Tax Policy Update - September 15, 2015

NUMBER OF THE WEEK: 9

As in the 9 percent "amusement tax" that the city of Chicago recently extended to online streaming services like Netflix and Amazon Prime, triggering a series of lawsuits alleging that the newly expanded tax was illegally imposed without approval from the city council and that it violates the federal Internet Tax Freedom Act. You can bet other cities around the country will be paying close attention… along with House of Cards fans.

LEGISLATIVE LANDSCAPE

House's Highway Plan Losing Momentum. First came last week's surprising news that current highway funding levels can carry the nation's infrastructure through next summer—well beyond the October 29 expiration of the current authorization for highway spending. Then came the growing clamor from the business community against Rep. Paul Ryan's effort to pair a long-term highway funding plan with an overhaul of the U.S. international tax system. Bottom line: chances for an international tax/highway funding combo appear to be running low on fuel.

Although precise details of Ryan's plan have not yet been revealed, it is expected to include some kind of mandatory repatriation of U.S. multinationals' foreign earnings at a significantly reduced rate, along with a transition to a territorial system of taxation with a foreign dividend exemption and a so-called “innovation box” - a special low tax rate on profits derived from intellectual property. Business groups who also want broad business tax reform (read: a significantly reduced corporate rate with parity for pass-through businesses) are increasingly opposed to Ryan's international plan, which many believe would cripple future efforts to complete domestic business tax reforms.

Nevertheless, bipartisan and bicameral meetings are taking place this week among tax-writers to determine how best to proceed. Senate Finance Committee Chairman Orrin Hatch (R-UT) and Majority Leader Mitch McConnell (R-KY) have expressed opposition to the international reform-highway funding hybrid plan in the past.

Selection of Permanent "Extenders" Heading for Markup. The House Ways and Means Committee is preparing to mark up several bills that would make some currently expired tax provisions permanent fixtures in the tax code, including abonus depreciation provision (H.R. 2510), which allows accelerated expensing of purchases or construction of qualifying property. Additional provisions expected to be marked up later this week include a bill to make...