By JULIE CARR SMYTH
Associated Press

COLUMBUS, Ohio (AP) — Evan Burroughs has spent eight years touting the virtues of an Oregon pilot program charging motorists by the distance their vehicle travels rather than the gas it guzzles, yet his own mother still hasn’t bought in.

Margaret Burroughs, 85, said she has no intention of inserting a tracking device on her Nissan Murano to record the miles she drives to get groceries or attend needlepoint meetings. She figures it’s far less hassle to just pay at the pump, as Americans have done for more than a century.

“It’s probably a good thing, but on top of everybody else’s stress today, it’s just one more thing,” she said of Oregon’s first-in-the-nation initiative, which is run by the state transportation department where her son serves as a survey analyst.

Burroughs’ reluctance exemplifies the myriad hurdles U.S. states face as they experiment with road usage charging programs aimed at one day replacing motor fuel taxes, whose purchasing power is less each year, in part due to inflation, fuel efficiency and the rise of electric cars.

The federal government is about to pilot its own such program, funded by $125 million from the infrastructure measure President Joe Biden signed in November 2021.

So far, only three states — Oregon, Utah and Virginia — are generating revenue from road usage charges, despite the looming threat of an ever-widening gap between states’ gas tax proceeds and their transportation budgets. Hawaii will soon become the fourth. Without action, the gap could reach $67 billion by 2050 due to fuel efficiency alone, Boston-based CDM Smith estimates.

Many states have implemented stopgap measures, such as imposing additional taxes or registration fees on electric vehicles and, more recently, adding per-kilowatt-hour taxes to electricity accessed at public charging stations.

Last year, Colorado began adding a 27-cent tax to home deliveries from Amazon and other online retailers to help fund transportation projects. Some states also are testing electronic tolling systems.

But road usage charges — also known as mileage-based user fees, distance-based fees or vehicle-miles-traveled taxes — are attracting the bulk of the academic attention, research dollars and legislative activity.

Doug Shinkle, transportation program director at the nonpartisan National Conference of State Legislatures, predicts that after some 20 years of anticipation, more than a decade of pilot projects and years of voluntary participation, making programs mandatory is the next logical step.

“The impetus at this point is less about collecting revenue than about establishing these systems, working out the kinks, getting the public comfortable with it, expanding awareness around it,” he said.

Electric car sales in the U.S. rose from just 0.1% of total car sales in 2011 to 4.6% in 2021, according to the U.S. Bureau of Labor Statistics. S&P Global Mobility forecasts they will make up 40% of the sales by 2030, while other projections are even rosier.

Patricia Hendren, executive director of the Eastern Transportation Coalition, said figuring out how to account for multistate trips is particularly important in the eastern U.S., where states are smaller and closer together than those in the West. Virginia’s program, launched in 2022, is already the largest in the nation and will provide valuable lessons, she said.

Hendren’s organization, a 17-state partnership that researches transportation safety and technology innovations, participated in one of the earliest pilot projects and eight others since. The biggest hurdle, she said, is to inform the public about the diminishing returns from the gas tax that has long paid for roads.

“This is about the relationship between the people who are using our roads and bridges and how we’re paying for it,” Hendren said. “We’ve been doing it one way for 100 years, and that way is not going to work anymore.”

Eric Paul Dennis, a transportation analyst at the Citizens Research Council of Michigan, said the failure of states to convert years of research into even one fully functional, mandatory program by now raises questions about whether road usage charging can really work.

“There’s no program design that I have seen that I think can be implemented at scale in a way that is publicly acceptable,” he said. “That doesn’t mean that a program can’t be designed to do so, but I feel like if you can’t even conceive of the program architecture that seems like something that would work, you probably shouldn’t put too much faith in it.”

Indeed, a chicken-and-egg dispute over how to proceed in Washington state has stymied road usage charging efforts there.

Lawmakers passed a bill in April that would have begun early steps toward a program by allowing collection of motorists’ odometer readings on a voluntary basis. Democratic Gov. Jay Inslee vetoed the measure, though, arguing that Washington needs a program in place before starting to collect citizens’ personal data.

