Tax Bill’s Impact to Vary Greatly Among Sectors : Heavy Manufacturing and Real Estate Seen Hard Hit; Technology, Retailing Win
The sweeping tax bill approved by congressional negotiators over the weekend is expected to have a dramatic impact on American industry. Heavy manufacturing and many real estate developers have railed against the loss of cherished tax incentives. But retailers and technology firms, which have long felt overtaxed, generally have cheered the move to lower overall corporate tax rates. While the enthusiasm of some early corporate tax-reform advocates has waned, some opponents have found the process less painful than anticipated.
With approval of a final bill by Congressional negotiators--and expected approval next month by the full House and Senate--American business is now bracing for this massive overhaul of the nation’s tax system. Here is a look at how various industries will be affected:
Entertainment
The tax bill promises some special relief for struggling actors but does not appear to apply to as many performers as the industry had hoped.
Generally, the bill bars individuals from deducting union dues, agents’ fees and other job-related costs except to the extent that they exceed 2% of adjusted gross income. Last month, six entertainment unions lobbied fiercely for concessions that would enable low- and middle-income performers to deduct agents’ fees and other expenses before they amount to 2% or more of actors’ oft-meager income.
Pamela Pecarich, a Coopers & Lybrand partner in the accounting firm’s Washington office, said the new bill will allow actors this relief if they meet three tests. They must have “two or more employers in the acting profession” during the year, and they must have expenses which exceed 10% of their gross income. Finally, if they are to qualify, actors must not have an adjusted gross income exceeding $16,000 before the deduction of acting-related expenses. “It would appear to have narrow application,” Pecarich said.
“This admittedly is not anywhere near what we need, but it’s better than what we started from,” said John C. Hall Jr., executive secretary of the American Federation of Television and Radio Artists, one of the six unions that lobbied for relief.
There appear to be no other big surprises for the industry, which already had resigned itself to the loss of the investment tax credit and sharp curtailment of tax shelters.
Since 1976, the investment tax credit has allowed producers to deduct 6% of the cost of most films and TV shows from their federal tax bills, but programs no longer qualify unless the production deals were agreed upon before Jan. 1 of this year.
“The lower corporate rate will tend to offset (the loss of investment tax credits) when it’s totally phased in,” said George Smith, general tax counsel for MCA, parent of Universal Pictures.
Movie tax shelters, typically formed through limited partnerships, were substantially curbed by tax legislation 10 years ago and will be even less attractive under the new bill. That’s because limited partnerships will be deemed “passive” investments, and losses from such investments cannot be used to shelter wages, interest or dividends under the new legislation.
