The U.S. Chamber of Commerce has joined trade organizations and companies in supporting proposed legislation that would revert a limitation in the calculation of adjusted taxable income (ATI) for business interest expense purposes.
For tax years beginning 2018 under the Tax Cuts and Jobs Act (TCJA; PL 115-97), Code Sec. 163(j) was expanded more broadly to apply to more businesses compared to its narrow scope in prior years. In addition, the maximum deduction for business interest was limited, including a cap of 30% of a taxpayer’s ATI in the relevant tax year. The Coronavirus Aid, Relief, and Economic Security Act (CARES; PL 116-136) temporarily raised this cap to 50% for tax years 2019 and 2020, but it fell back to 30% in 2021.
Prior to 2022, the 30% applied to earnings before interest, tax, depreciation, and amortization (EBITDA).
“As of 2022, businesses have been required to calculate their interest expense deductions based on the much more stringent earnings before interest and taxes (EBIT) standard,” wrote Neil L. Bradley Executive Vice President, Chief Policy Officer, and Head of Strategic Advocacy U.S. Chamber of Commerce. U.S. Chamber of Commerce Executive Vice President, Chief Policy Officer, and Head of Strategic Advocacy Neil L. Bradley May 17 to members of Congress. As he noted, depreciation and amortization can no longer be added back to a taxpayer’s calculation of ATI.
“This limitation has made all forms of business investment more costly and risks leading to reduced investment, slower job creation, smaller wage increases, and lower overall economic growth,” Bradley added.
In December 2022, a coalition of dozens of companies impacted by the change, as well as the U.S. Chamber of Commerce, petitioned party leaders of both chambers of Congress to restoring the EBITDA standard for business interest deductions.
“Under an EBIT standard, capital-intensive companies face higher taxes and increased financing costs,” read their letter. “This reduces their flexibility and liquidity when financing needed investments, ultimately making it more difficult for these job creators to raise capital, hire new workers, and grow—especially at a time of rising interest rates.”
A few months later on April 20, West Virginia Republican Shelley Moore Capito and Kyrsten Sinema, an Arizona Independent, introduced the American Investment in Manufacturing Act (AIM; S 1232) in the Senate. The bill would undo the move to the EBIT standard for Code Sec. 163(j). A sister bill was also introduced in the House by a bipartisan group.
“In the midst of continued high inflation, high interest rates, and increased taxes burdening U.S. businesses, additional limitations like these jeopardize American manufacturers, retailers, and service providers’ ability to remain viable and compete on the global stage,” said Capito. “This bipartisan legislation would reinstate a needed measure that allow industries to, grow, increase jobs and wages, and contribute to the U.S. economy.”
“We’re empowering Arizona small businesses with the economic freedom to grow and thrive by cutting harmful costs in the tax code,” Sinema said.
Bradley’s letter’s states the Chamber’s support for the bill and calls on Congress to “immediately restore the traditional EBITDA standard. The group joins organizations like The Rural Broadband Association (NTCA) and the National Association of Manufacturers in endorsing the AIM Act. A press release accompanying the bill’s introduction also features additional endorsements from the West Virginia Manufacturers Association and the National Restaurant Association.
“The ability to maximize resources in difficult-to-serve rural areas is paramount for NTCA members, who provide their communities with affordable and reliable internet services,” said NTCA CEO Shirley Bloomfield. “Now more than ever, it is critical that rural internet service providers have the ability to invest in the technology and employees they need to best serve their communities and I applaud Senators Capito, and Sinema as well as Representatives Smith, Morelle, Hern, and Schneider for introducing the AIM Act today.”
For more information about the 30% cap on the business interest deduction, see Checkpoint’s Federal Tax Coordinator ¶K-5425.
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