States also must grapple with the social and environmental implications of their plans for replacing the gas tax, said Asha Weinstein Agrawal, director of the National Transportation Finance Center at San Jose State University’s Mineta Transportation Institute.

The institute has conducted national surveys every year since 2010 and found growing support for mileage-based fees, special rates for low-income drivers and rates tied to how much pollution a vehicle generates, she said.

Weinstein Agrawal said public policy, and the way transportation is funded, often fails to reflect states’ growing emphasis on curbing carbon emissions as a way to deal with climate change.

“To switch over to a system that makes it cheaper to drive a gas guzzler and more expensive to drive a Prius,” she said, “seems both symbolically problematic and to be sending, in the most literal way, the wrong economic incentives to people.”

Evan Burroughs said his 85-year-old father, Hank, who drives an electric car, avoids paying significant vehicle registration fees by participating in Oregon’s program, while Burroughs himself has paid an extra dollar or two each month for his Subaru Outback.

“To me, that’s worth it to be part of the experiment,” he said, “and to know I’m paying my fair share for the roads.”

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Aspiring equestrian center developer James W. Millegan, also known as J.W. Millegan, last week was in federal prison and three years’ supervised release for evading payment of more than $2.5 million in personal income taxes, according to a press release from the U.S. Attorney’s Office (District of Oregon).

Millegan, 65, of McMinnville, also was ordered to pay more than $2.5 million in restitution to the IRS and more than $1.4 million to 12 former clients. From 1996 to 2016 he owned and operated J.W. Millegan Inc. (JWMI), a commission-based investment advisory business that served clients in the Portland and Salem areas.

Millegan reportedly used his tax evasion proceeds to fund an extravagant lifestyle that included a $4.5 million home in the Dunthorpe area near Portland, a $1.3 million beach house in Gleneden Beach, Rolls Royce and Bentley automobiles, and equestrian expenses like stabling and lessons.

He attempted to establish Wallace Bridge, a planned world-class equestrian competition center and resort near Sheridan (between Oregon routes 18 and 22). The ambitious development would have included a gallop track, polo fields, and steeplechase facilities, as well as a five-star luxury resort, an RV park, a distillery, a brewpub, and cobblestone plazas.

Millegan touted that just one two-day horse show with 1,000 horses could bring as much as $4 million into nearby cities. If shows were held regularly, they could bring in $167 million annually from horse enthusiasts visiting areas around the state, he claimed.

Those dreams for the sprawling, 325-acre equestrian center ended in 2014 when the Natural Resources Conservation Service (NRCS), which holds a wetlands conservation easement on the potential property, to modify the easement for the center.

Millegan closed JWMI in 2016, partly because a Financial Industry Regulatory Authority (FINRA) arbitration panel determined he churned the investment accounts of 12 clients, collecting more than $2.5 million in trading commissions.

Millegan was by a federal grand jury in Portland on Nov. 21, 2019. Later, on February 17, 2022, he was charged by superseding indictment with wire fraud and tax evasion.

On Nov. 14, 2022, Millegan was on one count of tax evasion.

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SALEM, Ore. (AP) — Oregon’s tax revenue forecast has jumped again, potentially giving state lawmakers more money to spend in the next budget and driving up the likely state tax rebate that taxpayers could receive next year, the Oregonian/OregonLive reported Wednesday.

State economist Mark McMullen told lawmakers Wednesday that income taxes paid by individuals and corporations continue to outstrip economists’ expectations. But the state has only begun to receive a “trickle” of tax returns and tax payments so there’s little solid information, McMullen said. The next revenue forecast in May will provide a sharper focus and state lawmakers will base their 2023-2025 budget on that.

“There is a significant amount of additional resources that will be available for policymakers as they craft the next biennial budget,” McMullen said. “That said, there’s still a tremendous amount of uncertainty out there.”

The state of Oregon is now expected to send nearly $4 billion back to taxpayers next year, as forecast revenues continue to soar past economist’s initial expectations, Oregon Public Broadcasting reported.

