Federal Legislative Report 115-07
Delivered via email: December 18, 2017
On Friday evening, Conference Committee members released the final version of the tax code rewrite, which reconciles differences between the House and Senate bills. It is anticipated the House and Senate will vote on the final version as early as Tuesday. The Joint Committee on Taxation's preliminary budget estimate of the Conference Committee bill for H.R. 1 indicates that the measure would add $1.456 trillion to the federal deficit over Fiscal Years 2018-2027. According to The Washington Post, the "measure curtails the federal deduction for state and local taxes. Advocates worry that states, counties and cities will have a tougher time raising money for schools - which get nearly all of their money from state and local tax revenues - because those taxes will no longer be fully deductible."
The following are provisions, applicable to education, included in the final version:
Tuition Tax Credits for Non-Public Schools
This provision modifies section 529 plans to allow the plans to distribute not more than $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private, or religious elementary or secondary school. This limitation applies on a per-student basis, rather than a per-account basis.
The provision also modifies the definition of higher education expenses to include certain expenses incurred in connection with a homeschool. Those expenses are (1) curriculum and curricular materials; (2) books or other instructional materials; (3) online educational materials; (4) tuition for tutoring or educational classes outside of the home (but only if the tutor or instructor is not related to the student); (5) dual enrollment in an institution of higher education; and (6) educational therapies for students with disabilities.
State and Local Tax Deductibility (SALT)
Currently, individuals are permitted a deduction for certain taxes paid or accrued, whether or not incurred in a taxpayer's trade or business. These taxes are: ... property taxes; (ii) state and local personal property taxes; ... At the election of the taxpayer, an itemized deduction may be taken for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes.
Under this provision a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married taxpayer filing a separate return) for the aggregate of (i) state and local property taxes not paid or accrued in carrying on a trade or business, or an activity described in section 212, and (ii) state and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the taxable year. This provision applies to taxable years beginning after Dec. 31, 2017, and beginning before Jan. 1, 2026. The language prohibits an individual from claiming an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.
School (Municipal) Bonds
Repeal of advance refunding bonds (that allow districts to refinance debt service payments for school buildings and other purposes at a lower interest rates) – A refunding bond is defined as any bond used to pay principal, interest, or redemption price on a prior bond issue (the refunded bond). Generally, governmental bonds and qualified 501(c)(3) bonds may be advance refunded one time (under current law).
Repeal of tax credit bonds – Currently, tax-credit bonds provide tax credits to investors to replace a prescribed portion of the interest cost. The borrowing subsidy generally is measured by reference to the credit rate set by the Treasury Department. Current tax-credit bonds include qualified tax credit bonds, which have certain common general requirements, and include new clean renewable energy bonds, qualified energy conservation bonds, qualified zone academy bonds (that have been used for school repairs and modernization as well as professional and curriculum development), and qualified school construction bonds (that were authorized for calendar years 2009 and 2010).
Teacher Tax Deduction
The Conference agreement retains the currently allowable $250 deduction for money teachers spend on certain job-related and classroom expenses.
The Federal Communications Commission voted on Thursday to repeal net neutrality rules put in place by the Obama Administration. Many education advocates are concerned that the repeal could affect the ability of consumers to access education related information and programs. Advocates are also concerned that the repeal could have a stifling effect on the development of education-related programs.
For school districts in particular, there is a concern that the loss of net neutrality will mean that districts would potentially be at the mercy of whichever Internet Service Provider (ISP) decided to extend its infrastructure to certain areas. This could restrict competitiveness and diminish the ability of a district to offer the content it feels is the best for its students. For example, if a district uses the Google for an education suite of services, but their ISP is Verizon, can the ISP block Google services because Verizon owns Yahoo and is a competitor? Could Amazon make a deal to only serve websites that use Amazon cloud services? There exists the potential for circumventing procurement processes and/or restricting educational options.
The following rules were repealed:
Blocking – ISPs are prohibited from discriminating against any lawful content by blocking websites or apps.
Throttling – ISPs are prohibited from slowing the transmission of data based on the nature of the content, as long as it is legal.
Paid Prioritization – ISPs are prohibited from creating an internet fast lane for companies and consumers who pay premiums, and a slow lane for those who do not.
EVERY STUDENT SUCCEEDS ACT (ESSA) – SUPPLEMENT NOT SUPPLANT
On Dec. 6, the U.S. Department of Education published a letter providing additional time to state educational agencies (SEAs) and local educational agencies (LEAs) for implementing ESSA's supplement not supplant requirements. See the full letter he re.
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