ANALYSIS: The industry will benefit in large part due to a reduced tax rate on foreign income, allowing companies to repatriate cash. Analysts estimate that large-cap pharma alone keeps nearly $98 billion offshore. The new plan lowers that rate from 35% to 15.5%.

During a 2005 tax holiday allowing companies to bring some profits back at a 5.25% tax rate, Pfizer Inc., Merck & Co. and Johnson & Johnson were among the biggest beneficiaries.  A study later found companies tended to cut jobs and use the money for stock buybacks.

Some top pharma players, including Pfizer, have said they were holding off on any meaningful M&A this year until they had clarity on tax reform, since they can use the offshore cash for such transactions.

The new bill cuts the overall corporate tax rate to 21% from 35%. Yet, most biopharmas typically pay far less than the statutory rate already. Data compiled by a professor from NYU recently showed that across 164 drugmakers, the aggregate effective tax rate was 19.41% — so for most big pharmas, in particular, the lower rate will be a neutral/negative development.

Orphan drug credit: The final bill also trims the 50% write-off enjoyed by companies that develop orphan drugs to 25%. One version of the bill cut it altogether, so the trim is a win. The credit applies to R&D for rare disease drugs with the intent of spurring development in orphan indications.

Lisa LaMotta / BioPharma Dive

CONSTRUCTION

IMPACT: The public construction sector will benefit from the uninterrupted flow of private-activity bond financing, and both the contractors who are structured as pass-through entities and C Corporations will see significant tax relief.

POSITION: The retention of tax-free status for PABs, as well as favorable treatment of energy-related exploration and tax credits have some segments of the industry breathing a sigh of relief, but potential PAB use limits and the locking out of design professionals from being able to take advantage of the new, lower pass-through tax rate could result in some pushback.

ANALYSIS: The House GOP tax bill, passed early in November, took aim at PABs –  a financing scheme that allows private entities developing public projects to borrow at the same tax-free rate as government agencies do –  and eliminated them altogether.  The Senate's version restored PABs, possibly driven by the expectation that they will play a big role in financing the president's $1 trillion infrastructure plan, but both chambers call for a termination of another popular finding vehicle, tax-exempt stadium bonds. Some states and municipalities rely on tax-free bonds for their contributions to the new construction and renovation of sports venues – often a condition of being able to snag a professional team –  but, according to the Brookings Institution, the federal government loses out to the tunes of billions when projects that are financed this way.

The latest version of the reconciled bill also sets a new 21% tax rate for corporations, a break for everyone except those low-earners that currently pay 15%. But many construction companies are pass-through entities, a structure that allows owners to include business profits on their personal tax returns. The new tax reform measure gives those individuals a 20% break on that income, a bigger break that the House bill's rate of 25%. However, some in the industry were frustrated by a provision that professional service and consulting firms like architects and engineers to take that deduction. 

The energy sector got better news when it was revealed that the Senate bill would reinstate the wind sector's production tax credit that the House bill eliminated. While the industry awaits the final version of the joint bill, word is that that credit, as well as one for the purchase of electric vehicles, will stay put.  The measure also green-lights exploration in Alaska's Arctic National Wildlife Refuge.

Kim Slowey / Construction Dive

FOOD AND GROCERY

IMPACT: The tax bill is universally welcomed in the food and grocery industry. The lower tax rate would give companies more money to invest in their businesses or to acquire companies working on clean label, organic or other products consumers demand.

POSITION: Major grocers and food manufacturers support the tax reform bill, and believe the legislation will level the playing field for the industry and retail corporations.

ANALYSIS: The Grocery Manufacturers’ Association, a trade group representing more than 250 food, beverage and consumer product companies, said earlier this month that “tax reform will benefit consumers, workers and manufacturers.” The association urged Congress to move aggressively to finish the legislation and sign it into law.

Independent supermarket operators want to ensure the bill achieves rate parity between major players and pass-through entities, such as partnerships and S corporations. Under the current proposal, the corporate tax rate would be lowered to 21% while the pass-through level would be nearly identical at 20%. In an industry beset with razor-thin margins, tax cuts are particularly helpful for retailers, especially smaller, mom-and-pop establishments.

“Supermarkets are a high tax industry with the majority of independent grocers operating on just one to two percent net profit margins, meaning any reduction in the effective tax rate will significantly help these entrepreneurs hire additional staff, expand offerings, and upgrade their stores," the National Grocers Association said late last month.

