The Tax Cuts and Jobs Act (the Act) was signed by President Trump on December 22, 2017. The following are highlights that have some implications for state and local governments. As with past tax acts, there are likely to be “technical corrections” passed in future legislation. While technical corrections are often minor, occasionally the changes are material.
Tax-exempt qualified private activity bonds have been preserved in their entirety. Private activity bonds have been used for airports, sewage and solid waste facilities, housing and other activities. Tax exempt private activity bonds can still be issued as draw-down bonds.
Advance refundings are prohibited after 2017. The advance refunding change no longer allows public debt issuers to take advantage of fluctuations in interest rates to capitalize on considerable savings on debt service by placing refunding proceeds into trust while leaving the existing bonds outstanding until the earlier of their maturity or first call date. Current refundings are still allowed but may provide less favorable refunding opportunities as existing bonds must be eligible for redemption within 90 days of the issuance of the refunding bonds.
Qualified tax credit bonds cannot be issued after 2017. Qualified tax credit bonds include qualified forestry conservation bonds, new clean renewable energy bonds (NCREBs), qualified energy conservation bonds (QECBs), qualified zone academy bonds (QZABs) and qualified school construction bonds. Tax credits and subsidy payments for existing qualified tax credit bonds issued before 2018 are not intended to be impacted by the bill. However, subsidy payments are still subject to federal sequestration that began in 2013 and may be affected by any additional PAYGO sequestration that could arise as a result of the deficits caused by the Act.
Limitation on deductions for State and Local taxes (SALT). In the case of an individual and a taxable year beginning after December 31, 2017, and before January 2026, the aggregate amount taken into account for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return). The SALT deduction might force high-tax jurisdictions to reduce taxes or else face their citizens moving out of their jurisdictions. Government Finance Officer Association (GFOA) has performed a study on the impact of eliminating the SALT deductions. For information regarding the impact, visit the GFOA state and local tax webpage.
If you have questions regarding changes in the Tax Cuts and Jobs Act or if you would like more information, please contact one of RubinBrown’s Public Sector professionals.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.