Issues & AdvocacyFederal

Spurred by strong lobbying from AIA members, opponents of a proposed tax increase on architecture and other professional services S corporations succeeded in blocking the proposal from passing the Senate last week.

On June 24, Senators blocked advancing a so-called “extenders” bill from further consideration. It was the third time the Senate tried and failed to advance the bill. Section 413 of the bill would subject earnings by professional services S corporations “if 80 percent or more of the gross income of such business is attributable to service of 3 or fewer shareholders.” Although supporters of the provision argue that it would close a loophole that allows some S corporations to avoid paying payroll taxes, the AIA and other professional associations have argued that it would punish small, service-oriented businesses around the nation that follow the rules.

Sens. Olympia Snowe (R-ME), Mike Enzi (R-WY), and John Ensign (R-NV) offered an amendment to remove Section 413 from the bill. In fact, Snowe indicated that Senate leaders had promised her the provision would be removed from the bill but was told at the last minute that other Senators wanted it to remain. Snowe took to the Senate floor prior to the vote to denounce the provision, saying that while she supported numerous provisions in the bill, “It is a matter of practicality and reasonableness that we get it right and not force more taxes on the very entities we depend on to create the jobs people deserve in America today to go back to work and to support their foundation of financial security rather than removing it.”

AIA members have sent nearly 12,000 messages to Capitol Hill voicing opposition to the provision, and AIA Maine members met with key Snowe staff members in Maine to express their concerns over the provision.

On June 29, Senate leaders introduced a slimmed-down version of the extenders bill that focused mostly on extending unemployment insurance; this bill lacked the S corporation tax provision. However, the bill was blocked from further consideration June 30 when Senate leaders failed to secure 60 votes to overcome a filibuster. As a result, the Senate will not take up unemployment insurance until after their July 4^th recess.

Most observers believe that supporters of the S corporation tax increase will try to advance it again in some fashion, either this year or later. The AIA is continuing to work with its allies to reform the provision to ensure it only affects those who are purposely avoiding paying payroll taxes while protecting tax-compliant organizations.

Details of the Proposal and the AIA Response

• Section 413 of HR 4213 – S Corporation Tax Changes
• See the Full Bill
• AIA Talking Points Opposing S Corporation Tax Changes
• Read President Miller’s letters to the Wall Street Journal and the Washington Post
• Read President Miller’s Op-Ed in The Hill
• Read the AIA Press Release
• Read the AIA and ACEC Letter to Majority Leader Harry Reid
• Read the AIA Letter to Chairman Max Baucus
• Read Senators Snowe and Enzi Statement Against Provision
• Excerpt of Sen. Olympia Snowe’s (R-ME) Senate Floor Statement on S Corporation Tax Increase (June 24, 2010) –NEW–
• The S-Corporation Association of America

S Corp Tax Proposal In the News:

• The Hill reports: Architecture advocates blast tax increase on S Corps
• NASDAQ Explains the Provision
• Business Week: Sen. Snowe Calls S Corp Provision “Poison Pill”
• Wall Street Journal: Small Firms Chafe At Senate Proposal
• The Hill: Groups Support Striking S Corp Tax From Extenders

For more information contact Andrew Goldberg or call 202-626-7438.