Tax Reform Tops Legislative Agenda

The United States didn’t go over the fiscal cliff, but it remains to be seen where in fact it is headed.

While retailers were mostly happy with the temporary changes in the American Taxpayer Relief Act that averted what many thought could be an economic disaster, they are hopeful that Congress will find a way to address meaningful, lasting tax reform in 2013.

“The sentiment among our members is that they were pleased to have some things that are certain for 2013 so they can plan for their businesses for at least the next 12-month period, and they are hoping tax reform will bring some certainty to the tax code that will enable them to have plans for their businesses for the future,” Tom Wenning, executive vice president, NGA, told SN. “There is a lot of concern about having to wait for Congress to find out if something was approved or not.”

Click for flow chart of the American Taxpayer Relief Act

Among the tax changes favored by independent retailers in the recent legislation that averted the fiscal cliff was an extension through 2013 of certain incentives — the so-called “tax extenders” — that provide deductions for small businesses that make certain investments. These include the 15-year depreciation schedule on new construction and improvements to existing buildings; the Work Opportunity Tax Credit, which provides a tax credit of $2,400 for businesses that hire individuals from certain communities; bonus depreciation, which allows businesses to write off a new asset by up to 50% in the first year; and the new-market tax credit that seeks to help fund development in underserved areas.

Greg Ferrara, vice president of government affairs at NGA, said that during a legislative affairs meeting last week one NGA member recounted a story about he had canceled an order for a refrigeration installation when it was not clear that the bonus-depreciation extender would be included in the tax agreement. He subsequently ordered the installation after the tax act passed on Jan. 2, two days past the deadline.

“There are a lot of examples of independent operators that are looking to grow their businesses, and if there are pro-growth tax provisions that help them do that, the trickle-down effect is tremendous,” Ferrara said. “In this case, it benefits the installers, the manufacturer, and hopefully it results in increased sales as well.”

“As we are looking at all of these provisions, we are looking at driving business growth and creating jobs.”

Wenning said NGA’s Legislative Affairs Committee has identified several key components of tax reform that members would like to see enacted on a permanent basis, including some of those extenders.

“We will be watching closely to see how Congress is going to address those issues when they take up tax reform,” he said. “I think there will be a review of the so-called tax extenders to see which ones Congress really wants to retain and which ones they will view as unnecessary, in terms of creating jobs and growing the economy. We have focused on those incentives that will achieve that objective going forward.”

Wenning noted that NGA is encouraging members to stay active in grass-roots activities, particularly with the House Ways and Means and Senate Finance committees, where tax reform is expected to take shape. He also said he was hopeful that tax reform would go through a regular committee process with bipartisan cooperation, unlike the recent agreement that was hashed out among President Obama and a few key members of the House and Senate.

Read more: Reaction to FDA food safety rules, Farm Bill

“We expect tax reform to focus on lowering rates and eliminating expenditures to simplify the tax code. I think our members’ perspective is that there has to be equitable relief for both C-corporations and S-corporations so that there is relief and that there is equity for all business-type organizations — more or less a level playing field as far as tax provisions are concerned.”

In the tax act that was passed to avert the “fiscal cliff,” retailers classified as pass-through entities saw their tax rates increase by about 5%, if they record $400,000 or more in income ($450,000 for married couples). The income tax rate for those businesses and individuals jumps to 39.6% in 2013, up from 35% in 2012. In addition, high earners also will pay a new, 0.9% surtax this year to help fund health care reform.

Slow Start

Although the fact that 2013 is not an election year signals the possibility that legislation will be addressed in a meaningful way, several factors are conspiring to gum up Washington’s gears early in the year, industry associations noted. The previous Congress ran late to pass the Taxpayer Relief Act, delaying the planning and committee set-up that traditionally occurs late in the year before a new Congress.

In addition, Congress needs to resolve sequestration — automatic budget cuts set to be implemented — almost immediately.

