New Look Vacation, Old Look Taxation

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Will Burns, Airbnb Policy Director speaks at the MACo Summer Conference session, The New Look Vacation: Opportunities & Responsibilities in the Sharing Economy.  Photo courtesy @CitoyenBurns.

The sharing economy is rapidly changing the way people work, play and travel. Online platforms like Airbnb and VRBO offer tourists and business travelers alike entirely new ways to experience Maryland counties, providing opportunities to experience the greatest they have to offer from entirely new vantage points.

This remodeling of tourism also offers county residents new avenues to earn income and provide services for profit – begging the need for local governments to reexamine whether their methods of tax collection remain as equitable as they were when hospitality depended upon the brick and mortar, multi-unit hotel or motel. After all, if it acts like a hotel, shouldn’t we tax it like one?

At the MACo Summer Conference session, The New Look Vacation: Opportunities & Responsibilities in the Sharing Economy, representatives of the traditional lodging industry, Airbnb and county government all address how counties can apply hotel taxes equitably without undermining the sharing economy’s economic development and tourism potential. Hear perspectives from Airbnb Policy Director Will Burns, Maryland Hotel and Lodging Association President and CEO Amy Rohrer, and Montgomery County Chief of Treasury Michael Coveyou on how to best balance innovative new opportunity with basic principles of tax equity.

The New Look Vacation: Opportunities & Responsibilities in the Sharing Economy

The sharing economy is revolutionizing the tourism industry – and also disrupting how counties regulate and tax it. With a multitude of services from accommodations to transportation now booked online with everyday providers just trying to earn an extra buck, the way we tax and regulate the tourism industry must treat all providers equitably while also ensuring the safety of our residents. Join this session to learn more about the challenges, potential solutions, and county responsibilities in the sharing economy.

Speakers:

  • Will Burns, Midwest Policy Director, Airbnb
  • Amy Rohrer, President & CEO, MD Hotel and Lodging Association
  • Michael Coveyou, Chief, Division of Treasury, Montgomery County Department of Finance

Moderator: The Honorable Jason Buckel, Maryland House of Delegates

Date/Time: Friday, August 18, 2017; 2:15 pm – 3:15 pm

MACo’s Summer Conference is August 16-19, 2017 at the Roland Powell Convention Center in Ocean City Maryland.

Learn more about MACo’s Summer Conference:

 

NACo: Keeping An Eye On Tax Reform

The National Association of Counties (NACo) has weighed in on the Joint Statement on Tax Reform issued by the Administration and congressional leadership. While calling the “much-anticipated statement … light on details,” NACo emphasizes that it will continue to advocate on behalf of all counties to retain the  tax-exempt status of municipal bonds and the deductibility of state and local taxes.

From the NACo blog post:

Counties have a significant stake in tax reform discussions, as simplification and lowering of rates could significantly boost economic development and help constituents around the country. However, key county priorities remain in the crosshairs of tax reform discussions: the tax-exempt status of municipal bonds and the deductibility of state and local taxes.

Tax-exempt municipal bonds are a critical county financing tool for major infrastructure purposes, including roads, bridges, hospitals and schools. Additionally, eliminating deductibility of state and local taxes would be a double tax on constituents, significantly impacting local middle class tax payers and asking them to shoulder an increased burden for key local priorities. …

NACo will continue monitor tax reform efforts and advocate for key county priorities as the process moves forward.

NACo will be exhibiting at MACo’s Summer Conference this August 16-19. Visit them in Booth 525. Register today for lowest available rates – they expire on August 4!

Learn more about MACo’s Summer Conference:

ALEC Fostering Group Focusing on Local Governments

The American Legislative Exchange Council (ALEC), a conservative national group probably best known for developing model legislation for introduction in state legislatures, is fostering a fairly new initiative to focus efforts at the city and county level.

From an AP news report:

The American Legislative Exchange Council is one of the country’s most prominent conservative groups, and its annual convention in Denver last week drew thousands of state legislators and lobbyists for panels on school choice and marijuana legalization, as well as speeches from conservative luminaries like Secretary of Education Betsy DeVos and former Senator James DeMint.

But as attendees rubbed shoulders with the right’s elite, a few dozen crowded into a small conference room for the fourth meeting of the American City County Exchange, the conservative group’s new local government wing.

The city council project is the brainchild of Jon Russell, a councilman from the Virginia town of Culpepper, population 18,000. He was dissatisfied that the traditional, nonpartisan municipal groups, like the National League of Cities, seemed to constantly think more government was the answer to problems.

