Senate-Approved Version of Tax Cuts and Jobs Act Would Terminate Tax-Exempt Advance Refunding Bonds

On December 2, 2017, the United States Senate approved its version of the bill entitled the “Tax Cuts and Jobs Act”.  Although the Senate bill is aligned with the version of the Act approved by the House of Representatives on November 16, 2017 with respect to the termination of tax-exempt advance refundings, it does not include a counterpart to the House provision that would terminate tax-exempt treatment for private activity bonds issued after 2017.  This is a notable, and encouraging, development for 501(c)(3) organizations and for borrowers wishing to use tax-exempt bonds to finance certain manufacturing facilities, privately-operated docks and wharves, airport, solid waste and sewage facilities and for low- and moderate-income rental residential property.  Tax-exempt bonds to finance certain single family mortgages and student loans also would be preserved under the Senate bill.

Notably, the Senate-approved version of the tax bill would also retain the corporate and individual alternative minimum taxes under which the interest on many types of tax-exempt private activity bonds are subject to taxation as so-called tax preference items.  The Senate-approved bill, compared to current law, would raise the income thresholds at which these taxes would be applicable.  This is in contrast to the November 9, 2017 report of the Congressional Joint Committee on Taxation previewing the Senate bill, which had indicated that the Senate version of the bill, like the version of the tax bill approved by the House of Representatives on November 17, 2017, would also repeal or significantly diminish the application of the alternative minimum taxes.

Finally, the Senate-approved bill, unlike the House bill, the Senate bill would preserve “specialty” tax credit bonds, such as so-called “new clean renewable energy” bonds, and would not prohibit the use of tax-exempt bonds to finance professional sports stadiums.

Reports indicate that leadership of the House of Representatives and the Senate will commence a legislative conference process to produce a definitive, reconciled version of the tax bill for final approval in both houses of Congress.  It is unclear how that process will be conducted and how much time will be required to produce a definitive version of the bill that is ready to be enacted into law, although the White House has indicated that it would like to receive a tax bill for signature before Christmas.  Bond issuers and borrowers who may be affected by the bond-related proposals in the Senate bill and the House bill may still wish to consider the types of advocacy that would help to ensure their continued access to tax-exempt financing.

Please contact Antonio Martini at (617) 378-4136, Kris Moussette at (617) 378-4194 or any other member of Hinckley Allen’s Public Finance Group if you would like more information about tax law developments that may affect tax-exempt bond financing, or if you have any other tax-exempt bond matter you would like to discuss.

Read our previously published publications about the first and second developments of the Tax Cuts and Jobs Act.