State economists bumped up their prediction for general fund and lottery revenues in the current budget cycle by nearly $500 million, according to a document from the Legislative Revenue Office.

The latest predicted state revenue bump could help erase a budget shortfall of $560 million forecast by budget analysts in December.

In the big picture, economists expect Oregon lawmakers will have $3 billion less general fund and lottery revenue to spend in the next two years than they had available in the current budget cycle, the Oregonian/OregonLive reported.

Gov. Tina Kotek said in a statement Wednesday that “the Legislature still has some tough choices to make.”

“We will have to keep focused and stay the course in order to make much-needed investments in Oregonians’ most urgent shared priorities: housing and homelessness, behavioral health, and education,” Kotek said.

At the last state revenue and economic forecast released in November, state economists estimated the kicker rebate to be paid out as tax credits in 2024 could be around $3.7 billion. Senate Republican Leader Tim Knopp, of Bend, has proposed legislation to issue the kicker to taxpayers as checks this year. Senate President Rob Wagner, D-Lake Oswego, said that idea was a nonstarter.

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In November 2018, Portland voters were asked to support a 1 percent gross-receipts tax on large retailers to fund green-energy projects and job training. The tax was promoted as applying to “large retail corporations, such as Wells Fargo, Apple, Comcast and Banana Republic,” according to campaign materials.

Nearly a year later, clients of large construction companies are surprised to find themselves footing the bill. Major institutions such as Oregon Health & Science University have told general contractors to include the tax in projected budgets, and some pending project teams are waiting on further clarity.

“What was sold to voters is it was a tax on large retailers,” said Dan Drinkward, vice president of Portland-based Hoffman Construction. “We were surprised by the guidance that came out of the city that said it applied to construction firms, and we are working with the city and have had informal conversations with other stakeholders to try to clarify the rules so it would not apply to construction firms.”

Months after the measure’s passage, the city’s Revenue Division in April interpreted the initiative’s wording broadly, issuing guidance that construction firms and other service providers qualify as retailers subject to the tax.

“Basically, construction is a service,” said Scott Karter, spokesman for the Revenue Division.

The city so far has collected about $11 million from the tax, Karter said. The Revenue Division declined to specify how much of that came from the construction industry because, he said, it could lead to identifying individual taxpayers.

The Portland Business Alliance is leading an effort to persuade the City Council to carve out exemptions.

“I’m very hopeful that those conversations will be fruitful and the clarification will come through the city that construction is not affected,” Drinkward said.

It’s not clear what degree of support a construction exemption has among commissioners. A spokesman for Mayor Ted Wheeler, who controls the key bureaus, declined to comment.

With the possibility of a change in city policy uncertain, developers, builders and clients are beginning to take the tax into account.

“The uncertainty is affecting projects right now,” Drinkward said. “It’s a significant impact to project budgets. Schools, hospitals, airports and other important projects are grappling with how to put this into their budgets, adjust their scope, or otherwise plan for this.”

OHSU has directed its general contractors to include the 1 percent tax as a budgeting line item, and to incorporate the tax into the guaranteed maximum price, according to a Sept. 17 email from Jennifer Taylor, OHSU’s director of design and construction, to general contractors.

“OHSU is aware of a potential cost increase associated with the city’s clean energy surcharge,” spokeswoman Tracy Brawley stated in an email response to questions. “Until the city presents its plans for implementing this program, the specific impact to OHSU is unclear.”

The tax essentially adds 1 percent to the cost of any large project. Drinkward gave the example of the new Lincoln High School, an upcoming Portland Public Schools project with a $200 million price tag. The tax could affect what ends up being included in the project, he said.

“You know, it’s $2 million,” he said.

The tax applies to all “retailers” with more than $1 billion in annual global revenue, and $500,000 in revenue generated within the city of Portland.

While the revenue data of the privately held major construction firms are not public, industry officials said firms including Hoffman, Fortis, Turner, Skanska, Mortenson, JE Dunn, Kiewit, Howard S. Wright and Knife River are likely subject to the city’s tax.

A representative of a business-backed tax policy group said Portland’s gross-receipts tax, which was passed by initiative rather than the legislative process, was not drafted artfully.

