Yesterday the House Ways and Means Committee released H.R. 1, titled the “Tax Cuts and Jobs Act” (hereinafter the “House Bill”), which is intended to achieve sweeping tax reform. Along with its myriad provisions affecting tax rates, deductions and credits, the House Bill would dramatically affect the issuance of tax-exempt bonds.
Although the House Bill generally would preserve tax-exempt “governmental bonds,” it would eliminate the ability to issue tax-exempt advance refunding bonds after December 31, 2017. Eliminating advance refundings of tax-exempt bonds generally would prohibit governmental units from taking advantage of refunding savings until their bonds are currently callable, typically 10 years after the date of issuance for a fixed-rate bond.
The House Bill would also eliminate the ability, after December 31, 2017, to issue tax-exempt private activity bonds. This prohibition would apply to exempt facility bonds such as bonds issued to finance airports, docks, wharves, sewage and solid waste disposal facilities, and qualified residential rental projects; as well as qualified mortgage bonds, qualified veterans’ mortgage bonds, qualified small issue bonds, qualified student loan bonds, qualified redevelopment bonds, and qualified 501(c)(3) bonds.
The House Bill also provides that no tax credit bonds (or direct-subsidy bonds) may be issued after December 31, 2017. Outstanding tax credit bonds and direct-subsidy bonds would continue to be eligible for the tax credit or direct subsidy.
The House Bill repeals the individual and corporate alternative minimum tax (“AMT”). Thus, interest on governmental tax-exempt bonds, which to date have been exempt from the individual AMT but generally included in the calculation of the corporate AMT, would no longer be subject to any AMT.
The House Bill would also eliminate the ability to finance or refinance capital expenditures allocable to professional stadiums, which include any stadium or arena for professional sports, exhibitions, games or training. This provision is effective for bonds issued on and after November 2, 2017, the date of the House Bill’s introduction.
Our Public Finance and Tax lawyers are continuing to monitor the status of the House Bill as it progresses, as well as other legislation, including the Senate’s version of a tax bill. We understand informally that the Senate Finance Committee is scheduled to introduce its bill sometime next week.
In the meantime, you may want to reach out to industry associations or your Congressional representatives, to express your views on the proposed legislation, including the prohibitions on issuing tax-exempt advance refunding bonds and private activity bonds.
Feel free to contact us regarding ongoing developments.