Border adjustment tax likely dead, but other reforms still being discussed

Border taxes

One comic character in the Hollywood film “Prince of Persia” said that there are only two things that are permanent in this world - death and taxes. For some, proposed border taxes may sound like punishment for not supporting American-made products.

This is why reactions were mixed to the decision of Republican policymakers to not include the proposed border-adjusted tax (BAT) to the negotiations regarding overhauling the U.S. tax code.

Senate Finance Committee Chairman Orrin Hatch (R-UT), Senate Majority Leader Mitch McConnell (R-KY), Treasury Secretary Steven Mnuchin, White House economic adviser Gary Cohn, Ways and Means Chairman Kevin Brady (R-TX) and House Speaker Paul Ryan were the Republicans who have decided against supporting a BAT, according to Bloomberg.

Retailers that are dependent on imports to keep their businesses going and freight forwarders moving product across borders rejoiced at the decision.

The border adjustment tax, according to Investopedia.com, is “a destination-based cash flow tax (DBCFT).” This tax is commonly applied to imported goods sold in the United States.

“For example, if a corporation ships tires to Mexico where they will be used to make cars, the profit the tire company makes on the tires it exports isn’t taxed. However, if an American car company purchases tires from Mexico for use in cars made in America, the money it makes on the cars (including the tires) sold in the U.S. is taxed. In addition, the company cannot deduct the cost of the imported tires as a business expense,” Investopedia explains.

A BAT, though, is not the only tax policy change being discussed.

A report published by Thornton McEnery at DealBreaker.com addressed potential loopholes in the internet tax that the Trump administration believes Amazon is exploiting.

“Half of Amazon’s retail revenue comes through its role as a platform connecting third-party sellers with consumers,” McEnery wrotes. “Essentially, much of Amazon’s business is buried under layers of staggering obtuse tax policy that it uses to maximize profits on sales revenue.”

If ever there is one company known to have mastered the art of generating maximum profits with minimum expenses, it would be Amazon. But the administration could be looking at closing this internet loophole, which doesn’t require companies to collect tax on internet sales unless the business has a physical location in the state.

In an article by CNBC.com, Treasury Secretary Steve Mnuchin tried to explain the administration’s position regarding Amazon, saying “I am encouraged that Amazon is now charging tax, I believe, on their own sales but not the marketplace. I’m not sure I understand the consistency on that, but I respect the states’ ability that there’s an awful lot of money that’s not being collected.”

Tax reform talk in general has businesses excited about the possibilities. Engine manufacturer Caterpillar was reported by the Peoria Journal Star as “ready to pull out all the stops” in support of the Trump administration’s efforts at tax reform, said a statement provided by Kathryn Karol, Caterpillar’s vice president of global government and corporate affairs.

Caterpillar is one of the companies most vocal in supporting a lower corporate tax rate. The company foresees tax reform efforts in place as a way to support American business in the belief that money saved from the tax cuts could be diverted into expenses that will make American businesses more competitive globally.

The American Truck Dealers was more explicit in stating which tax reform it supports. Its members - trade association executives and heavy-duty truck dealers alike - went to Washington, D.C., in a show of force for the series of meetings with policymakers at Capitol Hill. The organization supports HR 2946 also known as “The Heavy Truck, Tractor and Trailer Retail Federal Excise Tax Repeal Act of 2017.” This bill hopes to “repeal the federal excise tax (FET) on the retail sale of most heavy-duty trucks, tractors and trailers,” according to the report by the Modern Bulk Transporter. This bill was introduced by Rep. Doug LaMalfa (R-CA) on June 20.

HR 2946 has been referred to the House Ways and Means Committee.