Through our legislative contacts and lobbyists, PPAI has access to information, insight and analysis that you won’t see published anywhere else. Information that will help you better understand how what happens in D.C. can affect your business and employees at home—information that will help you become more aware and better prepared to advocate for your business, profession and industry.
This edition of the report highlights the very recent work of the Securities and Exchange Commission (SEC) on the Dodd-Frank Reform’s conflict-minerals provision and the possible impact of the shortened Congressional session on several expiring tax provisions.
I hope you find this information beneficial to your business.
The Securities and Exchange Commission (SEC) has issued a final rule providing guidance on what had become a very confusing issue—tracking “conflict minerals.” It started when Congress passed and the President signed into law the Dodd-Frank Wall Street Reform And Consumer Protection Act in 2010. Public Law 111-203 includes a provision that will require some businesses already required to file reports to the SEC under other laws (the SEC calls them “issuers”) to disclose the source of certain conflict minerals. According to the Conference Report issued by Congress, the provision of the new law “requires disclosure to the SEC by all persons otherwise required to file with the SEC for whom minerals originating in the Democratic Republic of Congo and adjoining countries are necessary to the functionality or production of a product manufactured by such person. Such a public disclosure report by the person must describe the measures taken to exercise due diligence on the source and chain of custody of such materials, the products manufactured, and other matters; requires an independent audit of the report.” The term “conflict mineral” means columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives; or any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo or an adjoining country.
Most businesses in the promotional products industry do not file reports with the SEC and therefore do not have a direct conflict mineral reporting requirement under the law. The earlier confusion about this law resulted from the fact that businesses that do file reports with the SEC (some of our end buyers) were asking all of their suppliers and vendors to supply information about the vendors and suppliers’ products. The SEC has confirmed the law applies only to the products that the company required to file SEC reports manufactures or contracts to have manufactured for them. In other words, the reporting and supply chain tracking is confined to their (the end buyer) products only, not your products. This is not like the situation created by the Consumer Product Safety Improvement Act (CPSIA) that created a potential liability for the end buyer for your products.
Congress returns after Labor Day and will attempt to get out of town by mid-October. Unless you have been vacationing in Antarctica, you probably are already acutely aware that the entire House of Representatives is up for re-election, as is one-third of the Senate. Their desire to campaign drives their interest in a short session of Congress before the November elections.
The House will only be in session for 13 days before the congressional elections–not a lot of time to turn the car around before we come to the fiscal cliff you have heard about. All kinds of tax relief provisions expire at the end of the year (some have already!), automatic across-the-board-spending cuts in the federal budget take effect in January, and we will probably bump up against our federal debt ceiling again. Only the most optimistic fans of Congress still think they will do something before the election. Most observers have long been convinced we will hear the quacking call of a lame duck session after the election. As a result, the 13 workings days are probably 12 more than they will need unless they want to get serious about the fiscal cliff. There is certainly plenty of evidence that we would be better off if they got serious sooner than later. The Congressional Budget Office recently told Congress: “In CBO’s judgment, the sharp increases in federal taxes and reductions in federal spending that, under current law, are scheduled to begin in calendar year 2013 are likely to interrupt the recent economic progress, resulting in what would probably be considered a recession.” If they wanted to deal with tax issues, there is a short list of important items. The following are some we have identified.
The latest extension of the temporary increases in the income levels for which the Alternative Minimum Tax (AMT) is waived expired at the end of 2011, so technically many of us are already at risk. This “rolling” extension is referred to as the AMT “patch.” The law provided that the individual AMT exemption amounts for taxable years beginning in 2011 were $74,450, in the case of married couples filing a joint return and surviving spouses and $48,450 in the case of individuals. In 2012, the exemption amounts have reverted to $45,000 for married couples filing jointly and $33,750 for individuals.
The top individual marginal income tax rate has been sitting at the reduced rate of 35 percent for the past decade-plus. It will return to its pre-2001 level of 39.6 percent in 2013.
For the past decade, the maximum rate of tax on net capital gain of a non-corporate taxpayer has been 15 percent. In addition, any net capital gain which otherwise would have been taxed at a 10 or 15 percent rate generally has been taxed at a zero-percent rate. For taxable years beginning after December 31, 2012, generally the rates on net capital gain will be 20 percent and 10 percent, respectively.
For the past decade, dividends received by a noncorporate shareholder from domestic corporations and qualified foreign corporations generally have been taxed at the same rates that apply to net capital gain. Thus, dividends received by an individual, estate, or trust have been taxed at rates of zero and 15 percent. For taxable years beginning after December 31, 2012, dividends received by a non-corporate shareholder will be taxed at the same rates as ordinary income.
The estate tax exemption is currently $5 million per person and $10 million per couple and the top estate tax rate is 35 percent. The exemption amount is indexed beginning in 2012 and is $5,120,000. Under prior law, couples had to do complicated estate planning to claim their entire exemption. A recent temporary change allows the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse without such planning, effective for estates of decedents dying after December 31, 2010. The system will revert to pre-2001 status at the end of 2012. This means we are going back to a single graduated rate schedule with a top rate of 55 percent and a single effective exemption amount of $1 million.
The depreciation bonus sits at 50 percent for most assets acquired in 2012. It disappears at the end of 2012. The adjusted direct expensing allowance for capital assets acquired in 2012 is $139,000 and the phase-out cap on purchases for the year is $560,000. At the beginning of 2013, the amounts revert to pre-2003 levels of $25,000 and $200,000 without inflation indexing.
Earlier this year, Congress passed and the President signed into law the Middle Class Tax Relief and Job Creation Act of 2012 (MCTRJCA). It extended the temporary two-percentage-point payroll tax “holiday” for employees (and to the same extent, to the self-employed) through the end of 2012.