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ABC April 15 sent a letter to the U.S. House of Representatives Ways and Means Committee Tax Reform Working Group on Small Business outlining its top priorities for comprehensive tax reform.  In the letter, ABC listed its broader priorities for reforming the tax system as parity, simplicity and certainty. 

First and foremost, ABC called for tax reform to be done in a comprehensive way that keeps rates low and similar for small businesses and large corporations alike.  While highlighting the growing tax rate disparity between small businesses and large publicly traded companies, ABC warned against corporate-only attempts to reform the code, citing a 2011 Ernst & Young study which estimated such a plan would amount to a $27 billion annual tax increase on pass-through entities.  Among the hardest hit sectors would be the construction industry, with roughly four out of five businesses absorbing a 9 percent tax hike amounting to $2.3 billion per year. While praising Chairman Camp’s leadership in championing comprehensive reform, ABC expressed concern over the corporate-only plan proposed by the White House in its fiscal year 2014 budget.

ABC pointed out that while low, statutory rates are a key element of reform, easing the administrative burden of tax compliance is just as imperative, noting that Americans spend 6.7 billion hours and more than $240 billion each year navigating the federal tax code. Until the tax code is pared down to size, American business owners will continue to waste precious resources at the expense of growth, capital investment and job creation, the letter stated.

ABC also called for Congress to relieve compliance challenges within the construction industry by allowing more small commercial construction firms to use the Completed Contract Method (CCM) of accounting on long-term contracts. The 1986 tax overhaul placed new limits on the use of CCM accounting, restricting the method to small businesses with $10 million or less in annual revenue.   Unfortunately, this figure was not indexed for inflation and, in the 26 year interim, tens of thousands of small businesses have fallen into the administrative trap of “look-back” accounting required by the Percentage of Completion Method. By raising the current $10 million CCM eligibility threshold to a more contemporary $40 million per year level, these small and mid-sized companies would be spared the many hours and thousands of dollars per job spent on look-back calculations, with no net change in the contractor’s liability to the Treasury. 

Finally, ABC called for Congress to end the annual practice of “tax extenders” by permanently making worthy expenditures part of the code while using the revenue gained from others to lower marginal rates.  ABC highlighted Section 179 expensing, bonus depreciation, and the domestic production activities deduction as capital-friendly provisions relied upon by many construction contractors.

The Tax Reform Working Group on Small Business is one of 11 working groups formed by the tax-writing Ways and Means Committee to engage stakeholders and solicit feedback on reform proposals. Comments have been posted on the committee website and will provide the basis of a report by the Joint Committee on Taxation (JCT) set to be released in early May. Comprehensive tax reform legislation has been designated H.R. 1 in the House of Representatives and is expected to be introduced soon after the release of the JCT conclusions.