Read more: Agreement Raises Taxes for Some Businesses, Estates

Jennifer Hatcher

“For the first few months, it’s going to be like Groundhog Day. It’s the same drill again,” said Jennifer Hatcher, senior vice president of government and public affairs, Food Marketing Institute. “Congress has 60 days to come up with an answer on sequestration, then after that discussion — and hopefully a resolution on sequestration — we have another 30 days before a continuing resolution funding the government runs out. So we will have that battle again, then all of the appropriations battles, and then tax reform.

“When you look at the detail and the complexity that was involved in putting together this [recent] agreement, you realize what a challenge we have ahead on the broader tax reform component, and how much work is going to have to go into that to make sure we get that right,” she added. “A number of different provisions in the tax reform piece could have significant impact on our members.”

Health Care Battles

In addition to legislation on tax reform, industry associations are also keeping an eye on the regulatory arena, where rules are being promulgated concerning the Affordable Care Act and the Food Safety Modernization Act.

One of the main concerns about the Affordable Care Act that is of concern to both FMI and NGA is the definition of “full time” employee to be someone working 30 hours or more per week — a provision that was included in the original statute and might have to addressed with new legislation.

Ferrara of NGA described that definition as “one of the most difficult” aspects of the bill.

“We would like to see that increase to around 35 hours a week,” he said, noting that independents would also like to see more flexibility in other areas of the bill.

“Some employers are also looking at how they can continue to provide good health insurance for their employees, and there are some aspects to this law that make it a real challenge to continue to do that,” he said. “They are trying to do the right thing and take care of their employees, and we are going to try to do everything we can to minimize the burden for them.”

Hatcher noted that FMI members face similar dilemmas, both with regard to the full-time definition and the desire to continue providing health coverage.

“The definition of a full-time worker for the purposes of health care reform is 30 hours per week, and that doesn’t mesh with other laws that we’re complying with, so it would obviously make a lot more sense to make those more compatible,” she said, noting that FMI is currently polling its members about that issue.

“The Fair Labor Standards Act has one definition, and it can be different for different states, but not one is defined as 30 hours per week, and that makes a big difference in terms of what might be offered for part-time workers,” she said. “We currently have had a pretty robust health care offering for workers in the industry.”

Some of the challenges of health care reform revolve around the sheer complexity and magnitude of the bill, according to both FMI and NGA.

With the health care rule in particular, Hatcher said the industry has had to rely heavily on guidance documents from government entities, “because it was so critical to get information out to employers.”

“It is incredibly complicated,” she said. “That’s the challenge for some of our members — the level of detail in this, and working to get it right. We’re working to comply with the law, and it’s complicated, and we will need flexibility to do it in the time frame that we have.”

Retailers were supportive of a rule issued late last year that allows a longer “look back” period to determine whether employees are full-time or part-time, but they expect several additional rules from the Treasury Department, the Internal Revenue Service and the Department of Health and Human Services.

“We’ve worked very closely with the combined group on each of these rules, and have had pretty good success on some comments and provisions we are interested in,” Hatcher said.

Ferrara said NGA has also been engaged on the regulatory side, providing comment and feedback on rules.

“There are a lot more coming, but the clock is ticking,” he said.

Wenning said NGA has been holding webinars to help its members understand the law so they can make sure they are in full compliance with all the aspects required in 2013.

There may be some opportunities to address NGA’s concerns about the law through legislation in Congress, “although we are not particularly optimistic,” he added.

Labor Concerns

Both FMI and NGA also said they continue to keep an eye on new rules and regulations emerging from the Department of Labor, particularly as they relate to union organizing.

“This board has been very aggressive in terms of defining and redefining what is permissible activity, and it is having a very dramatic effect on employers’ ability to have certainty about their employee relations,” Wenning explained. He cited in particular concerns over the DOL’s view of the use of social media and a proposed new “persuader rule” that would require employers to report all contracts with lawyers or consulting firms during labor negotiations. The latter is seen as a violation of attorney-client privilege, he explained.