“They attempted to create a retail sales tax borne by business, and in doing that, they created a whole bunch of issues,” said Nikki Dobay, Portland-based senior tax counsel for the Council on State Taxation, a policy and advocacy group based in Washington, D.C.

“There’s no definition out there of a retail service,” she said. “That’s going to be a major issue for many taxpayers.”

Traditional retail sales taxes, of course, are paid at the point of sale. That is not the case for Portland’s gross-receipts tax.

“They’re trying to implement it in a manner more similar to an income tax,” Dobay said.

Portland’s construction industry has enjoyed flush years since the Great Recession, riding population and jobs growth that brought expansions in the office, multifamily, hospitality and industrial sectors. Even with warning signs of a slowing global economy, hundreds of millions of dollars in voter-approved school and affordable housing projects should continue to buoy the local construction industry, Drinkward said.

“What this tax could do is push some development out of Portland,” he said.

On Sept. 25, the City Council appointed five people to a newly created Clean Energy Fund Benefits Committee that will award grants generated by the tax revenue.

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With the ink barely dry on the federal tax bill signed into law by President Trump, real-estate investment advisers are still grappling with its wide-ranging provisions.

The new law caps mortgage interest deductions, cuts taxes on pass-through entities, lowers corporate taxes and limits local deductions.

It will take time for many of the law’s effects to become clear, some observers said.

“The worst thing is we won’t really know the results until two, three, four years down the line,” said Sam Rodriguez, senior managing director of Mill Creek Residential Trust, a major multifamily developer.

Perhaps most significantly, the law includes a 20 percent deduction for pass-through entities such as limited liability companies, which developers often use to do business.

After taking into account the deduction, the beneficiary of a pass-through entity may pay a top effective rate of only 29.6 percent, said Michael Lortz, a shareholder at Portland accounting firm Geffen Mesher.

“This has the potential to make the after-tax returns on real estate significantly better than they were before,” he said.

The tax deduction does not apply to C corporations.

The law also doubles the bonus for depreciation expenses to 100 percent. That means a landlord could potentially write off the entire cost of a tenant improvement.

“That’s exciting for many of my clients that own a lot of commercial office rental properties,” Lortz said.

The provision also applies to apartment building improvements. The downside is the law can limit interest deductions if they exceed 30 percent of adjusted taxable income. Property owners can opt out of that limit, but in exchange, landlords must forgo the depreciation bonus.

One of the key aspects of the law is what it does not do, industry experts said. In the end, lawmakers left in place 1031 exchanges for real estate, but not other types of transactions. The law continues to allow property investors to sell one real-estate asset and purchase a similar property without paying taxes on the income.

“One of the best things about the bill for real-estate investors is that it retained the ability to do like-kind exchanges with respect to real estate,” said Kevin Pearson, a Portland-based Stoel Rives partner who specializes in federal tax law. “That was a really big deal for the real-estate industry and they’re happy to have retained that.”

Without 1031s, the pace of real-estate transactions would likely slow as property owners would have less incentive to buy and sell properties.

Pearson said he doesn’t expect a rush of clients converting to pass-through entities.

“All of our clients who have real estate investments are pass-throughs,” Pearson said. “Long before this new act, there have been a lot of good reasons to be a pass-through rather than a C corporation. I don’t think this (law) is going to change behavior as much as this is going to provide a tax benefit for behavior that’s already been encouraged.”

Trump signed the tax law into effect on Dec. 22. Republicans in Congress forged the bill behind closed doors and held no public hearings, and expert analysis was scant before the bill’s passage. As a result, tax attorneys, real-estate professionals and others have scrambled to untangle the far-reaching law.

“This all happened so quickly,” Pearson said. “Even though it’s in effect, a lot of people are still digesting it.”

The mortgage-interest deduction is now capped at $750,000 – a change that will likely cause some ripples in the luxury residential real-estate market.

The new cap may cause some luxury buyers to forgo a mortgage if they’re able to pay cash, said Mimi McCaslin, a Lake Oswego-based real-estate agent for Luxe Platinum Properties and Christie’s International Real Estate.