“Now we can communicate with 2,500 elected officials across the country that we know share our values and push back against some of the progressivism that’s gotten into cities,” Russell said.

Congressional Leadership On Tax Reform: No Border Adjustment Tax

Congressional Republican leadership and the Trump administration just released a joint statement on tax reform – and it abandons the border adjustment tax as a possible solution.

As previously reported in Conduit Street, a federal border adjustment tax could negatively affect counties’ cash flow by causing downturns in the municipal bond market.

From the joint statement:

We are all united in the belief that the single most important action we can take to grow our economy and help the middle class get ahead is to fix our broken tax code for families, small business, and American job creators competing at home and around the globe. …

Above all, the mission of the [House Ways and Means and Senate Finance] committees is to protect American jobs and make taxes simpler, fairer, and lower for hard-working American families. We have always been in agreement that tax relief for American families should be at the heart of our plan. We also believe there should be a lower tax rate for small businesses so they can compete with larger ones, and lower rates for all American businesses so they can compete with foreign ones. The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas. And we are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base. While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform.

Given our shared sense of purpose, the time has arrived for the two tax-writing committees to develop and draft legislation that will result in the first comprehensive tax reform in a generation.

Useful Links

Quill, Brick & Mortar and Sales Tax

The Supreme Court might take up the issue of whether states and local governments can require retailers to collect sales tax when they do not maintain a local physical presence – and it might might do so within the next year. According to the National League of Cities’ publication, Citiesspeak:

The billion-dollar question for local governments is whether the Supreme Court will take a case where it is asked to overturn Quill Corp. v. North Dakota (1992). In Quill, the Supreme Court held that states cannot require retailers with no in-state physical presence to collect sales tax. In Direct Marketing Association v. Brohl (2015), Justice Kennedy stated that the “legal system should find an appropriate case for this court to reexamine Quill.” South Dakota passed a law requiring remote vendors to collect sales tax, which is currently being litigated in state court. If the South Dakota Supreme Court strikes down this law by the end of August, it is possible the Supreme Court could decide this question by June 2018.

Read about other potential Supreme Court cases of consequence to local governments in the article, 2018 Supreme Court Preview for Local Governments.

Your One-Stop-Shop for Federal Advocacy on County Issues

NACo has released a timely “Summer Advocacy Toolkit” for use by county officials engaging on federal issues. Inside are links, quick summaries, and talking points on a wide range of topics relevant to county governments. Additionally, from the pdf document, users can search relevant committee membership to help target their messages.

A few quick selections from the NACo guide follow:

On Municipal Bonds:

• A fundamental feature of the first federal tax code written in 1913, tax-exempt financing is used by state and local
governments to raise capital to finance public capital improvements and other projects, including infrastructure
facilities that are vitally important to sustained economic growth.

• Between 2003 and 2012, counties, localities, states and state/local authorities financed $3.2 trillion in infrastructure
investment through tax-exempt municipal bonds.

• If municipal bonds were fully taxable during the 2003-2012 period, it is estimated that the financing for the 21 largest
infrastructure purposes would have cost state and local governments an additional $495 billion of interest expense. If
the 28 percent cap were in effect, the additional cost to state and local governments would have been approximately
$173.4 billion.

• For 2012, the debt service burden for counties would have risen by $9 billion if municipal bonds were fully taxable over
the last 15 years and roughly $3.2 billion in the case of a 28 percent cap. Americans, as investors in municipal bonds
and as taxpayers securing the payment of municipal bonds, would have borne this burden.

• The municipal bond tax-exemption represents a fair allocation of the cost of projects between federal and state/local
levels of government. Through the use of tax-exempt municipal bonds, state and local governments invested 2.5 times
more in infrastructure than the federal government.

• Tax-exempt bonds are vital for infrastructure, justice and health needs because counties own and operate 45 percent
of public roads and highways, own almost a third of the nation’s transit systems and airports, own 961 hospitals,
manage 1,943 health departments and own the vast majority of the nation’s jails.

On Infrastructure:

NACo believes that counties should be recognized as major owners of transportation infrastructure in any potential
package presented by the administration. Key funding and financing measures must include all of the following:

• Preservation of Tax-Exempt Status of Municipal Bonds

• Dedicated Funding for locally owned infrastructure

• Policies to provide an Environment for Innovative Financing

The Toolkit also includes direct links to other NACO resources, like this concise “one-pager” on State and Local Tax Deductibility (aka SALT).

Study to Review Impact of Wicomico Tax Revenue Cap

In 2000, Wicomico County voters supported a property tax revenue cap, a controversial move that limits the amount of money the county can collect each year.

