Agenda - Council Work Session - 03/08/2022

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Federal Register/Vol. 87, No. 18/Thursday, January 27, 2022/Rules and Regulations 4425 administrative interpretations would grants,or other types of interventions requested clarification on the scope of not include corrections to replace prior that do not reduce tax revenue.354 In changes that would be considered as inaccurate interpretations; such addition,by including changes in conforming to recent changes in federal corrections would instead be treated as regulation or administrative law. These commenters requested that changes implementing legislation interpretation,in addition to changes in Treasury clarify whether actions to enacted or regulations issued prior to law,within the scope of the offset selectively conform with federal law the covered period. The operative provision,the ARPA recognizes that a would be considered covered changes change in those circumstances is the recipient government may make a and requested clarification regarding the underlying legislation or regulation that covered change through its legislature or extent to which changes would be occurred prior to the covered period. may delegate the authority to make a considered"recent."For example,these Moreover, only changes within the covered change including,but not commenters requested clarification control of the state or territory are limited to,to a sub-unit of government. regarding conformance with the Global considered covered changes. Finally, Treasury has revised the definition of Intangible Low-Taxed Income provision covered changes do not include changes "covered change"in the final rule using of the 2017 Tax Cuts and Jobs Act. Some that simply conform with recent the statutory language above to make commenters further argued that changes changes in federal law(including those clear that the offset provision only that selectively conform or decouple to conform to recent changes in federal applies to such changes in law, from the Internal Revenue Code should taxation of unemployment insurance regulation,or administrative be included within scope of covered benefits and taxation of loan forgiveness interpretation.With respect to the changes and thus subject to the offset under the Paycheck Protection question of whether covered changes provision. Program). could include administrative decisions Treasury Response:The final rule Scope of Covered Changes applicable to individuals, as discussed maintains the treatment of changes that above,a covered change includes a simply conform with recent changes in Public Comment:Several commenters change in law,regulation, or federal law,such as those to conform to argued that the definition of covered administrative interpretation that recent changes in federal taxation of change,and thus the limitations of the reduces any tax. Such changes may unemployment insurance benefits and offset provision,should apply to apply to one or more individuals or taxation of loan forgiveness under the subsidies for businesses. Similarly, entities,provided that—consistent with Paycheck Protection Program 355 and other commenters requested that the statutory text—they result from a including other changes over the past Treasury clarify that the offset provision change in law,regulation, or several years.Regardless of the applies to tax abatements and administrative interpretation. particular method of conformity and the reductions in corporate taxes,even if effect on net tax revenue,Treasury administered b a sub-unit of the Prior Enactment and Phase-In Y views such changes as permissible recipient government. Citing to Public Comment:A number of under the offset provision. empirical research and other evidence, commenters expressed concern, or Accordingly, and for the reasons these commenters argued that these requested clarification,regarding discussed above,Treasury is types of economic development policies changes that were enacted prior to the maintaining the definition of covered were poorly administered,reduced covered period but take effect or phase- change without change. public sector capacity, and were in during the covered period. Several ineffective at achieving stated objectives commenters argued that the definition Tax revenue. The interim final rule,s of creating jobs,increasing income, and of covered change should include definition of"tax revenue"is based on increasing economic growth. On the changes that were made prior to the the Census Bureau's definition of taxes, other hand,some commenters argued ued coveredperiod but that p g phase-in during used for its Annual Survey of State ' that because subsidies were the covered period.eriod. Government Finances.356 It provides a economically similar to some tax cuts, Treasury Response:As discussed consistent,well-established definition neither action should be considered a above,the offset provision is triggered with which states and territories will be covered change and subject to the offset by a reduction in net tax revenue familiar and is consistent with the provision. Finally, other commenters resulting from"a change in law, approach taken in section Revenue Loss requested that Treasury clarify whether regulation,or administrative of this SUPPLEMENTARY INFORMATION covered changes must be broad-based interpretation"made during the covered describing the implementation of policies or whether administrative period. Consistent with the statutory sections 602(c)(1)(C) and 603(c)(1)(C) of decisions applicable to individuals text, "covered change"is defined to the Social Security Act regarding would be considered covered changes. include any final legislative or revenue loss. A number of commenters Treasury Response:Section regulatory action,a new or changed expressed concern and requested 602(c)(2)(A) applies to any change that administrative interpretation, and the clarification regarding the definition of phase-in or taken effect of an statute "tax revenue."These comments and "reduces any tax (by providing fora p g Y reduction in a rate, a rebate, a or rule where the phase-in or taking responses are discussed in section deduction,a credit,or otherwise or effect was not prescribed prior to the Revenue Loss of this Supplemental delays the imposition of any tax or tax start of the covered period. Information and,for the reasons increase."Accordingly,and consistent discussed above,Treasury is finalizingConformity the definition of tax revenue without with this statutory text,the final rule applies to covered changes that reduce Public Comment:A number of any tax,which can include tax commenters requested clarification on 355 See Statement on State Fiscal Recovery Funds the scope of covered than and Tax Conformity,April 7,2021,available at changes.abatements,but does not apply to loans, P g https://home.treasury.gov/news/press-releases/ Specifically,several commenters jy0113. Policy Center,How do state earned income tax 356 U.S.Census Bureau,Annual Survey of State credits work?,https://www.taxpolicycenter.orgl 354 Assistance must be consistent with eligible and Local Government Finances Glossary,https:// briefing-book/how-do-state-earned-income-tax- uses of SLFRF funds.See section Eligible Uses of www.census.gov/programs-surveys/state/about/ credits-work/(last visited May 9,2021). this SUPPLEMENTARY INFORMATION. glossary.html(last visited Apr.30,2021).