The Food Marketing Institute has previously expressed support with the proposed tax changes. Jennifer Hatcher, the trade association’s chief policy officer, said in Novemberthat FMI wants to make sure the final legislation “lowers effective rates, treats all industries and business structures fairly, and helps promote job creation and economic growth.”

Emma Liem / Food Dive

HEALTHCARE

IMPACT: Repeal of the Affordable Care Act’s individual mandate is likely to upset payer risk pools and ripple to other players, but hospitals averted elimination of their ability to use tax-exempt bonds.

POSITION: Hospitals and insurers overwhelmingly oppose repealing the individual mandate, but in general the industry stands to gain substantially from the bill’s cut to the corporate tax rate.

ANALYSIS: Repealing the individual mandate would result in about 14 million fewer people with coverage in 2026 and premium increases of about 20%, according to the Congressional Budget Office. Fewer people with health plans means fewer people seeking care services. Mandate repeal is likely to pull younger and healthier consumers out of the market, resulting in higher premiums and an increase in high-deductible health plans. The rate of insured could also be compromised if the changes to the tax code trigger automatic cuts to Medicare that could reach $25 billion a year under congressional budget rules.

One big win for industry: The final bill kept back the ability of hospitals to use so-called private activity bonds to finance infrastructure and other investments.  

Health care companies will also be pleased the final product retained the deduction for certain medical expenses and also lowers the threshold from 10% to 7.5% for two years.

Republican leaders have said separate budget legislation will address destabilization of ACA exchange markets by funding CSRs and a reinsurance program. Analyses, however, have shown those measures aren’t enough to give the market a sound structure.

Shannon Muchmore / Healthcare Dive

HUMAN RESOURCES

IMPACT: Tax reform is expected to impact several areas of interest to HR: paid leave, fringe benefits, automation and offshoring.

POSITION: The tax proposal could, on balance, be good for companies and in turn good for HR professionals. The industry has not taken a specific stance on the issue to date.

ANALYSIS: Tax reform is expected to impact several areas of interest to HR including some core issues such as paid leave, fringe benefits, automation and offshoring.

One proposal would give employers a tax credit equal to 25% of an employee's salary if it paid them during FMLA leave. There are several proposals to scrap deductions for benefits employers often are involved in, like transportation and relocation expenses.

Some thought the bill might create new tax incentives to encourage employers to create jobs. (That's what the Trump administration promised, after all.) Instead, it proposes to allow employers to write off the full value of machines right away, perhaps encouraging automation without an accompanying incentive for hiring humans.

The bill proposes to exempt some income from U.S. companies with operations outside the country. This encourages business to send work overseas, some experts have said.

HR will probably like the paid leave proposal, as it gets at an existing problem without a mandate. Instead, it's an incentive to do something many are already doing anyway. On the flip side, the fringe benefit exclusions do the opposite, creating a disincentive for employers to offer those benefits.

The automation and offshoring items are, on their face, good news for companies. Some, however, say they're not as useful without an incentive to hire people, too. After all, machines can't be upskilled when needs shift.

Kate Tornone / HR Dive

RETAIL

IMPACT: Due to deep cuts for businesses and mild reductions for middle-class consumers, the tax bill would spur economic growth at a time when retailers could really use it.

POSITION: Passing tax reform, with the priority on lowering the corporate tax rate, has been the retail industry's biggest public policy push for years.

ANALYSIS: Passing tax reform, with the priority on lowering the corporate tax rate, has been the retail industry's biggest public policy push for years. Retail trade groups are eagerly heralding the GOP-led House and Senate bills a must-pass measure that, due to deep cuts for businesses and mild reductions for middle-class consumers, would spur economic growth at a time when retailers could really use it.

Despite the differences between the Senate and House bills, the National Retail Federation has been adamant in its stance that "there is far more that the two chambers agree on than they disagree on," from the perspective of retailers, which according to NRF CEO Matthew Shay pay among the highest effective tax rates (although onlookers argue that few pay as high as 35%, currently the effective corporate tax rate). The Retail Industry Leaders Association has also backed the recent GOP-led proposals, which notably exclude the controversial (and now dead) border adjustment tax which retailers fought against earlier this year. The trade association is pushing for "quick" passage of a plan it said will stimulate economic growth and fuel the creation of new jobs.

Retailers also say the tax plan will cut taxes on middle-income consumers, freeing up more money to spend at retail businesses. However, as Morgan Stanley noted in a December report, consumers are spending more on experiences than things, and there's no guarantee any tax savings would go toward retail purchases.