According to Delmarvanow,

Now a new study sponsored by the Greater Salisbury Committee will take a look at what impact it has had and how it may affect the future of the county.

“We think it’s appropriate to simply take a look at it,” said Mike Dunn, the group’s president and CEO. “We want people to know what the law of the land is.”

The cap limits new revenue from property taxes to 2 percent or the Consumer Price Index, whichever is less. The CPI has been less than 2 percent during the past five years.

The study by Memo Diriker, director of the Business Economic and Community Outreach Network, or BEACON, at Salisbury University, and a group of graduate students is expected to be released this fall, Dunn said.

The revenue cap came about following a tax revolt led by a group called VOICE, or Voters Opposed to Increased County-City Expenditures, after the County Council in 1999 approved a 46-cent property tax hike and a 1 percent increase in the property transfer tax.

VOICE founders Don Coffin, John Palmer and Jack Plummer were successful in getting their proposal for a revenue cap on the ballot for the 2000 election. It was supported by more than 60 percent of the voters and went into effect the following year.

Dunn said Palmer and Plummer both met with Greater Salisbury Committee members who are serving on the committee looking at the revenue cap to offer a better sense of what happened in 1999.

Many younger county residents have no idea there is a revenue cap or remember the “great political battle” of 2000, including a lot of up-and-coming civic and business leaders under the age of 40, Dunn said.

“These people were literally in high school,” he said.

Wicomico County Executive Bob Culver and members of the County Council were all informed about the study when it got underway last year, Dunn said. Once completed, it will be presented to the Greater Salisbury Committee membership, then to Culver and the County Council.

Previous examinations of the revenue cap may have been politically motivated, but Dunn said the new study will take an unbiased look at the cap and the effects it has had.

Through the years, county officials have discussed the possibility of increasing the cap, especially when the Great Recession hit and the budget had to be cut by as much as 20 percent, said County Council President John Cannon.

But the County Council was politically conservative then as it is now, and resisted making changes to the cap, he said.

If council members wanted to change the cap or repeal it altogether, they would have to amend the county charter, said County Council Administrator Laura Hurley. The council would first have to approve the charter amendment and then it would go to referendum. If the majority of the votes are in favor of the charter amendment, it would go into effect 30 days following the election.

Cannon said so far no one seems inclined to seek a change in the cap.

 “I can’t see where it’s had a negative impact on the county,” he said. “We haven’t seen a need or desire to raise it above that level.”

Read the full article for more information.

How Tax Reform Would Hinder Muni Bonds

A federal border adjustment tax (BAT) would negatively affect counties’ cash flow by causing downturns in the municipal bond market, reports Ian Adams, Associate Vice President of the R Street Institute for Governing. It would also impact many states’ tax revenues from the insurance industry and potentially increase costs to local governments to provide social services.

A BAT will likely serve as a central component of congressional tax reform proposals – at least of the plan coming from House Republicans. BATs tax imports but not exports, favoring domestic production and supply, and raising costs of international capital. Insurance companies depend upon international capital as a means of diversification, “to keep insurance prices down and policy coverage broad.”

So what does this have to do with counties?

U.S. life insurers invest about 75 percent of every new premium dollar in fixed-income debt markets, and often are the only buyers for some kinds of bonds, particularly long-term debt. In fact, municipal bonds are among insurers’ most significant long-term investments: Property and casualty insurers held $326.8 billion in municipal bonds at the end of 2012, according to the National Association of Insurance Commissioners, while life insurers tripled their muni holdings from $47.1 billion in 2008 to $131.2 billion in 2012.

By driving down insurers’ bond investments, a BAT would harm the ability of state and municipal governments to borrow long-term. ….

[A] BAT would further stretch limited state and local resources because it would push financial-planning products such as insurance beyond the reach of many of those teetering on the brink of public assistance. While the federal government might be called upon to support some of those needs, most of that extra load would need to be carried by state and local authorities.

A BAT could also reduce the flow of revenues from gross premium taxes paid by insurers to states.

Read the full article here.

For an interesting 20 minutes on BATs, listen to the Tax Policy Center’s new podcast, Taxology.

 

What Washington Activity, Or Lack Thereof, Means For Markets

The latest attempt at repealing and replacing the Affordable Care Act died in the Senate today, which begs the question of whether President Trump will pivot to tax reform as his next big task to tackle. He should, wrote Steve Forbes, Larry Kudlow, Arthur Laffer and Stephen Moore in an op-ed in Investor’s Business Daily on Friday:

In recent weeks the tax cut agenda seems stalled out and the delays and indecision are negatively affecting growth and the stock market. We hear that a tax plan from the White House may not come until the fall and may not even pass Congress until 2018 – if at all.

