Here’s What “Tax Cuts and Jobs Act” Means for Asphalt Companies
BY Sandy Lender
At press time, both houses of Congress had passed the Tax Cuts and Jobs Act (H.R. 1). Given the level of emotion that can be stirred when discussing tax reform, this article will present facts and quotes from government arms of industry associations without editorializing.
Dec. 20, 2017, the Associated General Contractors of America’s CEO, Stephen E. Sandherr, released a statement that gave a bit of the Act’s history and detailed what he sees as next steps.
“Today, Congress passed comprehensive tax reform legislation that will lower rates, spur economic growth and impact construction businesses for years to come. However, this process did not start as well as it ended for the construction industry. Initially, the tax reform bill provided little relief for many construction firms organized as pass-throughs, such as S-corps, limited liability corporations and partnerships…AGC continued to fight for a better outcome for the construction industry by undertaking a rigorous direct lobbying campaign. Our efforts included connecting construction company
CFOs and CPAs with tax writers, and generating thousands of pro-construction messages from members to key legislators. Our efforts helped convince members of Congress to ultimately reduce the corporate rate by 14 points; lower individual and pass through rates; double the estate and gift tax exclusion to $11 million; ensure the tax-exempt status of Private Activity Bonds remained untouched; and prevent full repeal of the Historic Tax Credit.
“That stated,” Sandherr’s statement continued, “there is still much work to be done in our nation’s capital in the New Year. Though Congress missed an opportunity to address the long-term solvency of the Highway Trust Fund via tax reform, we remain focused on ensuring that this administration keeps its promise to rebuild the nation’s infrastructure. And, we are committed to efforts to modernize multiemployer pension plans for the future, among other priorities for the industry.”
The National Asphalt Pavement Association’s Executive Vice President Jay Hansen also spoke of the Highway Trust Fund.
“We’ll have a better idea of how the tax reforms affect producers and contractors once the policies begin to be implemented; however, the lower corporate tax rate is poised to boost America’s manufacturing sector, including companies who make roadbuilding equipment. Now that tax reform is complete, Congress and President Trump must focus on infrastructure. Since Day One, President Trump has said he will propose a trillion dollar infrastructure plan; we fully expect the President and Congress to focus on delivering on that promise.”
The National Electrical Contractors Association’s (NECA) Government Affairs office explained the construction industry’s intense interest:
“This legislation is significant for several reasons. It is the first time the tax code has been overhauled in 31 years. It will also be the most significant legislative achievement of the Trump Administration and the 115th Congress to date. NECA has long said that high tax rates and a complex tax code hampers our nation’s competitive standing and hinders our economic growth.
The time and money NECA contractors spend to comply with our complex tax code could be—and should be—spent on growing their businesses and creating jobs. That is why comprehensive tax reform needed to be tackled. …
The central tenet of the agreement reduces taxes for corporations from 35 percent down to 21 percent. NECA also fought to ensure all pass-through businesses of all types would be treated fairly under the new tax code. The final bill will give all pass-through firms, including those organized as trusts, a tax deduction of 20 percent, providing those companies with an effective tax rate of 29.6 percent. NECA also fought to successfully include a provision that would allow companies to deduct up to 30 percent of their annual earnings before interest, taxes, depreciation and amortization. Those are some of the wins NECA contractors all over the country will be able to take advantage of in the coming years.”
Asphalt producers and contractors will see benefits from the legislation in the form of deductions for equipment purchased for business. The Association of Equipment Manufacturers (AEM) released a statement from its president, Dennis Slater, Dec. 20.
“Tax reform is a huge win for equipment manufacturers of virtually every type and their employees. When equipment manufacturers succeed, they can play a bigger role in growing the economy and helping Americans thrive. The bill passed today will encourage equipment manufacturers large and small to hire new workers, expand facilities, and purchase new equipment; the legislation will also put U.S. equipment manufacturers on a level playing field with the rest of the world.”
Slater’s statement also looked to the future.
“Our industry will continue to seek improvements and reforms to our nation’s tax code in order to make the United States the most competitive place for equipment manufacturers. Nonetheless, the bill passed today is a once-in-a-generation accomplishment that the Senate should be proud of.”
Equipment manufacturers aren’t the only businesses that can benefit from tax reform when purchasing new equipment or expanding facilities. During the webinar “Holiday Cheer: Oil Sector Benefits from Tax Bill” Dec. 19, Chris Knight of Argus Media, Washington, D.C., explained how refineries and terminals will be able to take advantage of tax credits as well. He explained to those of us attending the webinar that H.R. 1 lets companies buy new equipment with 100 percent expensing through 2022, then phases down the interest deduction after that.
“For refiners, the lowered corporate rate is the plum in this tax bill,” Knight stated. He explained that in addition, “the immediate expensing provisions gives an incentive to go forward with new purchases,” giving the examples of buying a new coker or upgrading facilities in the next five years, rather than putting such expansions off. While a new coker at the nearest refiner doesn’t help the asphalt producer, expanded facilities can.
Knight also listed tax savings as a means to reward shareholders or make new investments.
Knight also mentioned that H.R. 1 “moves the U.S. from a worldwide tax system to a more territorial tax system.” He referred to this “territorial taxation” as a means that “helps keep corporations from shifting profits overseas.”
As Hansen stated, we will continue to see the effects of tax reform into the New Year, and all arms of the construction industry will continue the conversation that puts the Highway Trust Fund and infrastructure funding front and center. “This is one of the best business climates many firms have experienced in over a decade,” Sandherr said in a late December press release. “While Washington needs to address infrastructure funding, workforce shortages and multi-employer retirement reforms, 2018 looks to be a strong year for the industry.”
Forty states added construction jobs between November 2016 and November 2017, while 39 states added construction jobs between October and November, according to an analysis by the Associated General Contractors of America of Labor Department data released in December. Association officials noted that firms in most states are adding jobs amid expectations that demand will continue to grow thanks to new tax cuts and regulatory reforms.
“There were robust construction gains in most parts of the country as the economy continues to expand,” AGC CEO Stephen E. Sandherr said. “Demand should continue to grow as newly enacted tax cuts and regulatory reforms stimulate even more widespread economic growth.”
California added the most construction jobs (48,400 jobs, 6.2 percent) during the past year. Other states adding a high number of new construction jobs for the past 12 months include Florida (41,800 jobs, 8.7 percent); Texas (23,900 jobs, 3.4 percent); New York (12,600 jobs, 3.4 percent) and Pennsylvania (12,000 jobs, 4.6 percent). Nevada (13.8 percent, 10,900 jobs) added the highest percentage of new construction jobs during the past year, followed by Rhode Island (13 percent, 2,400 jobs); New Hampshire (10 percent, 2,600 jobs); Oregon (9.7 percent, 9,100 jobs) and Florida.
Ten states shed construction jobs between November 2016 and November 2017 while construction employment was unchanged in the District of Columbia. Missouri lost the highest number of construction jobs (-6,500 jobs, -5.3 percent), followed by Iowa (-6,100 jobs, -7.5 percent); North Carolina (-3,100 jobs, -1.5 percent) and North Dakota (-1,600 jobs, -4.8 percent). Iowa lost the highest percentage for the year, followed by Missouri; North Dakota; Montana (-3.5 percent, 1,000 jobs) and South Dakota (-1.7 percent, -400 jobs).
Association officials noted that many construction firms have high expectations for the coming year. They said that as they prepare an annual construction industry, it is clear many firms expect the administration’s efforts to reduce needless regulatory burdens and newly enacted tax cuts will further improve market conditions.