Still, luxury buyers have been buoyed by cuts to the corporate income tax rate and stocks’ strong performance in recent months, McCaslin said.

“We feel the economy still has wind at our back,” she said.

The law caps the deduction for local and state taxes at $10,000, a feature that hits relatively high-tax states including Oregon. That may put less money in the pockets of average buyers.

Many wealthy property investors also stand to benefit from the estate-tax exemption doubling. In 2018, the first $11.2 million from an estate will be exempt from taxes, up from $5.6 million under the old rules.

Overall, the changes in tax law benefit developers while reducing the preferential treatment of homeownership.

“The standard homeowner is the one who gets most of the bad provisions, and developers and investors get the most good,” Pearson said.

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As more details emerge about President Obama’s proposed American Jobs Act, as much as $770.6 million could be injected into Oregon’s construction industry.

The White House today released a breakdown of how the plan, if passed by Congress, would affect each state. In it, the President has earmarked more than $770 million, in addition to the several tax cuts, that would directly affect Oregon construction companies that work on transportation, education and residential projects.

According to , Oregon will receive at least $426.2 million of the $50 billion set aside for immediate investments in highway, transit, rail and aviation projects. The money could support as many as 5,500 local jobs, according to the fact sheet.

Additionally, the president would send $253.2 million to public K-12 schools in Oregon for modernizations and maintenance, as well as $71.2 million to community colleges for upgrades to learning spaces.

Oregon would also see at least $20 million of the President’s suggested $15 billion for rehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes and businesses. The funds would be available through a competitive application process.

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Real estate brokers who work under principal brokers who sell property in Portland may no longer be required to pay the city’s income-based business license tax.

The Oregon Court of Appeals last week ruled in favor of two Portland-based residential brokers who claimed the business license tax breaks state law and shouldn’t apply to them because they work under the directive of principal brokers who already pay the tax. Both the local and state Realtor associations plan on using the ruling as legal precedent in their fight to eliminate the tax on brokers.

The ruling reversed an earlier decision by the Multnomah County Circuit Court that sided with the city of Portland and its requirement that real estate brokers pay the tax.

The court case is centered on a 2008 revision of the city’s Business License Law, which, among other things, added a requirement that independent real estate brokers – those classified as 1099 employees for tax purposes – pay the tax.

The minimum fee to obtain a business license is $100, but the amount grows for businesses that make more money. Businesses are taxed at about 2.2 percent of their net income once that $100 threshold is met, according to the city’s Management & Finance division.

The appealing parties – brokers Beth Kellan and Diane Rulien – claimed that the tax on brokers breaks state law. Legislation in 1987 was passed to aid contractors and real estate brokers who work in multiple jurisdictions around the state.

The legislation, which was eventually enacted as ORS 696.365, states, “A city or county shall not impose or collect a business license tax from a person licensed as a real estate salesperson or associate real estate broker who engages in a professional real estate activity only as an agent of a real estate broker or real estate organization.”

City attorneys responded, according to court documents, that the city’s tax differs from the state’s definition of a business license tax because the 2008 revision eliminated the requirement that a business obtain a license before conducting business in the city. The attorneys claimed that the change made to the Business License Law imposes a pure business income tax rather than a business license tax, so the exemption of brokers under ORS 696.365 doesn’t apply.

In its ruling, Court of Appeals Presiding Judge Rick Haselton wrote, “The city’s alteration of other terminology … is cosmetic, not functional.

“Bluntly, by imposing its business income tax on plaintiffs in this case, the city is subjecting plaintiffs to precisely the same harm that the 1987 Legislature intended.”

Kellan was excited about the ruling. She initially got involved with the issue and filed the case in 2009 because she felt it was a cause that no one else was willing to stand up for.

“It’s an important victory for Realtors and sets a good precedent against other municipalities looking to impose a similar tax,” she said.

As part of the ruling, the appealing parties will be allowed to seek damages from the city. Kellan said that will most likely be the amount imposed on the brokers over the past three years. But first, the city of Portland has 35 days, which began Sept. 8, to appeal the decision.