“That could affect the rights of employers going forward,” he said.

Hatcher said FMI is “always on high alert on rules over at the Department of Labor,” noting that two proposed rules on FMI’s watch list — one on affirmative action for people with disabilities and the persuader rule —are expected to come out in final form in late spring.

Other Issues

In the Farm Bill, in addition to concern over the funding for food- and nutrition-assistance programs, NGA is also “hoping to see some language that would support projects related to expanding in underserved markets,” Ferrara said.

“We have independent operators that have been very successful in a number of states — California, Louisiana, New York and many in between — taking on projects in food deserts,” he said. “There are reasons there are no supermarkets in those places today, and if we can provide resources to those projects on a one-time basis, they become viable.

SN Data Points: Tax Changes Impact Retailers

“When they bring supermarkets to those areas, they bring jobs. We will continue to encourage Congress to support those efforts.”

On credit card interchange fee reform, NGA is going to continue to work against a major proposed lawsuit settlement proposed last year, Wenning said. Affected parties have until May 28 to review the settlement, which retailers argue would prevent them from taking further action against credit card companies. A fairness hearing to finalize the settlement is set for September.

“NGA will be strongly suggesting that [the judge] reject the settlement,” Wenning said.

“On the legislative front, we will be communicating to Congress that the settlement is not a cure-all, and does not address the unfair fees being charged by credit card companies and big banks, and we will be encouraging Congress to take action on credit cards like they did on debit cards. “That is something our members feel strongly about.”

Sidebar: GMA Eyes Food Safety, Tax  Issues

The Grocery Manufacturers Association is expecting a slew of new rules concerning implementation of the Food Safety Modernization Act in 2013, after the first two rules came out earlier this month.

“It is fair to say that we will be vigilant in our engagement in the implementation of FSMA, with both the FDA and the [Obama] administration, as well as with Congress,” said Louis Finkel, executive vice president, government affairs, GMA. “We will continue to work to see that the bipartisan, multi-pronged support continues all the way through the process.”

He said GMA will also be engaged with Congress on the Farm Bill, as well as on tax reform.

With regard to tax reform, the two areas of specific concern to GMA are what Finkel described as punitive, selective taxes — such as soda taxes and similar proposals that have cropped up around the country — and tax deductions that GMA members use in the course of their business.

“There have been selective taxes proposed at the state and local level — soda taxes, taxes on sugar, on fat, for any assortment of component issues related to food and beverage,” he explained. “We saw suggestions by some that those should be considered at the federal level as ways to reduce the deficit and increase revenue. We have serious concerns about the punitive nature and how regressive some of those taxes can be, and we would continue to oppose any such efforts.”

GMA is also eager to see Congress advance trade agreements with other countries, which create opportunities for GMA members to export product “on a more level playing field,” Finkel explained.

Laws concerning the use of biomass as fuel also concern the association, he explained, because of the impact on prices.

GMA is also “hoping for some constructive progress” on the Toxic Substances Control Act, or TSCA, which saw some committee action in 2012. The bill addresses the importation, use and disposal of specific chemicals used in many nonfood products.

“We continue to be actively engaged in that effort both in the House and the Senate,” Finkel said. “There was a lot of activity on that in the last Congress, but it didn’t move forward as quickly as some would have liked. We are hopeful that there will be bipartisan agreement, and hopefully get us to a place where we can start making some meaningful reforms.”

Read more: Reaction to FDA food safety rules, Farm Bill

GMA also remains focused on private-sector solutions for reducing waste and using more economically friendly packaging, he explained.

Finkel said it could be a particularly active year in Washington, despite Congress being bogged down with sequestration and other issues early on.

“History shows that big election years tend to be more political than focused on policy,” he said, referring to the relative lack of activity in 2012. “In the first term of the new Congress, a lot of times you will see more regulatory action, and a greater legislative focus.”

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