With just a few days to go in 2015, Congress finally reached an agreement on tax extenders for 2015. Nope, that’s not a typo. Congress had allowed over 50 tax breaks to expire as of December 31, 2014, and until this week, there had been no movement on extending those tax breaks for the current year.
If that feels eerily familiar, you’re not wrong. In 2014, the Senate waited until just over two weeks left in the calendar year to pass a bill that extended certain tax provisions through December 31, 2014 (retroactive to January 1, 2014). At the time, Sen. Orrin Hatch (R-UT) referred to the bill as “quite literally the best we could do.”
It looked like the Senate might be getting a jump on things this year when Sen. Hatch announced, together with Sen. Ron Wyden (D-OR), that the Senate Finance Committee would begin marking up the tax extenders bill in July. But then July passed. As did August. And September. You get the picture.
And then it was December. And still no deal.
Then, while most of America was distracted by the GOP debates, the rumors heated up: the House had reached a deal. Sure enough, a deal had been reached. And it was a whopper. It didn’t just extend those 52 tax breaks: it expanded the number of tax provisions, including making the research & development (R&D) credit permanent, a bigger and better section 179 deduction and improvements to charitable giving provisions. But it didn’t stop there. Congress was working hard behind the scenes to write legislation that, to be clear, most of us really don’t care about. Except for lobbyists. They care a lot. So when you consider the hold up on the tax extenders bill, consider these 10 provisions that somehow made it into The Protecting Americans from Tax Hikes Act of 2015 even though they don’t affect most taxpayers:
- Extension of classification of certain racehorses as 3-year property. If you followed the drama over Serena Williams beating out American Pharaoh for Sports Illustrated’s Sportsperson of the Year (even though American Pharaoh isn’t an actual person), you know that – at least in 2015 – Americans love their racehorses. Now, the owners of those racehorses get yet another break: the 3 year recovery period for race horses placed in service during 2015 or 2016 is extended (instead of reverting to 7 years).
- Extension of the 7-year recovery period for motorsports entertainment complexes. Nothing kickstarts an economy like a motorsports entertainment complex, which is helpfully defined as “a racing track facility which is permanently situated on land and which during the 36-month period following its placed-in-service date hosts a racing event.” It also includes support facilities such as food and beverage vending. The shorter recovery period has been a favorite of the American Motorcyclist Association and International Speedway since 2011 when Sen. Debbie Stabenow (D-MI) attempted to make the 7-year rule permanent in order “to provide predictability and certainty in the tax law, create jobs, and encourage investment.” It’s not permanent, just extended. Again.
- Extension of credit for the production of Indian coal facilities. Among other things, the provision extends the credit for the production of Indian coal for two years through December 31, 2016, and exempts the Indian coal credit from the alternative minimum tax, which may sound great – except that most tribes don’t directly benefit from the provision. According to USA Today, only three tribes benefit at all from the credit: the Crow, the Hopi, and the Navajo. And those tribes only receive an indirect benefit: the credit is actually attributable to corporations who mine inside reservations. The credit has been around – and highly criticized – since 2005. Yet, it still gets extended time after time.
- Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands. Yo ho ho – and a federally subsidized bottle of rum. Under the current law, an excise tax is imposed on distilled spirits produced in or imported into the US. The excise taxes for rum produced in Puerto Rico or the Virgin Islands are transferred back to those territories and referred to as a cover-over; the territories also split revenue from rum produced internationally in proportion to how much rum each produces (thus creating an incentive to try and “out rum” each other). Under the new provision, the $13.25 per proof gallon excise tax cover-over amount paid to the treasuries of Puerto Rico and the Virgin Islands is extended through 2016. Without the extension, the cover-over amount would simply be $10.50 per proof gallon.
- Extension of special expensing rules for certain film and television productions. The special expensing provision for qualified film, television, and live theater productions is extended through 2016. In general, only the first $15 million of costs may be expensed. And sorry, no porn (it’s expressly excluded). A qualified film or television production is defined “as any production of a motion picture (whether released theatrically or directly to video cassette…” Wait. I have to stop there. Yes, the provision alludes to video cassette. This year. In 2015. Video cassette. Congress apparently still thinks that people own video cassettes. You know, to watch their moving picture shows. I think that’s all we need to know about that provision.
- Extension of American Samoa Economic Development Credit. The provision extends through 2016 the existing credit for corporate taxpayers currently operating in American Samoa. With all due respect to the people of American Samoa, the total population in 2013 was 55,165 (in contrast, the population of Rhode Island is more than 1 million). People born in American Samoa are not US citizens (unless their parents are US citizens) and by law, they aren’t subject to US taxes on Samoan income. Nonetheless, Congress decided that it was important to encourage investment in American Samoa for years. The majority of the tax break reportedly benefits StarKist Co., which is why retired Sen. Tom Coburn (R-OK) referred to it as the “tuna tax break.”
- Modification of definition of hard cider. When is a beer a beer? Or a wine a wine? When it comes to excise taxes, it’s more or less whatever Congress says it is. That’s why Congress defined hard cider for purposes of alcohol excise taxes as “a wine with an alcohol content of between 0.5 percent and 8.5 percent alcohol by volume, with a carbonation level that does not exceed 6.4 grams per liter, which is derived primarily from apples, apple juice concentrate, pears, or pear juice concentrate, in combination with water.” Assuming it meets the criteria, hard cider is, for excise tax purposes, taxed at $0.226 per wine gallon.
- Modification of effective date of provisions relating to tariff classification of recreational performance outer wear. With a 60-something degree forecast on Christmas in the northeast, most of us aren’t running out to buy coats just yet but it’s good news for retailers of “certain recreation performance outerwear products” that won’t see tariff increases for awhile. The provision was tacked onto the House bill (and not explained in the JCT summary) which makes it feel like an add on.
- IRS employees prohibited from using personal email accounts for official business. I feel like this shouldn’t have to be a rule but Congress felt different. In their bid to continue to micro-manage the Internal Revenue Service (IRS), the new law prohibits employees of the IRS from using a personal email account to conduct any official business. Yes, this was already an established rule at the agency. But apparently it needed to be made law. You can perhaps blame Lois Lerner for this one.
- Duty to ensure that Internal Revenue Service employees are familiar with and act in accordance with certain taxpayer rights.. Yet another zinger at the IRS. This one is a legal requirement that – wait for it – IRS employees know how to do their jobs. Maybe I’m oversimplifying. The law is actually meant to ensure that IRS employees know and enforce the Taxpayer Bill of Rights introduced in June of 2014. While I know that the National Taxpayer Advocate was thrilled to get IRS to recognize the Taxpayer Bill of Rights, making it a law that IRS employees familiarize themselves feels – again – like micromanagement. I thought we wanted less government?