A little-noticed provision tucked away in the recently enacted Tax Cuts and Jobs Act (TJCA) will have an effect on businesses that lobby at the local level. Under the TJCA, expenses incurred in connection with attempting to influence legislation at the local or municipal level (including Indian tribal governments) will no longer be deductible.
In general, since 1993, the tax code has prohibited businesses from deducting expenses incurred in connection with influencing legislation at the federal and state levels. However, the tax code contained a specific exception for expenses incurred in connection with influencing local legislation. The TJCA eliminates this exception immediately, effective for any such expenditures incurred on or after December 22, 2017.
Businesses will see the impact of this tax in three ways:
- Businesses that lobby at the local level will now have to capture staff time, expenses, and outside consultant fees in their nondeductible lobbying spend.
- Associations that lobby at the local level will have to include their staff time, expenses, and outside consultant fees in the percentage of their dues that they report to members as being nondeductible. That means that businesses will be able to deduct less of their dues.
- Associations that lobby exclusively at the local level (such as local chambers of commerce) will now have to treat a portion of their dues as nondeductible. In the past, business were able to deduct all of their dues to such associations, since all of their lobbying was deductible.
As a reminder, the rules on deductibility of lobbying are completely unrelated to lobbying disclosure rules. Many states require registration and reporting at the state level for local lobbying (such as New York). In addition, many localities have their own lobbying registration systems (such as New York City, to name just one of many).