NCPA Endorses Expanded Tax Relief to Small Businesses

NCPA has given a thumbs-up to new language in the House of Representatives GOP tax proposal designed to provide small business pharmacy owners tax relief as pass-through entities under current law.

The organization said that U.S. House Ways and Means Committee Chairman Kevin Brady (R-TX) amended the proposed Tax Cut and Jobs Act (HR 1) to address concerns raised by NCPA and other groups that represent small businesses.

In a statement, NCPA CEO B. Douglas Hoey, RPh, said: “NCPA strongly supports House Ways and Means Chairman Brady’s amendment in the tax relief bill. It will bring substantial relief to the 22,000 independent community pharmacies we represent. In an August letter, we urged Congressional leadership to address tax fairness for small business owners. Unlike large corporations, many small businesses are treated as pass-through entities under current law and are taxed at the higher personal income rate.”

Brady’s amendment creates a new 9% tax rate for the first $75,000 of income for a married active business owner with less than $150,000 in pass-through business income. This is a meaningful improvement from the original 12% rate in the tax proposal, according to the NCPA. The amendment has also been endorsed by the National Federal of Independent Businesses.

NCPA stated that independent community pharmacies employ thousands of Americans and help improve the health of millions of patients.

“Unfortunately, due to low reimbursements for the prescriptions we dispense, such as with the proliferation of DIR fees, pharmacies operate with slim profit margins,” Hoey said. “The Brady amendment will relieve some of that financial strain and allow us to invest more into our businesses. We urge the House of Representatives to back this provision as it considers the legislation this week.”

He added that NCPA will “encourage” the Senate to include a comparable provision in its tax reform proposal.  

Scotty Sykes, a CPA with Sykes & Company P.A. in Edenton, NC, said that the tax bills presented in Congress have a long way to go before they are enacted into law.  “We do expect changes and revisions to what has been presented. The Senate bill still has to make its way through the Senate Finance Committee before the House bill and Senate bill differences are even resolved.”

Sykes said that there are areas that he is keeping an eye on as the process moves forward.  “One is the tax rates as both bills are different. Second, would be the pass through taxation of S Corp and Partnership income and the limitations on that tax rate. Most pharmacies are taxed as S corporations or partnerships, so this area will be big.”

Sykes added that there are also proposals on salary requirements for those pharmacy owners who are S corporations and partnerships.  “I think overall, I would expect a net positive here for the pharmacy owner,” he said. Other issues include deductions and what the bills plan to eliminate, limit or enhance. “Depending on each pharmacy owner scenario this could hurt some pharmacy owners in higher taxed states, counties and towns and wealthy urban areas,” he said.

Another concern, according to Sykes, is the proposed elimination of the domestic production activities deduction for heavy compounders.  “From the surface this will certainly hurt those compounders but coupled with the other proposed changes, could be a net positive.”

The proposed changes are so massive and the unique scenarios facing each pharmacy owner are so complex that there are some areas that could be negative and some areas that could be positive, said Sykes.

Overall, Sykes said the tax changes will be positive for pharmacy owners. He urged owners to consult with their CPA and advisors and stay proactive in planning and adapting to the potential changes once a final bill is drafted and enacted into law.