Congress is considering comprehensive tax reform to lower rates for individuals and businesses and simplify the Internal Revenue Code. The House Small Business Committee held a hearing April 13 to review tax issues, and NRCA Government Relations Committee Chairman Bob Kulp, co-owner of Kulp's of Stratford LLC, Stratford, Wis., testified at the hearing to discuss key tax issues important to the roofing industry.
On the industry's behalf
Kulp began his testimony by noting "unemployment in the construction industry remains at an alarming 20 percent," according to the Bureau of Labor Statistics. He urged Congress to take immediate action on tax reform measures that reduce barriers to economic growth and job creation by simplifying the tax code.
Specifically, Kulp noted NRCA supports depreciation reform for commercial roofs, repealing the 3 percent withholding tax on government contracts and reforming the completed contract method (CCM) of accounting.
"We believe enactment of these initiatives will reduce and simplify taxes, thus allowing entrepreneurs to create jobs in construction and other industries, particularly among small businesses," Kulp said.
Kulp urged Congress to reduce commercial roofs' depreciation schedule from 39 years to 20 years, which would help create an estimated 40,000 roofing industry jobs.
Depreciation reform is necessary because between 1981 and 1993, the depreciation schedule for nonresidential property increased from 15 to 39 years. However, the 39-year schedule is not a realistic measure of a commercial roof's average life span, which a study by Troy, Mich.-based Ducker Worldwide LLC determined to be 17 years.
The large disparity between the tax code's depreciation schedule and commercial roofs' economic depreciation is an incentive for building owners to delay replacing failing roofs, which slows economic activity in the roofing industry.
NRCA has been advocating for depreciation reform for several years and is exploring opportunities through potential tax reform legislation that Congress may consider later this year or in 2012.
Kulp also called on Congress to repeal the 3 percent withholding tax on government contracts enacted in 2006 and scheduled to take effect in 2012. The withholding tax will add a new layer of complexity to roofing contractors' tax filings, and contractors performing government work will face serious difficulties.
Although contractors will be able to recoup the 3 percent of the total contract withheld at the end of the year, cash flow and operating capital disruptions caused by withholding will be a tremendous burden, particularly for small businesses, whose bookkeeping systems are not set up to account for such large amounts withheld from invoices. This added complexity will increase tax compliance costs on businesses, which is counterproductive to economic growth.
Finally, Kulp noted NRCA supports legislation to reform the CCM of accounting for long-term contracts. Under current law, contractors cannot use the CCM if their average annual gross receipts exceed $10 million, a threshold that has not been adjusted for inflation since 1986. Contractors who cannot use the CCM must use the percentage of completion method, which often creates a paperwork burden for contractors because they initially must use cost estimates and retroactively amend tax filings in subsequent years based on actual numbers.
This accounting burden is another impediment to business growth and job creation because increasingly more time and resources must be devoted to tax compliance. NRCA supports legislation to increase the annual gross receipts threshold and index it for inflation so more contractors can use the CCM.
In conclusion
Testifying before the House Small Business Committee was a great opportunity for NRCA to support pro-business tax initiatives before Congress, and NRCA thanks Kulp for doing a great job representing the association and roofing industry.
Duane L. Musser is NRCA's vice president of government relations.
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