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Proposed Interest Write-Off Rules May Harm Some Manufacturers

The proposed rules governing the 2017 federal tax cut and overhaul placed a cap on the amount of debt interest payments companies may use to reduce the amount of their income that’s subject to federal tax. Before this law, corporations could usually be sure they could shrink their tax liabilities by an amount equal to their full interest payments. Under this law, companies are only allowed to write off an amount equal to 30 percent of earnings before interest, taxes, depreciation, and amortization. In most cases, the interest write-off restriction only applies to companies with annual gross receipts above $25 million, so mainly large and mid-size companies are affected.

“Those fresh off a leveraged buyout or that are in their earlier growth stages—with a lot of debt and little income for calculating that 30 percent cap—are likely to face higher-than-anticipated tax bills. Either way, capital is the lifeblood of manufacturing,’ Chris Netram, vice president of tax and economic policy at the National Association of Manufacturers, said in a statement to Bloomberg Tax. “Congress clearly intended to support capital-intensive industries when it modified the tax treatment of interest payments,” he added, so “the law should be applied in a manner consistent with this intent.”

AIM President and CEO Ray McCarty said Associated Industries of Missouri will propose a state law to eliminate the impact on state taxes.

“Without action, many of our Missouri employers will see an increase in their state tax bill,” he said. “Our AIM Tax Committee has drafted language and will introduce it early in the 2019 session to decouple Missouri’s tax law from the federal tax law with regard to this interest deduction limitation and the new Global Intangible Low-Taxed Income (GILTI) tax. We will work hard to keep Missouri employers’ taxes as low as possible and to prevent this automatic tax increase from happening.”

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