On August 16, President Joe Biden signed into law the Inflation Reduction Act, a significant 730-page climate, health care and tax bill. The act itself will have far reaching short- and long-term effects for the American people. How does it affect the promotional products industry, though?
According to PPAI Public Affairs Manager Maurice Norris, the original bill was initially even more massive in scope and reach, but after negotiations allowing it to pass into law, it was “whittled down” to the point where it “largely avoided impacting our industry.”
Such a significant law, however, still has ramifications that are worth taking note of. Below are three key points of the Inflation Reduction Act distilled down to how they might apply to industry companies both large and small.
Environmental Provisions
Earlier drafts of the act might have included more significant environmental mandates, but the bill that passed mostly entails tax-based incentives focused on encouraging green energy development, as opposed to specific requirements.
Norris added that PPAI would not necessarily oppose environmental mandates, but it is ultimately a moot point in regard to the Inflation Reduction Act.
The Corporate Minimum Tax
The Corporate Minimum Tax is one of the most prominent features of the bill, but it will have no specific effect on the vast majority of promotional product companies. The CMT imposes a 15% minimum tax after 2022 on the income corporations report on their financial statements, or “book income.”
However, this provision is written to apply to corporations with more than $1 billion in average annual income over a three-year period, limiting its implications to only a handful of the largest suppliers. Among distributorships, only 4imprint has signaled that it may top $1 billion in revenue this year.
Effect On Pass-Through Companies
PPAI had some potential concern over how the Inflation Reduction Act might affect “pass-through” entities – companies that pay taxes solely on their owners’ tax returns.
“I have not seen anything outside of highly partisan talking points that indicates any new tax on pass-through corporations,” Norris says.
From a practical standpoint, pass-through entities are affected by a two-year extension of the limit on excess business loss deductions, which was originally imposed by the Tax Cuts and Jobs Act of 2017. This, therefore, isn’t a new tax but simply keeping an existing limit on business deductions in place.