According to a Dec. 4 report from Wolfe Research, the biggest specialty apparel winner under the Senate's tax plan would be Gap, whose corporate tax rate would drop from 39.6% last year to 23.5% once the plan goes into place. Other big winners would include: Nordstrom, Restoration Hardware, Dick's Sporting Goods, Williams-Sonoma and Ulta, which are expected to see their rate drop from the high 30s to between 22.3%-24.2%. Overall, most retailers would be enthusiastic about Congress meeting President Donald Trump's Christmas deadline.

Corinne Ruff / Retail Dive

RENEWABLE ENERGY AND NUCLEAR POWER

IMPACT: Provisions of GOP tax legislation most damaging to renewable energy were left out of the final conference report, but tax credits critical to the nuclear sector were also excluded.

POSITION: Renewable energy interests are expected to continue opposing the GOP tax bill. They and nuclear companies will look to a potential tax extenders bill next year to grant credits to a variety of technologies.

ANALYSIS: Renewable energy interests were relieved that proposed cuts to electric vehicle and wind subsidies did not make it into the final tax legislation last week. But they expressed concern about the retention of a Base Erosion Anti-Abuse Tax (BEAT) provision that companies could prevent them from monetizing tax credits. 

The Senate BEAT provision threatened to derail up to $12 billion in tax equity investments, but the final bill aims to avoid that by allowing companies to offset up to 80% of BEAT tax payments accrued due to energy tax credits.

The renewable energy industry supports the changes, but still harbors some concerns about the impact of BEAT. 

"[W]e are uncertain how the marketplace will react to the fact that more multinational firms may now be covered by the BEAT, and tax credits may not all be useable in any given year," said Gregory Wetstone, president and CEO of the American Council on Renewable Energy (ACORE).

Under the current text, 80% offset provision for BEAT expires in 2025. That could stifle investment in wind generation, Wetstone added, as they receive tax credits for producing power for a decade after they are put into service. 

Credits of nuclear generation and other “orphan” tax credits could be folded into a tax extenders package that Sen. Lisa Murkowski (R-AK) expects to follow the larger reform bill.

Gavin Bade / Utility Dive

TECHNOLOGY

IMPACT: Tech companies with large overseas cash holdings will benefit from cuts to corporate tax rates, but SMBs and companies with larger domestic holdings may not be as lucky.

POSITION: Big tech lobbied hard for a cut to the corporate tax rate, but the loss of R&D tax breaks and new income tax applications on grad students may undercut the win.

ANALYSIS: The corporate tax rate currently sits at 35%, but the tech sector on average pays much lower than that. For example, the average tax rate is about 16% for computer services companies and about 25% for internet software companies, according to Aswath Damodaran, professor at the Stern School of Business professor.  Moving the overall rate down to 21% may not benefit tech as much as other sectors since the industry already has lower rates.

The lowered, one-time repatriation tax, however, will have a greater effect. Tech tops the list of U.S. companies with the largest overseas cash holdings. More than $564 billion is held abroad between Apple, Microsoft, Cisco, Alphabet and Oracle — $246 billion of which belongs to Apple alone.

The tax levied on overseas cash will drop from the current 35% corporate rate to 15.5% under tax reform. Less liquid assets will be taxed at 8%. For companies without large overseas cash holdings, the benefits are less substantial.

Alex Hickey / CIO Dive

WASTE

IMPACT: Reduction in corporate and pass-through rates seen as a positive by companies of all sizes throughout the industry.

POSITION: The waste industry has been generally supportive throughout. This included lobbying by the National Waste & Recycling Association and Institute of Scrap Recycling Industries.

ANALYSIS: Industry executives have been eagerly anticipating tax reform in earnings calls, interviews and casual conversation all year. Multiple CEOs have projected major M&A activity will follow if any kind of corporate rate reduction is finalized, further accelerating the rapid pace of consolidation in the industry. For businesses not organized as corporations, particularly smaller family-run service providers or local recyclers, the pass-through rate reduction will be similarly welcomed.

Another key provision is the ability to fully expense all heavy equipment purchased until January 2023. With many material recovery facility owners considering upgrades to meet China's more demanding contamination standards this may be even more relevant heading into 2018.

Others areas of concern for the waste and recycling sector had included a change in deductions for research and development and the elimination of tax-exempt private activity bonds. The latter was seen as especially relevant for local governments that may rely on such bonds to fund new solid waste and recycling infrastructure. Many consider the state of U.S. waste infrastructure to be behind the curve and are hoping for more domestic expansion in light of China's evolving trade restrictions. In the bill's final version, companies will now have to write off research expenses over a longer period of time and the bonds have been preserved.

Cole Rosengren / Waste Dive