By Susan Bloom
With Donald Trump’s inauguration as America’s 45th president today, the nation and world brace for what’s been described as an ‘unconventional presidency’ and are advised to expect the unexpected as Trump responds to a broad range of issues related to employment, healthcare, national security, foreign policy, and more. Following, tED magazine asked industry experts Ed Orlet (NAED’s Vice President of Government Affairs) and Palmer Schoening (Chairman of Family Business Coalition and President of Schoening Strategies LLC) to weigh in on the likely way in which Trump and his cabinet will address a number of issues of importance to electrical distributors and their potential impact on the distribution industry:
Issue: Remote Transactions Parity/Marketplace Fairness Act
Brief Synopsis: Online sellers aren’t currently required to collect sales taxes on items sold to consumers in states that collect sales tax – rather, consumers are required to pay use taxes on their online purchases. While not mandatory, this bill would allow states to enact laws requiring out-of-state sellers to collect sales tax at the point of purchase rather than requiring consumers to pay use taxes at the time their income tax is due. To-date, distributors have faced unfair competition from online sellers that use sales tax avoidance as a selling strategy; with the rise in online selling, this has become a problem policymakers can no longer afford to ignore.
Orlet’s Eye-View: “The bills tend to enjoy bipartisan support and suffer from bipartisan opposition — MFA has passed the Senate in past years, but the Republican-controlled House has refused to take up the issue.”
Schoening’s Eye-View: “President-elect Trump has said that he would support states collecting sales taxes from online sales, which will help distributors who are currently at a price disadvantage relative to online retailers.”
Issue: Overtime Rules/Labor Regulations
Brief Synopsis: The proposed new overtime rule by the U.S. Department of Labor would more than double the current salary threshold at which employees are exempt from collecting overtime pay (e.g., any employee earning less than the proposed new threshold of $47,476 would be eligible for overtime if they worked more than 40 hours a week). This increase would make it harder for new employees to advance and give them less opportunity to attend educational conferences.
Schoening’s Eye-View: “The rule may be overturned by the Congressional Review Act and signed by President Trump. There’s a lot of attention being focused on these particular regulations by the entire business community, which bodes well for arrival at an amenable solution.”
Issue: Energy-Efficient Buildings and the Commercial Building Tax Deduction (CBTD)
Brief Synopsis: The CBTD allowed for a per-square-foot tax deduction for owners of buildings containing lighting with efficiencies exceeding a specified ASHRAE standard and also allowed deductions for efficient windows, doors, and HVAC systems. The deduction has since expired, wasn’t renewed for 2017, and is no longer eligible for buildings placed into service after 12/31/16.
Orlet’s Eye-View: “Republicans want to do ‘comprehensive tax reform’ this year that lowers rates and eliminates most special deductions and credits like the CBTD (also known as Section 179D), so we’re not optimistic about the deduction being renewed. However, we’re hopeful that the changes to the tax code being contemplated by the GOP will more than make up for the loss of this incentive-based selling tool.”
Schoening’s Eye-View: “President-elect Trump and Congressional Republicans have talked a lot about their plans to reform the tax code, including lowering rates and making the tax code more pro-growth. The current House Ways & Means tax reform blueprint calls for allowing businesses to write off or expense all purchases except for land. The CBTD expired at the end of 2016 and is unlikely to be renewed as part of tax reform; however, if the tax code is reformed in a way similar to what President-elect Trump and House Republicans have envisioned, it will allow businesses to expense the purchase of those products instead of receiving tax deductions. Overall, while the loss of 179D will change the selling strategy of some distributors, the pro-growth changes to the tax code will help distributors in other ways.”
Issue: LIFO
Brief Synopsis: Last-In-First-Out (LIFO) inventory valuation has been a tool that distributors and manufacturers have used for decades to help manage commodity price shifts and reduce tax burdens and will be an issue in the coming tax reform debate.
Orlet’s Eye-View: “Republicans have assured us that they will protect LIFO in tax reform and would only consider repealing LIFO if there was consensus from the business community that the transition treatment of LIFO reserves was overwhelmingly favorable. We’ve reached out to members to answer a survey on circumstances under which they would support transitioning from LIFO.”
Schoening’s Eye-View: “The House Ways & Means tax reform blueprint specifically mentioned that it will preserve LIFO accounting in tax reform, but Congress hopes to transition to a tax code that allows immediate expensing of all equipment and inventory. The way in which LIFO reserves will be treated under a full-expensing tax code is currently an open question. We’ll be at the table on behalf of NAED to make sure that the transition rules are fair and easy to comply with.”
Issue: Estate Tax Repeal
Brief Synopsis: A typical electrical distributor has a total asset value greater than the current $5.49 million estate tax exemption due to the large amount of inventory necessary to run a distribution business. Combined with the added costs of infrastructure (e.g., buildings, trucks, payroll, etc.) and accounts receivable, the estate of an electrical distributor could face a large death tax bill upon the owner’s death unless current estate tax rules are repealed.
Orlet’s Eye-View: “Many of our member companies are family businesses and the death tax is something many waste money to mitigate when the family business must transition to the next generation. Trump and Congressional Republicans agree that the death tax must be eliminated, so it’s a good bet that we’ll succeed on death tax repeal as a component of any tax reform agreement that passes this year.”
Schoening’s Eye-View: “President-elect Trump has called for repeal of the death tax, which would free up capital currently being wasted on estate planning and life insurance and enable owners to reinvest that money in their business. The Family Business Coalition, of which NAED is an advisory board member, has 120 business associations organized and ready to push for full repeal. At a minimum, NAED members can expect to see meaningful tax relief in the estate tax space.”
Issue: Dodd-Frank’s “Conflict Minerals” Reporting Requirement
Brief Synopsis: A provision of the Dodd–Frank financial reform law requires publicly-traded companies to certify whether or not their products contain “conflict minerals” – e.g., minerals sourced from mining operations in the Democratic Republic of the Congo (DRC) and neighboring countries that are believed to subject workers to serious human rights abuses and use proceeds from the sale of these minerals to finance regional conflicts. This has created ‘mountains of paperwork’ for distributors and manufacturers alike, who must work to certify the source of the minerals in their products for customers who inquire.
Orlet’s Eye-View: “We’re hopeful that changes to Dodd-Frank will include eliminating the Conflict Minerals reporting requirement and we’re going to work for that to happen.”
Pro-Business Posture
Finally, we asked our experts whether Trump’s presidency will be helpful for distributors and business in general or if it will compromise commerce. According to Schoening, “depending on how President-elect Trump works with Congress, there’s an opportunity to enact pro-growth policies that will help electrical distributors. This is the best opportunity Congress has had to pass pro-growth tax reform in 30 years and we plan to support efforts to pass a tax reform package that simplifies the tax code, eases the tax burden on job creators, and makes it easier for NAED members to do business,” he said.
Orlet agrees. “I think that a lot of people have lost credibility predicting what will happen with Donald Trump,” Orlet said. “However, I hope that the new president will be a less active regulator than his predecessor. The best thing that the president and federal government can do is to get out of the way and let free enterprise flourish.”
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Bloom is a 25-year veteran of the lighting and electrical products industry. Reach her at susan.bloom.chester@gmail.com.vb.
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