UHY LLP Construction Insider - Volume 8 Issue 1

Volume 8 : Issue 1

In This Issue

Gov. Synder Proposes Raising $1.2 Billion for State Road Repairs

Michigan Becomes 24th "Right to Work" State

American Taxpayer Relief Act Helps Avoid Cliff

Construction Industry Insight

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Gov. Snyder Proposes Raising $1.2 Billion for State Road Repairs

Governor Rick Snyder announced a new proposal in January to invest over $1.2 billion per year into repairing Michigan's roads and bridges during his annual State of the State address. The governor sought support from both parties and the public for his plan, which involves funding the road expenditures through a combination of restructuring of the gas tax and enacting increases to vehicle registration fees.

Snyder seeks $1.2 billion in funding over a 10-year period, a total of $12 billion. He believes that if Michigan waits another 10 years to make the necessary improvements, it would cost the state around $25 billion. A senior policy adviser with the state cited a study that if Michigan sits idle with regards to the roads, then 65 percent of roads and bridges will be in "poor" condition by 2020.

The governor contends that his roads proposal will offer several major benefits to the state:

� creation of 12,000 jobs through MDOT contracts;

� reduce annual maintenance repairs to vehicles;

� increase tourism within the state;

� and save over 100 lives a year.

The governor identified three sources of revenue that he anticipates using to obtain the $1.2 billion annually. The first is to eliminate the gas tax, which applies at the end consumer level, and create a tax at the wholesale level. Second, he will increase annual vehicle registration fees for light cars and trucks. And finally, he would introduce law that would create optional local or regional registration fees to raise revenue. MDOT Director Kirk Steudle said that the $1.2 billion annual figure equates to about $120 per vehicle.

Officials believe that eliminating the current gas tax, currently 19 cents a gallon, and replacing it with a 10.1% wholesale level tax per gallon of gas would generate close to $500 million a year. They also believe that raising vehicle registration fees on average about $60 a vehicle would generate an additional $600 million. Democrats counter with the idea that Snyder is helping corporations at the expense of private citizens.

While the governor believes this is a common sense decision that will help move Michigan forward, it could shape up as a political battle to pass road-fixing legislation. The day after Snyder's State of the State address, a panel discussion convened at the annual Michigan Infrastructure Transportation Association (MITA) conference in Mount Pleasant, where three state legislators debated the merits of Snyder's speech. Republican representatives were hesitant to state that Democratic support would be required to achieve something meaningful, but acknowledged that it would be helpful.

For more information on this topic please feel free to contact a team member in Farmington Hills (248) 355-1040 or Sterling Heights (586) 254-1040 or visit us on the Web at uhy-us.com.

Michigan Becomes 24th "Right to Work" State

With Governor Snyder's signing on December 11, 2012, of House Bill 4003 and Senate Bill 116, Michigan officially became the nation's 24th "right-to-work" state. Right-to-work describes legislation that bans mandatory participation in labor unions for employees. The new legislation will take effect in the second half of this month, 90 days after the adjournment of the current legislation.

Once the legislation takes effect, employees will be allowed to opt out of participating in all union-related activities, such as joining a union, paying union dues or agency fees, or making charitable contributions mandated by bargaining agreements.

Union members that opt out, or future employees that do not choose to join, will still receive all of the employment benefits that union advocacy might typically achieve, including the benefits of collectively bargained labor agreements, as well as the benefit of representation by the union in regards to grievances against the company.

Non-members will not have a vote in the election of union officials and ratification of collective bargaining agreements. The "freedom of choice" provision will not take effect until after the expiration dates of existing bargaining agreements in place at the time the legislation takes effect, to avoid unconstitutional impairment of contract. A civil penalty of $500 could be assessed for violating the edict of "freedom of choice."

The passage of the new legislation culminated a highly charged political debate on the topic. The average union employee pays about two hours of his wages monthly to the union for dues, a total of about $400 annually. Opponents of right-to-work argue that this loss of a funding source for the unions will negatively impact the financial health of the unions and culminate in the weakening of the unions' bargaining power. Experts indicate that the overall impact of right-to-work legislation could take years to fully evaluate.

For more information on this topic please contact a member of our construction team in Farmington Hills (248) 355-1040 or Sterling Heights (586) 254-1040 or visit us on the Web at uhy-us.com.

American Taxpayer Relief Act Helps Avoid "Cliff"

President Obama signed into legislation the American Taxpayer Relief Act (ATRA) on January 2, 2013. The Act extends many of the Bush tax cuts while also delivering on the president's promise to raise taxes on individuals with high levels of income. The Act has several provisions which prominently affect business and individual taxpayers. Below are some of the highlight provisions of the Act. Please make sure to review with your UHY representative on how these affect your specific situation.