Is it any wonder that investors are getting jittery? The stock market had priced in much of the anticipated benefits to business, wages and profits, which accounts in no small part for the $3 trillion rise in equity values and the surge in business and consumer confidence after the election. Now the confidence is waning.

The Washington Post reports:

In reality, the U.S. stock market continues to hit all-time highs, although they are right that confidence in the Trump economic agenda is starting to decline.

“We hear that a tax plan from the White House may not come until the fall and may not even pass Congress until 2018 – if at all,” they write. Goldman Sachs, the investment bank with many alums in the White House, has been giving clients the same warning since the spring not to expect any action on taxes until 2018.

Meanwhile, as Forbes, et al. argue to cut taxes now, balance the budget later (“revenue neutrality is an inside-the-Beltway trap and will prevent passage of a strong tax cut,”) House Republicans released their “Building A Better America” budget first thing this morning, with the top goal being to balance the budget.

Should we be concerned about the markets in this state of inertia? The U.S. stock-index benchmarks did trade lower today, at least in part in response to uncertainty due to failure of the health care bill. But the news is not that bad, at all. Reports Morningstar:

“Investors are taking a pause here as they realize that the failure to pass the health-care bill means the tax reform is delayed. But at the moment, earnings and still growing economy is enough to support equities,” said Diane Jaffee, senior portfolio manager at TCW.

The Dow Jones Industrial Average , most recently was down 89 points, or 0.4%, to 21,542. The price-weighted gauge was being weighed down by Goldman Sachs and UnitedHealth Group Inc.(UNH).

The Nasdaq Composite Index was up 10 points, or 0.2%, at 6,324, above its record close set June 8.

The dollar … fell earlier Tuesday against its main rivals after Republican leaders in the Senate late Monday ditched their effort to repeal and simultaneously replace Obamacare …., also known as the Affordable Care Act.

Still, some investors appeared mostly bullish about recent quarterly results and economic environment.

“The market is responding to earnings releases this week, but the bigger picture remains positive: low inflation, low interest rates, weaker dollar and a benign economic environment all bode well for stocks,” said Maris Ogg, president at Tower Bridge Advisors.

She said signs of global strength were also heartening.

“European economy is growing, China is growing and companies are making money, which suggests that earnings growth for next year looks good,” Ogg said.

Despite modest losses on Tuesday, the main indexes were hovering near record levels set last week.

Ogg said the stock market hasn’t been relying on sweeping reforms from President Donald Trump’s administration, including tax cuts, regulation and infrastructure spending, which is why the reaction in equity markets to the collapse of the health-care bill has been muted, so far.

“Even though we haven’t seen any specific reforms yet, this administration is still very business-friendly, which has not gone unnoticed by stock investors,” she said.

Wondering what’s in store for the local and global economy? Searching for key indicators? Look no further, economist Anirban Basu is on the case, delivering the session, “Markets, He Wrote:  Looking for Clues into the Economy’s Direction,” at the MACo 2017 Summer Conference on Friday, August 18 from 11 a.m. to noon.

Learn more about MACo’s Summer Conference:

Counties to Congressional Delegation: Keep Us In Mind

With a major wave of high-impact legislation under consideration by Congress, and the state and local effects of them drawing substantial attention from counties across the state, MACo has sent a letter to the Maryland congressional delegation. The essential message: keep county governments, and other Maryland specific impacts, in mind as you consider these many weighty measures.

MACo’s letter, approved by the Legislative Committee during its meeting this week, discusses potential effects of the proposed federal budget, health care reform, and tax law changes. In each case, MACo highlights concerns on behalf of county government services, or peculiar to the State of Maryland, urging our Senators and Representatives to weigh these local impacts in their considerations.

From the letter:

The Maryland Association of Counties (MACo), representing the 24 subdivisions providing primary local public services to all Marylanders, urges your caution when considering policy changes currently before Congress.

Both in fiscal affairs and health care policy, the potential exists for an untoward and unfair shift of responsibilities and burdens to local governments. We hope you will keep these local perspectives in mind as you are called to vote on major policy matters in the months ahead.

As always, MACo and our county officials stand ready to help you and your staff with any matters where a local perspective could serve you well. We hope that through our conferences and events, and direct contact with you, this federal-local partnership can serve both our mutual interests, and those of our shared constituents.