The National Multistate Tax Symposium West - Deloitte US...The National Multistate Tax Symposium...

The National Multistate Tax Symposium WestMove forward with confidence—State implications of tax reform

April 30–May 2, 2018

Infrastructure and domestic reinvestment—What you should knowMike Bryan, Deloitte Tax LLPBruce Kessler, Deloitte Tax LLPMarcus Panasewicz, Deloitte Tax LLP

May 2, 2018

3Copyright © 2018 Deloitte Development LLC. All rights reserved.

• Tax Reform – Potential Impact on Incentives

• Specific Tax Reform-Related Opportunities in the 2017 Tax Reform Act

• Multistate Approach to Infrastructure Proposals

• Vehicle Emission Mitigation Trust Settlement

Agenda

4

Tax Reform: Potential Impact on Incentives


The 2017 Tax Reform Act’s Impacts upon Incentives Decisions

Nearly every company will need to weigh the Act’s impact on their current incentives and planned expansions

100% Bonus Depreciation

• Deduction limited to $10k (MFJ) for the aggregate of non-business: (1) state and local property taxes, and (2) state and local income taxes or sales tax

• This may stimulate individual and business relocation from higher-tax states (such as CA, NY, and NJ) to lower-taxjurisdictions

Limitation on Individual State Tax Deductions

• With the repeal of Section 118, state and local incentives maynot qualify as contributions to capital; thus companies may consider restructuring their incentives packages

State & Local Incentives

• Effective through 2022, qualified property may be immediatelyexpensed instead of depreciated over several years

Corporate Tax Rate Reduction to 21%

• The federal corporate income tax rate was reduced from 35% to 21%, effective for tax years after 12/31/17

• Average effective rates of many F500 may decrease


11

Post tax reform, companies may need to reevaluate their footprint

Variables that Drive Corporate Footprint Outcomes

Market

Access

IP

Protection

Talent

IncentivesReal

Estate

Regulatory

Environment

Infra-

structure

Risk

Taxes

Services

Ultimately, footprint optimization should be a continuous process creating competitive advantage by keeping structural costs in check and assets aligned with market realities

Guiding Principles of Enterprise Footprint Optimization

The optimization process must align with corporate strategy while also considering market, cost, talent, organization structure, and risk factors

Structural costs and operating conditions are a function of location– understanding how these interrelated factors drive asset performance is critical

Tax is one of numerous, interrelated variables that lead to either an effective or sub-optimized footprint

7

Specific Tax Reform-Related Opportunities in the 2017 Tax Reform Act


Overview:

• “Opportunity Zones” are a new community development program established by Congress in the Tax Reform Act of 2017 to encourage long-term investments in low-income urban and rural communities nationwide

• The Opportunity Zones program provides a tax incentive for investors to re-invest their unrealized capital gains into Opportunity Funds that are dedicated to investing into designated Opportunity Zones.

• Opportunity Funds are private sector investment vehicles that invest at least 90% of their capital in Opportunity Zones. A qualified opportunity fund will be organized for the purpose of investing in qualified opportunity zone property.

• Qualified opportunity zone property includes qualified opportunity zone, qualified opportunity zone partnership, or qualified opportunity zone business property. The investments can comprise of new or substantially improved tangible property, equipment, and multi-family complexes.

• State governors had until March 22, 2018 to designate up to 25 percent of the total number of low-income census tracts in a state as Opportunity Zones.

Opportunity Zones


The Opportunity Zones program offers investors:

• A temporary tax deferral for capital gains reinvested in an Opportunity Fund

o The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is sold, or December 31, 2026

• A step-up in basis for capital gains reinvested in an Opportunity Fund

o The basis of the original investment is increased by 10% if the investment in the qualified opportunity zone fund is held by the taxpayer for at least 5 years, and by an additional 5% if held for at least 7 years, excluding up to 15% of the original gain from taxation

• A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in a qualified opportunity zone fund, if the investment is held for at least 10 years

• This exclusion applies to the gains accrued from an investment in an Opportunity Fund, not the original gains

Opportunity Zones


Historic Rehabilitation Tax Credit

• The Act retains the 20% credit for qualified rehabilitation expenditures with respect to certified historic structures

o But provides that credit must be taken over 5 years, rather than when the project is placed in service

o Eliminates the 10% credit for qualified rehabilitation expenditures for buildings built before 1936

Qualified Tax Credit Bonds

• The Act eliminates qualified tax credit bond program

New Markets Tax Credit

• No changes to NMTC program

Renewable Energy Production Tax Credit

• No changes to PTC program

Renewable Energy Investment Tax Credit

• No changes to ITC program

Other 2017 Tax Reform Act Notes

11

Multistate Approach to Infrastructure Proposals


• $200 Billion of federal funds

• Total of $1.5 Trillion from federal, state & local governments and/or private sector

• 10 year plan

Infrastructure projects to include: roads & bridges; airports; transit systems; ports & waterways; flood control; water supply; water resources - drinking water and waste water facilities; storm water facilities; brownfields & superfund sites

Some underlying concepts included in this proposal:

1. Remove regulatory barriers

2. Encourage state & local governments to partner with private sector

3. Focus on rural development

4. Return decision-making authority to the states

5. Streamline permitting

6. Support workforce through education programs and expanding Pell Grant program

“Legislative Outline for Rebuilding Infrastructure in America” (White House, Feb 2018).

