Ohio Senators Portman, Brown Collaborate On Manufacturing Bill

WASHINGTON D.C. - Ohio's senators are collaborating on a bipartisan bill to try and clarify the manufacturing tax deduction for US companies. Sherrod Brown, Democrat, and Rob Portman, Republican, are cosponsoring the bill with Debbie Stabenow, a Democrat from Michigan.

The bill, titled Promoting More American Manufacturing Jobs Act, was first introduced during the 2015-2016 session of Congress. The senators reintroduced the bill on March 15. The legislation would aim to expand the receipt of a tax deduction for companies that contribute to the growth and stability of American manufacturing.

Specifically, the legislation clarifies section 199 of the US tax code. The Internal Revenue Service issued guidance on that piece of the tax code in 2016. Their guidance reads:

In general, section 199 of the Internal Revenue Code allows a deduction for income derived from any lease, rental, license, sale, exchange, or other disposition of qualifying production property manufactured, produced, grown, or extracted by the taxpayer in whole or significant part within the United States; any qualified film produced by the taxpayer; or electricity, natural gas, or potable water produced by the taxpayer in the United States. Only one taxpayer may claim the section 199 deduction for a Qualifying Activity performed with respect to a Qualifying Property. See I.R.C. § 199(d)(10) and Treas. Reg. § 1.199-3(f)(1). As used in this Directive, the term “Qualifying Activity” means manufactured, produced, grown, or extracted (defined in Treas. Reg. § 1.199-3(e)) and the term “Qualifying Property” includes qualifying production property (defined in section 199(c)(5)); qualified film produced by the taxpayer; and electricity, natural gas, or potable water produced by the taxpayer in the United States.

You can read the full IRS guidance here. You can read the tax code section here.

The bill the senators are pushing would clarify that the tax deduction would apply to anyone with a "risk of loss with respect to greater than 50 percent of the direct material costs necessary to the manufacture" and produce.

“This simple fix will promote job creation by making sure American manufacturers can get the tax deduction they need to grow," Brown said in a statement.

Unsurprisingly, the legislation stems from Ohio and Michigan, two states with a base of economic manufacturing.

“This legislation will help ensure our tax code encourages good-paying manufacturing jobs right here in the United States,” said Portman in a statement. “The IRS’s interpretation of the section 199 regulations has resulted in unnecessary disputes and litigation between the IRS and contract manufacturers and, as a result, it has diminished the law’s intended purpose of promoting more American manufacturing. This bill will end those disputes so that businesses can get back to focusing on creating more jobs.”

The Domestic Manufacturing Deduction was originally placed into the tax code in 2004 as part of the Jobs Act. The press release announcing the legislation said the original deduction was clear in how it was meant to be applied, but the IRS had muddied up deduction application by over-regulating the deduction's use.

“We don’t have an economy or a middle class unless we make things and grow things,” said Stabenow in a statement. “This bill makes a commonsense change to our tax policies that will encourage manufacturers to create more jobs here at home.”

Photos from Senators Portman and Brown Offices