H2C PERSPECTIVES

 

What the Draft "Tax Cuts and Jobs Act" Implies for Not-For-Profit Health Systems
posted on November 3, 2017

 

Yesterday, Kevin Brady, the Chairman of US House of Representatives Committee on Ways and Means, introduced H.R. 1, the “Tax Cuts and Jobs Act” (the “Bill”), which seeks the largest transformation of the tax code in over thirty years.

 

Several sections of the Bill will affect the issuance of tax-exempt bonds that benefit not-for-profit health systems, including Section 3601, which states that interest on newly issued Private Activity Bonds – including qualified 501(c)(3) bonds – would be included in gross income and thus not exempt from tax; and Section 3602, which states that interest on advance refunding bonds will be taxable. If the Bill passes, these provisions are expected to increase tax revenue by a total of $56.2 billion over the next ten years.

Without the benefit of tax exemption, hospitals and health systems will be able to finance or refinance their capital requirements only through the issuance of taxable debt, which will likely increase the cost of capital. However, on a positive note, if hospitals and health systems will no longer be issuing tax-exempt debt, they will no longer need to comply with tax regulations such as the use of proceeds and asset average lives.

There is still significant uncertainty as to whether the Tax Cuts and Jobs Act will pass the House and the Senate in its current form. It would require 218 votes (majority) in the House and could require 60 votes in the Senate as the Bill is projected to increase the long-term deficit.