A provision in the 2018 budget law aimed at shielding a college in Senate Majority Leader Mitch McConnell’s home state of Kentucky from new taxes hasn’t actually done that.
In comments filed on a Treasury Department-issued guidance on the new endowment tax last month, Berea College said it believed Treasury’s interpretation of the tax would force it to pay $1 million a year. The college is asking Treasury to reconsider before finalizing the rules.
McConnell led the effort to spare Berea from the new endowment tax, a 1.4 percent levy on income from wealthy schools’ endowments even though the GOP Congress of 2017 created it in that year’s tax law.
The tax only applies to those institutions with at least 500 students and at least $500,000 in assets per student.
The Senate parliamentarian rebuffed McConnell’s effort before the 2017 law passed. So McConnell added language to the budget law exempting from the tax colleges that don’t charge tuition. Berea uses its endowment to cover costs for its 1,600 students.
But the Treasury guidance indicates that it considers students to have paid tuition if their college takes scholarship money they’ve earned from third parties, drawing in Berea.
In its comments, Berea contends that violates congressional intent: “Congress did not endeavor to define or qualify the phrase ‘tuition-paying students’ ” in the budget law.
The other colleges hit with the new tax, mostly prominent research institutions and prestigious small colleges, are also hoping to minimize its impact.
Working with lobbyist Rick Grafmeyer, a former GOP aide on the Senate Finance Committee now at Capitol Tax Partners, 40 that may have to pay, including seven of the eight Ivy League schools, filed comments with Treasury on Oct. 1.
They would like Treasury to allow them to count in their enrollments students merely taking classes, without enrolling in a degree-granting program. That would potentially reduce the number of them subject to the tax. Treasury’s guidance would count only those students seeking degrees.
The comments also suggest that Treasury should be clearer about taxing only passive income derived from the universities’ endowments, and not income gained in the course of running their institutions, such as interest students pay on loans they receive from the colleges and universities.
The universities, meanwhile, are clearly still hoping to convince lawmakers to scrap the levy altogether. They wrote: “We remain opposed to this damaging and unprecedented tax that will not only reduce resources available to colleges and universities to promote excellence in teaching and to sustain innovative research, but also to increase access for low and moderate-income families.”
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