Multistate Approach to Infrastructure


• Infrastructure Incentives Program

− $100 Billion (to be divided among DOT, USACE, EPA)

− Attracting new, non-federal revenue streams dedicated to infrastructure investments

− Leverage from federal investments

− Assuring long-term performance of capital infrastructure investments

− Modernizing delivery, increasing economic growth, accountability

− Evaluation criteria: weighted across 6 categories - $ value, new non-federal revenue, procurement,

technology and economic and social returns

Legislative Outline for Rebuilding Infrastructure in America (February 2018)



• Rural Infrastructure Program

− $50 Billion provided to governor of each state via formula distribution

− Rural projects align with Incentives Program

• Transformative Projects Program

− $20 Billion (DOC), Interagency selection committee

− Projects would fundamentally transform the way infrastructure is delivered - ambitious, exploratory and

groundbreaking project ideas - offer a much larger reward profile

Legislative Outline for Rebuilding Infrastructure in America (February 2018)


15

Vehicle Emissions Mitigation Trust


Overview:

• $2.925 billion will be placed in an Environmental Mitigation Trust

• The $2.9 billion is allocated to beneficiaries (all 50 states, tribes, and certain territories) based on the

number of impacted vehicles in their jurisdictions−Funding amounts range from $8M to $422M per state

• The trust will support specific chosen projects that mitigate or reduce NOx emissions in the beneficiary

states

• The mitigation plans allow states to choose the projects (public and/or private) that fall within eligible

mitigation categories as submitted for funding−Up to 100% reimbursement for repower or replacement of

government-owned diesel vehicles/equipment−Up to 75% reimbursement for repower or replacement of

privately-owned diesel vehicles/equipment

• Repower and replacement options include vehicles/equipment powered by alternative fuels, newer diesel,

or all-electric but requires scrapping of old engines

• The Trust and each respective state agency will determine which funding requests are granted

Vehicle Emissions Mitigation Trust Settlement


Funds are allocated based on the number of impacted vehicle registrations in each jurisdiction.*

State allocations from the Vehicle Emissions Mitigation Trust Settlement

Eligible beneficiary

TotalEligible beneficiary

TotalEligible beneficiary

Total

California $ 422,636,320.00 Arizona $ 56,660,078.00 Idaho $ 17,349,037.00

Texas $ 209,319,164.00 Connecticut $ 55,721,170.00 Kansas $ 15,662,239.00

Florida $ 166,278,745.00 Minnesota $ 47,001,661.00 Arkansas $ 14,647,709.00

New York $ 127,701,807.00 Tennessee $ 45,759,914.00 Rhode Island $ 14,368,858.00

Pennsylvania $ 118,569,540.00 Missouri $ 41,152,052.00 Montana $ 12,602,425.00

Washington $ 112,745,650.00 Indiana $ 40,935,881.00 Nebraska $ 12,248,347.00

Illinois $ 108,679,677.00 Utah $ 35,177,506.00 West Virginia $ 12,131,842.00

Virginia $ 93,633,980.00 South Caroline $ 33,895,491.00 Mississippi $ 9,874,414.00

North Carolina $ 92,045,658.00 New Hampshire $ 30,914,841.00 Delaware $ 9,676,683.00

Maryland $ 75,714,238.00 Alabama $ 25,480,968.00 Alaska $ 8,125,000.00

Ohio $ 75,302,523.00 Nevada $ 24,874,024.00 District of Columbia $ 8,125,000.00

Massachusetts $ 75,064,424.00 Iowa $ 21,201,738.00 Hawaii $ 8,125,000.00

Oregon $ 72,967,518.00 Maine $ 21,053,064.00 North Dakota $ 8,125,000.00

New Jersey $ 72,215,085.00 Oklahoma $ 20,922,485.00 Puerto Rico $ 8,125,000.00

Colorado $ 68,739,918.00 Kentucky $ 20,378,650.00 South Dakota $ 8,125,000.00

Wisconsin $ 67,077,458.00 Louisiana $ 19,848,805.00 Wyoming $ 8,125,000.00

Michigan $ 64,807,015.00 Vermont $ 18,692,130.00

Georgia $ 63,624,726.00 New Mexico $ 17,982,661.00

* Data from Appendix 2, Initial Allocation of Mitigation Trust Funds, in Volkswagen Settlement Beneficiary Plan Toolkit, published by National Association of State Energy Officials (pages 46 and 47 of that document)


Contact information

Marcus Panasewicz

Deloitte Tax LLP

[email protected]

Michael Bryan

Deloitte Tax LLP

[email protected]

Bruce Kessler

Deloitte Tax LLP

[email protected]

mailto:[email protected]




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Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

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