Tax Provisions Affecting Individuals

The Act raises taxes on individuals with upper income levels in various ways, including the addition of a new tax bracket, a change in capital gains and dividends rates, a phase-out of itemized deductions, several other changes.

The newly created tax bracket is 39.6%, exceeding the previous high of 35%. Taxpayers that are married filing jointly will be subject to this new tax bracket on income levels in excess of $450,000. The same bracket will apply to single filers with taxable income in excess of $400,000, head of household filers in excess of $425,000, and married filing separately filers in excess of $225,000.

Prior to ATRA, long-term capital gains and qualified dividends were either taxed at a 0% or 15% rate. The 0% tax rate on long-term capital gains and qualified dividends applied only to taxpayers that were in the 10% or 15% income tax bracket; any taxpayer falling in a higher income tax bracket than 15% would be taxed at 15% on long-term capital gain and qualified dividend income. The Act has extended this favorable tax treatment, but has added a higher tax rate of 20% on long-term capital gains and qualified dividends for individuals considered to be high income. High income refers to the same income levels mentioned earlier with regard to the 39.6% tax bracket.

It is important to note that in addition to the 20% income tax rate on long-term capital gains and qualified dividends, there is also a new surtax that takes effect in 2013. This 3.8% Medicare surtax applies to joint filers with adjusted gross income in excess of $250,000 and single filers in excess of $200,000. This Medicare surtax applies to passive and portfolio income such as dividends, certain capital gains, rents, royalties, and passive income from pass-through entities.

Back after a multi-year hiatus is the phase-out of itemized deductions in excess of certain amounts. The total phase-out of itemized deductions will not exceed 80% of the otherwise allowable amount of deductions. ATRA raised thresholds where the 3% reduction begins to apply, to the following.

� Married filing jointly (and surviving spouse) with adjusted gross income in excess of $300,000

� Single filers in excess of $250,000

� Married filing separate filers in excess of $150,000

� Head of household filers in excess of $275,000

A phase-out of personal exemptions applies to taxpayers with adjusted gross incomes similar to the thresholds in place for the phase-out of itemized deductions.

The estate exemption remains at $5,120,000, the lifetime gifting exemption amount remains at $5,120,000, and unused exemption portability remains in effect for 2013 and into the future. Three additional tax brackets to the gift and estate tax brackets are added, with the top tax bracket being 40%.

The Act permanently increases the exemption amounts related to the alternative minimum tax. These exemption amounts are applied retroactively for years beginning after 2011. The following are the exemption amounts: Married filing jointly, $78,750; unmarried taxpayers, $50,600; and married filing separately, $39,375.

Tax Provisions Affecting Businesses

ATRA extends various depreciation provisions, which were previously in existence. Section 179 provisions, which allow for immediate expensing of qualifying fixed asset purchases, is retroactively increased to $500,000 in 2012 (increased from $125,000), and $500,000 in 2013 (increased from $25,000). After 2013, the amount will decrease to $25,000.

The Act extends the ability to take bonus depreciation, which allows an immediate expense deduction of 50% of the cost of new assets acquired and placed in service prior to January 1, 2014. Qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements retroactively apply the 15-year depreciation preferential treatment for 2012 and 2013. These items will also qualify for bonus depreciation.

When converting from a C corporation to an S Corporation, the holding period for recognition of built-in gains was reduced from 10 years to 5 for taxable years beginning in 2012 and 2013. Beginning in 2014, the built-in gain holding period will again revert back to 10 years.

For more information on this topic please contact a member of our construction team in Farmington Hills (248) 355 1040 or Sterling Heights (586) 254 1040 or visit us on the Web at uhy-us.com.

Construction Industry Insight

Our team of experts is organized across the country by industry, which provides clients with the best-in-category knowledge gained from working with similar clients in their industry or service specialty.

Our construction expertise includes:

In-depth knowledge of the construction industry
Knowledge of the surety market
Clients with a wide range of construction activities (general contractors, heavy highway, underground, casino, and bridge); sizes range from start-ups to $1billion in annual revenue.

For more information please contact a member of our construction team in Farmington Hills (248) 355-1040 or Sterling Heights (586) 254-1040.

Published by UHY LLP News.

Our firm provides the information in this newsletter as tax information and general business or economic information or analysis for educational purposes, and none of the information contained herein is intended to serve as a solicitation of any service or product. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of "UHY Advisors." UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. and UHY LLP are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. "UHY" is the brand name for the UHY international network. Any services described herein are provided by UHY Advisors and/or UHY LLP (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.