Associations Monitoring Tax Reform Impact

association_agenda Associations Now November/December 2017 Issue By: Chris Vest CAE

Lawmakers’ hunt for offsets to pay for tax reform could cost associations if changes to the treatment of royalty income or revenue from certain qualified sponsorship payments are enacted.

Having ushered through a budget that provides a historic opportunity to overhaul the tax code, congressional Republicans are now wrestling with how to pay for tax cuts.

The Republican budget measure allows revenue reduction of $1.5 trillion, but the plan to cut taxes on businesses and individuals has a price tag of roughly $5.5 trillion, according to the nonpartisan Tax Policy Center. That means lawmakers will have to find $4 trillion in offsets to avoid raising the deficit. There are any number of potential revenue raisers to pay for tax reform, but the scope of proposed tax changes guarantees there will be winners and losers in whatever legislation emerges.

Associations and other tax-exempt organizations are trying to stay out of the equation as tax writers broaden their search for offsets. Past discussion drafts have proposed changing the tax treatment of associations’ royalty income and revenue from certain qualified sponsorship payments. Both generate revenue for many associations, so changes could affect an organization’s bottom line and ability to fulfill its tax-exempt purpose. The House Bill released November 2 did not include these changes, but a Senate version had not yet emerged at press time.

ASAE contends that royalties should not be taxed when there is little service offered by the tax-exempt organization in return for the payment and when income generated from royalty agreements does not comprise a substantial portion of an organization’s gross income. Qualified sponsorship payments should also not be treated as advertising income in cases where the organization provides no more than a “thank you” to event sponsors.

A simpler, fairer tax code is easy to support. Figuring out who should pay for the changes is more difficult. Associations will need to advocate for their interests if they’re going to emerge from tax reform unscathed.

[This article was originally published in the Associations Now print edition, titled "Collateral Damage."]

Chris Vest CAE

Chris Vest, CAE, is director of public policy at ASAE.