Both Chambers of the U.S. Congress have been moving rapidly on major tax policy legislation. Several provisions in those packages impact tax-exempt organizations, including hospitals. The Wisconsin Hospital Association (WHA) is particularly concerned with a provision included in the House tax package related to private activity bonds (PABs).
Private-activity bonds (PABs) are currently tax exempt for certain entities, including qualified 501(c)(3) organizations. Under the House legislation, the tax exemption is removed, which means interest on newly issued PABs would be included in income and thus subject to tax. If enacted, the provision would be effective for bonds issued after 2017.
WHA opposes removal of tax-exemption status for these PABs and has relayed its opposition to the Wisconsin Delegation. WHA is pleased to see the U.S. Senate Finance Committee has not included this provision in its legislation.
“These bonds play a critical role in helping not-for-profit hospitals and health systems access low-cost capital, enabling them to keep infrastructure expenditures low so they can efficiently fulfill their mission and focus on the work they do for the public good,” said WHA President/CEO Eric Borgerding.
In addition to PABs, several other provisions of note are:
- Advance refunding bonds. Both the Senate and the House tax packages repeal the tax exemption for advance refunding bonds. Advance refunding bonds are a refinancing option used to access better interest rates, including on qualified 501(c)(3) bonds, to help to lower capital financing costs.
- Excise tax on tax-exempt organization executive compensation. Both the Senate and the House packages place a 20 percent excise tax on executive compensation that exceeds $1 million paid to the five highest paid employees. The provision applies to an “applicable tax-exempt organization,” which is defined as: 501(a)s, of which 501 (c)(3)s fall under; exempt farmers’ cooperative; a Federal/State/Local governmental entity with excludable income; and, a political organization. The applicable tax-exempt organization is subject to the excise tax.
- Individual insurance mandate. The Senate package reduces the penalty associated with the Affordable Care Act’s individual insurance mandate to $0.
On November 16, the U.S. House of Representatives passed their tax package –The Tax Cut and Jobs Act (HR1). The U.S. Senate package has yet to receive a vote in the Senate, though one could occur by the Thanksgiving holiday. Because the Senate and House packages differ, both Chambers must reconcile these differences before any legislation could move forward to the President.