AFS, metalcasting industry win battle on manufacturing tax rebate.

In early October, the House and Senate were expected to pass legislation to replace the Foreign Sales Corporation-Extra-Territorial Income (FSC-ETI) tax benefit for U.S. exporters, with language that provides a 9% tax deduction for large and small manufacturers as a way to make up for lost FSC-ETI benefits. By the time of publication, the matter was not finalized. The legislation is necessary to eliminate European tariffs that were levied on many American products earlier this year after the World Trade Organization (WTO) ruled FSC-ETI an illegal subsidy.

Earlier this year, a House-approved replacement bill (H.R. 3967) only provided manufacturing tax benefits to employers who pay corporate taxes. But the Senate-passed bill (S. 1637) spread the tax relief to all manufacturers, including more than 150,000 small U.S. manufacturers organized as S-Corporations, partnerships, sole-proprietors, LLCs, and other pass-through entities that pay individual (not corporate) income taxes.

AFS descended on Congress with the message that the version of the bill to be sent to President Bush must mirror the Senate language and include all manufacturers. After months of debate and thousands of letters and visits from manufacturers, the House decided it would use the Senate's version of tax deduction and included it in the conference report to be voted on in the two chambers.

Without this final language, many small manufacturers would have been hit with a tax increase because they would have lost their current FSC-ETI benefits while receiving nothing in return from a corporate manufacturing rate reduction.

The legislation also includes other significant benefits for U.S. small businesses, including an extension of Section 179 expensing, which will allow small businesses to immediately expense up to $100,000 of new investments through 2007; a reduction of the depreciation period for restaurants and leasehold improvements from 39 years to 15 years; and S-Corporation reform and simplification.