Legislative Update/IIAA Insider - January 25, 2019

 

     

LEGISLATORS COMPLETE SECOND WEEK OF SESSION
 
Welcome to week two of the Legislative Update which will replace the Friday Letter during the 92nd Session of the Arkansas General Assembly. This weekly publication will contain a synopsis of all new insurance related bill introductions in both the Arkansas House and Senate. Please save these bulletins in a binder or an electronic file so you can refer back to them during the session.
 
The second week of the session was a short one with the Legislature recessing Monday in celebration of the Martin Luther King state designated holiday and both the House and Senate recessed early on Thursday. HOWEVER, at the completion of the 2nd week of the session, there have already been 407 bills introduced between the House and Senate.
 
As tax season has arrived, please make special note of the update on Federal Legislation which will impact most of our Arkansas Big I members.    
 

BIG "I" SECURES TAX BREAK FOR  
PASS-THROUGH AGENCIES
 
On Friday (1-18) , the IRS issued final regulations governing Section 199A of the tax code. The rule confirms that owners and shareholders of insurance agencies and brokerages organized as pass-through entities are eligible for a tax deduction of up to 20% on "qualified business income"-regardless of taxable income level. The deduction is available for taxable years 2018 through 2025.
 
The new deduction reduces the top effective tax rate on pass-through income to approximately 29% from 37%. For those in the 24% bracket, it can reduce the rate to as low as 19.2%.
 
The regulation is a significant government affairs victory for Big "I" member agencies. Since passage of the 2017 tax reform law, the Big "I" has been aggressively advocating before Congress and the Trump Administration to ensure that insurance agencies and brokerages organized as pass-through entities fully benefit from tax reform.
 
The final regulation is substantially similar to a  draft regulation released in August. Under the regulation, owners and shareholders of insurance agencies and brokerages where the owner or shareholder's annual taxable income does not exceed $315,000 for joint filers and $157,500 for single filers in 2018 can take a 20% deduction on qualified business income.
 
For insurance agencies and brokerages where the owner or shareholder's annual taxable income exceeds these levels, the deduction is available for qualified business income derived from the sale and servicing of insurance products. However, the deduction may be limited on income derived from consulting or financial services activities if that non-traditional income exceeds certain de minimis thresholds. Additionally, above these same income levels, the total amount of the deduction cannot exceed 50% of employee W-2 wages, or 25% of W-2 wages plus 2.5% of capital assets, such as tangible property purchased for the business-whichever is greater.
 
Owners and shareholders of insurance agencies and brokerages organized as pass-through entities can take full advantage of the 20% deduction, no matter their taxable income levels, because the IRS does not consider the sale and servicing of insurance products to be a "specified service trade or business." Other professions such as doctors, lawyers, accountants, stock brokers and certain consulting and financial advisory activities are a "specified service trade or business" under the regulation.
 
Owners and shareholders of "specified service trades and businesses" with annual taxable income between $315,000 and $415,000 (joint) and $157,500 and $207,500 (single) will slowly see the deduction phased out. Those above $415,000 (joint) and $207,500 (single) are prohibited from utilizing the new deduction.
 
While a major victory Big "I" members, the regulations are complex. The Big "I" encourages members-especially those who derive income from non-traditional activities-to consult a tax professional to determine how the new deduction specifically impacts their businesses. (SEE BELOW)
 
Jennifer Webb is Big "I" federal government affairs counsel.
 

BIG "I" HOST FREE WEBINAR ON PASS-THROUGH REGULATION: JANUARY 30
 
Late last week, the IRS issued final regulations concerning the new tax deduction for qualified business income under section 199A of the Tax Code. The regulation is critically important for owners and shareholders of insurance agencies and brokerages organized as pass-through entities, such as partnerships and S-corporations.
 
The Big "I" will host a free 30-minute webinar on Jan. 30 at 2:30 p.m. ET to help members  understand the new regulation. The webinar will provide a comprehensive explanation of how the new tax deduction benefits pass-through owners and shareholders, including an overview of specific sections of the over 200-page regulation relevant to insurance agencies and brokerages. The webinar will also highlight how the regulation was enacted and the role that Big "I" played in those efforts.  
 
The webinar will be conducted by Big "I" staff Charles Symington, senior vice president of external, industry & government affairs and Jennifer Webb, senior counsel, federal government affairs.
 

WHO'S MY STATE LEGISLATOR?
 
Both chambers have sites where you can find your legislator by putting in your ZIP code or address. The Senate website is www.arkansas.gov/senate/   and the House website is   www.arkansashouse.org  and look for find my senator or representative.

WEEKLY BILLS OF INTEREST
 
GOVERNMENT TRANSFORMATION
 
HB 1070 by Rep. Andy Davis and Sen. Bart Hester is the general language portion of Governor Hutchinson's Transformation and Efficiencies Act of 2019. It seeks to establish 15 cabinet-level departments led by an executive head named the secretary. It also establishes the powers and duties of a cabinet-level department. HB 1070 was presented to the Senate State Agencies Committee Tuesday morning by Sen. Hester, Rep. Davis and Amy Fetcher. They told the committee that there will be a total of 16 bills, each of which will be presented to the Committee, then they will all be combined into one bill.
 
MINIMUM WAGE
 
SB 115, by Sen. Bob Ballinger and Rep. Frances Cavenaugh, would create an exemption to the Minimum Wage Act for employers with fewer than 50 employees, employers that are schools or institutions of higher education and 501(c)(3) nonprofits. This bill has become very controversial in that opponents claim that it goes against the wishes of the people of the state who, in the last general election, unanimously voted in favor of an increase in the Arkansas Minimum wage.


COVENANTS NOT TO COMPETE

HB 1068,
by Rep. Brian Evans and Sen. Ricky Hill, seeks to repeal the ability to enforce covenant not to compete agreements. Uncodified language says the repeal does not affect the ability of an employer to protect trade secrets under the Trade Secrets Act.  
 
Repealing the existing statute on these covenants will not eliminate their use. Instead, legal control would return to common law. There is opposition to total repeal and amendments to the bill are currently being drafted.


NEW HOUSE INTRODUCTIONS

 HB 1068   
Repeals the enforceability of covenant not to compete agreements. States in uncodified language that the repealer does not affect the ability of an employer to protect trade secrets under the Trade Secrets Act.
 
 
 

 

CONTACT INFORMATION

 

State Senators: 501-682-2902

State Representatives: 501-682-6211

 

To view schedules, calendars, bill information and legislator information, visit: www.arkleg.state.ar.us.

To view live stream video and audio from the Arkansas House of Representatives, visit www.arkansashouse.org.

 

Independent Insurance Agents of Arkansas phone: (501) 221-2444

IIAA web site: www.iiaar.org

  

 

The Weekly Legislative Update is written by Lynn Zeno;

edited and distributed by Kari McAfee.

  

 

 
As a reminder, the Legislative Update is sent to all IIA of Arkansas members via electronic communications unless you notify us otherwise at kmcafee@iiaar.org or by telephone at 501-221-2444
  
The Legislative Update is a publication of the Independent Insurance Agents of Arkansas to members and associate members of this Association. Reproduction, by any means, of material appearing in the Legislative Update is strictly forbidden without permission.