GM 14-100

Congress Approves Package of Tax Extenders With Tribal-Specific Provisions

Congress has approved, and the President is expected to sign, HR 5771, the Tax Increase Prevention Act of 2014, a one-year retroactive extension of over 50 expired tax provisions often referred to as “tax-extenders.” Provisions specific to Indian Country (the Indian Employment Tax Credit, the Accelerated Depreciation for Business Property on Indian Reservations, and the Indian Country Coal Production Tax Credit) which are routinely incorporated in the tax extenders package were included. Non-tribal specific provisions of interest to Indian Country were also included: the New Markets Tax Credit (NMTC) and the Low-Income Housing Tax Credit (LIHTC). The House approved the bill on December 3 by a vote of 378 to 46 and the Senate approved it on December 16 by a vote of 76-16.

About Tax Extenders. These tax provisions are routinely extended as a group, generally for periods of 1-2 years, but are never officially made permanent. There were clear differences this Congress among Republicans and Democrats on how to proceed. House Republicans proposed to make a select few provisions permanent while declining to extend others (such as the tribal-specific provisions). Senate Democrats, however, wanted to extend the whole group of provisions retroactively for 2014 and then one year forward for 2015 while the House and Senate took up comprehensive tax reform in 2015. In fact, many tax reform proposals suggest doing away with these targeted tax provisions altogether, but in exchange, lowering overall rates. What resulted from the House and Senate’s disagreements was HR 5771, a temporary extension for 2014 only. Below we summarize the tribal-specific provisions as well as two others of interest.

Provisions Specific to Indian Country.

Indian Employment Tax Credit – This is a business tax credit for employers of any employee (termed a “qualified employee”) who: works and lives on or near an Indian reservation and who is an enrolled member or whose spouse is an enrolled member of a federally recognized tribe. The amount of the credit is equal to 20 percent of the first $20,000 of the difference between the wages and health insurance costs paid to a qualified employee in the current year and the wages and healthcare costs paid to a qualified employee in 1993. Hence, the greatest amount the credit could be worth to an employer is $4,000 (20 percent of $20,000) per qualified employee. An employee whose services relate to gaming activities or whose services are performed in a building housing gaming activities is not considered a “qualified employee” for the purpose of this tax credit.

Accelerated Depreciation for Business Property on Indian Reservations – This provides accelerated depreciation for qualified Indian reservation property defined as property: (1) used by the taxpayer predominantly in the active conduct of a trade or business within an Indian reservation; (2) not used or located outside the reservation on a regular basis; (3) not acquired (directly or indirectly) by the taxpayer from a person who is related to the taxpayer; and (4) not property placed in service for purposes of conducting gaming activities. Certain “qualified infrastructure property” may be eligible for the accelerated depreciation even if located outside an Indian reservation, provided that the purpose of such property is to connect with qualified infrastructure property located within the reservation (e.g., roads, power lines, water systems, railroad spurs, and communications facilities).

Indian Country Coal Production Tax Credit – This credit is available for the production of Indian coal sold to an unrelated third party from a qualified facility for a nine-year period beginning January 1, 2006, and ending December 31, 2014. A qualified Indian coal facility is a facility placed in service before January 1, 2009, that produces coal from reserves that on June 14, 2005, were owned by a federally recognized Indian tribe or were held in trust by the United States for an Indian tribe or its members.

Other Provisions of Interest.

The point has been made that while the NMTC and the LIHTC are theoretically beneficial for spurring investments into projects in Indian Country, they are not in practice easy to secure. Some Members of Congress have urged that these credits be amended to provide tribal set-asides.

New Markets Tax Credit – The NMTC Program attracts investment capital to low-income communities by allocating tax credits to Community Development Entities (CDEs). These CDEs then transfer the tax credits to individual and corporate investors in exchange for the investors making equity investments in the CDEs. These CDEs then make qualified investments in projects in low-income communities.

Low-Income Housing Tax Credit – The LIHTC is set up similarly to the NMTC, however, the tax credits are allocated to state housing agencies, to which tribes must apply.

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