The issue is unlikely to stop there. Representatives of both the Portland Metropolitan Association of Realtors and the Oregon Association of Realtors said the organizations have every intention of making sure the city stops imposing the tax on brokers.

“I’ve been working on this issue for over a decade and the entire time the city of Portland has been looking for a way to charge brokers this tax,” said Jane Leo, government affairs director for PMAR. “We have every intention of using this ruling as legal precedent.”

Jenny Pakula, vice president of government affairs for the OAR, added that local and state organizations have received full support from the National Association of Realtors and that they don’t plan on stopping until the law in Portland is changed. She said the organizations hope to eventually sit down with the city and try to work something out.

The city’s plans aren’t known yet. Kenneth McGair, the city attorney arguing the case, did not return phone inquiries by press time.

No other cities around the state impose such a tax on brokers; however, Pakula said Multnomah County has a similar tax.

“We haven’t looked into all the details there yet,” she said. “We are focused on this case right now, but we will cross that bridge down the road.”

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Nearly three months after stating that it supports an urban renewal plan that would redirect future property tax dollars away from schools, the Beaverton School Board is asking voters for more property tax money.

The Beaverton School Board last week voted unanimously to place a five-year levy on the November ballot that could raise as much as $80 million to help operate Beaverton schools. The measure will be on the November ballot, along with one that will ask voters to approve a $150 million urban renewal plan that would redirect property taxes from property tax-funded districts – like schools – and toward construction projects.

The two measures would affect property taxes in Beaverton during tough economic times, but school district and city officials say longterm benefits would outweigh initial costs.

“It needs to be clear that one is a tax increase measure and the other is not,” said Don Mazziotti, the community and economic development director for the city of Beaverton. “The urban renewal initiative is not a new tax.

“But even though both are different, they’ll both be on the ballot at the same time and both will benefit the city. So, they’ve decided to support ours and we will support their measure.”

Beaverton School District expects to face a shortfall between $24 million and $37 million for the 2012-2013 school year.

The school board’s requested levy would raise property taxes in Beaverton by $1 per $1,000 in assessed value for a five-year period. Beginning with the 2012-13 school year, the district would use the money raised for almost any operations-related cost.

The city’s urban renewal initiative, however, wouldn’t increase property taxes. Instead, it would use increased accumulations of property taxes – money that would normally go to schools, fire districts or counties – to help repay $150 million in bonds used for projects like road improvements, redevelopment grants and loans and other construction projects.

School district officials recognize that while urban renewal may impact district funding, creation of a URA in Beaverton won’t hurt it more than one anywhere else in the state.

Beaverton School District Executive Director for Facilities Dick Steinbrugge, who also represented the school district on the urban renewal plan’s citizens’ advisory committee, explained that school districts receive their property tax funding differently than other districts. Property owners pay drainage or fire districts directly, but for schools they pay the state, which then redistributes money to school districts across the entire state.

“Urban renewal in Portland affects the (Beaverton) school district as much as urban renewal in Beaverton does,” Steinbrugge said. “So, we would rather see the benefits of urban renewal here than somewhere else.

“Part of the vision of the (urban renewal) plan is to bring a more mixed demographic to Beaverton, which would not only bring in more students, but would also, in theory, bring in more property taxes.”

Both school district and city officials said they’re aware of how hard it is to ask voters for money right now.

School board members wanted to put a levy on the ballot closer to $1.50 per $1,000 in assessed value, but initial polling results showed that voters would be unlikely to support such a request. Board member Mary VanderWeele made it clear that the amount being requested isn’t nearly enough, but she understood that it was likely all they could ask for right now.

Mazziotti added that the likelihood of each measure passing could suffer because they’re on the same ballot.

“It’s always hard to ask the voters for money,” he said. “But our job is to educate voters about what these measures are actually doing and how they could help our town. If we do a good job with that, I think the voters will support both. And if the voters go in the other direction, that’s their choice.”

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Like pie charts? Like Money? Like men and women in slick uniforms? Well, check out this that the city released Wednesday that breaks down where Portland’s Business Tax dollars for FY2010-2011 went.

