Road to Somewhere: Tax Changes in the Senate-Passed MAP-21 Transportation Bill

When I filled my gas tank the other day, regular was still below $4 per gallon. The difference between the price I paid and $4 seems to have diminished faster than I would have preferred. Anyone who has watched the price of gasoline increase over the past year can understand why the business standard mileage rate increased from 51 cents per mile for travel during the first half of 2011 to 55.5 cents per mile for travel in the second half of 2011. As of January 1, 2012, the standard mileage rate is 55.5 cents per mile. If the price of gas continues to increase, the standard mileage rate will probably increase again.

The federal excise tax on gasoline is currently 18.4 cents per gallon, and there are 15 days left before current transportation funding and the authority to collect the federal gas tax that supports that funding expires. Congress is now paying close attention to the March 31 deadline.

The Senate voted on March 14 to pass an 18-month transportation bill, known as S. 1813, the "Moving Ahead for Progress in the 21st Century Act" or MAP-21. (MAP-21 sounds more like a food additive, a genome, or a distant star than the name of a bill.) Although the legislation primarily overhauls a number of federal highway-related programs, the bill does contain some important tax changes.

Here are some of the tax changes contained in the Senate-passed transportation bill. This is not a complete list.

Parity for employer-provided mass transit and parking benefits. For 2011, there was parity for exclusion from income for employer-provided mass transit and parking benefits. The exclusion was $230 per month for each of these breaks. However under current law, for 2012, the exclusion is $240 for qualified parking (due to an inflation adjustment) but only $125 for employer-provided transit and van-pooling benefits. Under the bill, effective for months after December 31, 2011, the 2012 exclusion amount for employer-provided transit and van-pooling benefits would be increased from $125 to $240.

Funding break for employers maintaining pension plans. As a result of the current, low interest rate climate, pension plan contributions have been very high, and there is concern in Congress that this will lead to more company layoffs or pension plan freezes. Under the bill, plan liabilities would continue to be determined based upon corporate bond segment rates, which are based on the average interest rates over the preceding two years. However, for plan years beginning in calendar year 2012, for purposes of the minimum funding rules, the segment rates would be adjusted up or down, as necessary, to an amount equal to either 90% or 110% of the 25-year historic average of interest rates, whichever is closest. In today's low-rate environment, the immediate effect of this change would be to raise interest rates for funding purposes and thereby lower the minimum required pension contribution. For plan years beginning in calendar year 2013, the interest rate "corridor" would expand in 5% increments each year until it reaches 30% above and 30% below the 25-year historic average of interest rates.

AMT relief for private activity bonds. Tax-exempt interest on private activity bonds issued after the enactment date and before January 1, 2013, would not be an item of tax preference for purposes of the alternative minimum tax (AMT). Additionally, tax-exempt interest on private activity bonds issued after the enactment date and before January 1, 2013, would not be included in the corporate adjusted current earnings (ACE) adjustment.

Longer write-offs for leased highway property. States may contract with a private entity to lease an existing highway or build a new one, and then operate the highway for a number of years. Although these transactions generally are structured as a lease (plus grant of a franchise permitting the private entity to collect tolls), the private entity is treated as the owner because it has the burdens and benefits of ownership. Under provisions of the bill, for leases entered into after the enactment date, the highway property would have to be depreciated over 45 years (instead of 15), and the cost of granting the franchise to collect tolls would have to be amortized over a period that is not less than the term of the applicable lease (instead of 15 years under Code Sec. 197).

Revocation or denial of passport of individuals owing more than $50,000 in back taxes. Effective on January 1, 2013, the bill would authorize the government to deny the application for a new passport or renewal of an existing passport when the individual has more than $50,000 (indexed for inflation) of "seriously delinquent tax debt." A seriously delinquent tax debt does not include a debt that is being paid in a timely manner under an agreement with the IRS or if the collection of the debt is on hold because of a collection due process hearing. The government also could revoke a passport upon reentry into the U.S. for such individuals.

In addition, the provisions of this bill allow the IRS to impose a levy of up to 100% (up from the current law's 15%) against Medicare service providers with tax delinquencies.

The bill now goes to the House of Representatives. It remains to be seen if all of the tax provisions in the Senate bill will be present in the final legislation. While the transportation bill works its way through the House, do not be surprised if the price of regular gas soon exceeds $4 per gallon. Once that threshold is exceeded, Congress may have some political incentives to add other provisions to this bill.