden, D-Ore., said the committee's approval of an extenders bill "shows the urgency of tax reform." He said that the "stop and go nature" of extenders contributes uncertainty.
"This will be the last tax extenders bill the committee takes up as long as I am the chairman," Wyden said. He added that passage of this bill "builds a bridge to comprehensive tax reform" and that he's going to start holding hearings this spring on how to fix the tax code.
House Ways and Means Committee Chairman Dave Camp, R-Mich., recently said that his committee will begin this month to consider which tax extenders should be made permanent. A hearing on expired business tax provisions that would be extended by Camp's tax reform discussion draft is scheduled for next week.