The lion’s share went to the police and fire bureaus, with smaller amounts going to various city offices. Not many surprises or any misappropriated funds. That said, the Office of the City Auditor received 0.94 percent of the funds. Bribe? Probably not. To check out more information about Portland’s revenue bureau, check out its .

– Peter Beland

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Bill would ax alternative minimum tax

In addition to increasing the threshold for contractors that can use the completed contract method, the American Job Builders Tax Reform Act of 2011 would eliminate the alternative minimum tax for firms that use the method.

The alternative minimum tax is an alternative to a regular income tax that provides an individual or corporation with a flat exemption but no personal exemptions or deductions. Parties must pay whichever is greater – the AMT rate or the regular income tax rate.

Because the bill would allow small construction contractors to use the completed contract method, taxes on profits could be deferred until projects are completed. However, under existing law, gross profit is not deferred for AMT purposes. Thus, the bill’s authors chose to eliminate it.

With an increased threshold and no AMT adjustment, small construction contractors would no longer be subject to look-back calculations for both regular income tax and AMT.

A bill introduced in Congress late last week would leave many construction firms with more working capital until contracts are completed. But lawmakers would need to approve the halt of quarterly income tax collection.

The American Job Builders Tax Reform Act of 2011 – H.R. 1993 – would increase the number of firms that can use the completed contract method of accounting, which allows businesses to pay income taxes at the end of a project rather than by estimation throughout the project. It’s a small change to the tax code that construction and tax professionals believe would have a big impact on contractors hit hard during the recession.

Presently, only contractors with average annual gross receipts of $10 million or less can use the completed contract method of accounting, a threshold that was set as part of the Tax Reform Act of 1986. Any contractor that has average annual gross receipts greater than $10 million are required to use the percentage-of-completion method, in which accountants estimate the percentage of a contract completed each quarter and then pay income taxes based on those estimations.

If the bill – which is being sponsored by Reps. Wally Herger, R-Calif., David McKinley, R-W. Va., and Shelley Berkley, D-Nev. – were to pass, that $10 million threshold for using the completed contractor method would rise to $40 million. The threshold also would be indexed, meaning it would rise with inflation and fall with deflation.

“For the construction industry, this is huge,” said CPA Lance Barrett, a principal with Vancouver, Wash.-based Barrett & Co. PLLC, which specializes in accounting for contractors. “Of the 80 contractors we represent, only four are above that $40 million threshold. The rest would be affected by this.”

The percentage-of-completion method was created so that the federal government could receive tax revenues quarterly, instead of at the end, for long contracts that sometimes lasted 20 years, Barrett said. And in 1986, $10 million represented more than it does today, he noted.

Compounding the problem is that estimations often can be wrong. So if a contractor underpays and doesn’t notice promptly, the government can choose to charge interest on the balance due. Conversely, if a contractor overpays, interest can be charged on what the government owes the contractor.

John Killin, president of the Pacific Northwest chapter of the Associated Builders and Contractors, considers the bill a unique way to give contractors more access to operating capital during contracts, when money can be tight.

“This would be a very helpful change in tax code for construction contractors,” Killin said. “This is a commonsense, but well-studied approach to providing some relief to our hard-hit industry.”

That opinion was shared by CPA Rich Shavell, president of Shavell & Co. in Boca Raton, Fla., and a member of the ABC’s Tax Advisory Group. While this bill is centered on tax code, it’s really about enabling contractors to retain capital in their businesses for a long period of time, and allowing more opportunity for job growth, he said.

Barrett agreed that the bill has benefits for the construction industry. But that doesn’t mean it’s going to make its way out of Congress, he said.

“It’s going to be tough to pass and I’m not sure it has much of a chance,” he said. “These types of bills usually have to be revenue neutral and there is nothing in the bill about where taxes are going to be raised to make up for any money lost.”

Congress’ opinions on the bill remain unknown.

Even though the bill has bipartisan sponsorship, no hearings have taken place yet. It has been referred to the House Committee on Ways and Means; a hearing is expected to be scheduled in the next few weeks.

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