As the U.S. Senate and House meet to reconcile their respective versions of The Tax Cuts and Jobs Act, the American Society of Travel Agents (ASTA) has expressed concerns about key elements of the bill, including the potential for higher owner tax burdens and increased complexity for independent contractors (ICs).
In letters to the ranking members in both the Senate and the House, Eben Peck, ASTA's executive vice president of advocacy, asked Congress to consider how some of the tax and rule changes in the bill could impact small businesses like travel agencies and the travel industry in general.
Peck noted that in the final version of the bill, proposed pass-through rules could hurt S-corporations. Specifically, ASTA said, “owners of pass-through businesses should be able to deduct state and local income taxes paid on their pass-through business income; and that the pass-through business deduction should be made permanent, just as the reduction in the C-corporation rate to 20 percent is made permanent.”
Peck noted how “based on informal member consultations over the past few months, we believe that the vast majority of our members and travel agencies generally are organized as ‘pass-through’ entities – proprietorships, partnerships, S-corporations, etc. As such, we share the concerns raised by a number of legislators and small business advocates regarding the taxation of these entities in the tax reform bill.
“ASTA requests that the final bill tax pass-through businesses at the lowest rate with the broadest access to various deductions and with the greatest degree of permanence as possible,” Peck wrote.
Bill could create confusion about ICs
At the same time, ASTA asked Congress to harmonize various federal statutes that regulate independent contractor relationships, and ensure that small businesses will not be required to withhold taxes from ICs.
Peck wrote that with the current language in the bill, agencies, their independent contractors and their clients “face substantial uncertainty over whether their business relationship will be respected for purposes of federal statutes, due to the variety of statutory definitions for the term ‘employee.’
“This can have a discriminatory impact on individual entrepreneurs relative to their larger competitors, and lead to diminished growth for our nation’s economy due to the decreased economic opportunities for those individuals who wish to offer their services as independent entrepreneurs,” wrote Peck.
According to ASTA’s latest member surveys, 75 percent of agencies employ at least one IC, and of those who use ICs, the average agency used 12 versus 13 full-time employees. ASTA estimates 20,000 ICs work in the industry, nearly 20 percent of the total industry workforce.
“Rather than adding more complexity to an already complicated situation or removing long-standing protections for businesses who engage ICs,” ASTA suggested the committee members consider the Harmonization of Coverage Act of 2017 (H.R. 3825), introduced in September by Reps. Diane Black (R-TN) and Elise Stefanik (R-NY).
That bill “would harmonize the definition of the term ‘employee’ for purposes of federal employment statutes,” conforming with the Fair Labor Standards Act and other statutes enacted during that era which follow a common-law definition for the term employee.
“ASTA strongly supports H.R. 3825, which will provide clear rules of the road in terms of who is an employee and who is an independent contractor, and allow travel agency owners and ICs alike to focus on what they do best – sell travel,” said Peck.
Other implications for the industry
ASTA also expressed concern that a tax exemption for the cruise industry might be repealed, costing an estimated $700 million over ten years. The provision was stripped from the bill before Senate passage, and the House has no comparable provision, but ASTA is remaining vigilant to maintain the cruise industry’s current tax treatment.
Additionally, ASTA is satisfied that the current Act does not include provisions in the original Senate version that would have modified the tax treatment of unrelated business income (UBIT). Such a provision could have impacted the association’s revenues from professional development, conferences, training, research publications, and certification programs, as well as royalty income from licensing arrangements for the use of its name or logo.
“These royalties are a significant source of non-dues revenue for associations that can be reinvested in education, skills training, standard-setting, research and other activities,” Peck wrote. “ASTA requests that the final bill keep income from passive royalties exempt from UBIT.”