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Congress Passes Comprehensive Tax Reform Bill

 

On December 20, Congressional Republicans finally passed their comprehensive tax reform bill. The bill represents the biggest rewrite of the tax code in three decades marking a huge legislative victory for President Trump, Senate Majority Leader Mitch McConnell (R-KY) and Speaker Paul Ryan (R-WI). The President has indicated that he will sign the bill. Some key details are a 21 percent corporate rate, a 37 percent top individual rate, a repeal of the corporate alternative minimum tax, a 20 percent deduction on pass-through income (trusts and estates are now entitled to use the pass-through deduction), a State and Local tax deduction expansion beyond just property taxes that will include income tax and will be capped at $10,000, and a doubling of the estate tax exemption, although it will not be fully repealed. Most of the rates will sunset in 2025 except for the corporate rate. The bill preserves the step-up in basis on property transferred during an estate settlement which is good news for petroleum marketers. Under current law, family members who inherit a business take the business at its value as of the date of the original owner’s death. However, if the step-up in basis were eliminated, the family members would be required to pay capital gains taxes on the original owners’ gains in the business. Due to the detrimental effects it would have on businesses, PMAA opposed any attempt to repeal the step-up in basis. 
 
Additionally, the bill preserves the inventory accounting method, last in, first out (LIFO), which is good news for marketers. LIFO considers the costs of replacing inventory, thereby, giving a more accurate measure of the financial condition of the business and the economic income to which tax should apply. Repealing LIFO would force PMAA member companies currently using this method to report their LIFO reserves as income, resulting in a massive tax increase for small business petroleum marketers across the country. The bill also preserves Section 1031 exchanges of like-kind property. Without the tax-deferral benefit that Section 1031 exchanges provide; small and medium sized businesses would not be as equipped to reinvest in their businesses and real estate values would decline. Finally, the bill also opens the Artic National Wildlife Refuge (ANWR) to oil and gas drilling and directs the Energy Department to sell as much as 7 million barrels of crude oil from the Strategic Petroleum Reserve.
 
The Small Business Legislative Council (SBLC) released a summary chart of the final tax bill which goes into detail on the new pass through rate and other tax provisions. Click here to view it. PMAA sits on the SBLC Board of Directors and provides input on tax related issues facing petroleum marketers.

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