National Roofing Contractors Association
Statement on Tax Reform Priorities
House Committee on Ways and Means Working Groups
April 15, 2013
The National Roofing Contractors Association (NRCA) commends Chairman Camp, Ranking
Member Levin, members of the Committee and working group members for their commitment
to reform the nation's tax code. NRCA is grateful for opportunity to share our thoughts
on how the tax code can work better for roofing industry employers with the House
Ways and Means Committee Tax Reform Working Groups. Any tax reform legislation considered
by Congress must contain pro-growth policies that enable entrepreneurs to invest
in and grow their business, which will, in turn, create more jobs.
Established in 1886, NRCA is one of the nation's oldest trade associations and the
voice of professional roofing contractors worldwide. NRCA represents approximately
4,000 members located in all 50 states from all segments of the roofing industry,
including contractors; manufacturers; distributors; architects; consultants; engineers;
building owners; and city, state and government agencies. NRCA members' work primarily
focuses on repairs to existing roofs and construction of new roofs to both commercial
and residential structures. Member businesses are mainly small and privately held
with one-third in business for more than 25 years. Many of these long-standing
businesses are family-owned and handed down from one generation to the other and,
in some cases, to the third generation. During peak season, the average member employs
As the committee looks to overhaul the nation's tax code, we ask that you address
key issues of importance to the roofing industry as outlined below.
Lower Tax Rates
With the passage of the American Taxpayer Relief Act (ATRA) of 2012 on January 1,
2013, many small business owners have had their taxes increase significantly. Many
entrepreneurs in pass-through businesses now face tax rates as high as 39.6 percent
on income that is often the only source of capital for reinvesting in their business.
These job creators are also impacted by other tax increases included in the ATRA,
such as the phasing out of personal exemptions, limiting itemized deductions, and
the increase in capital gains and dividends rates. Additionally, many business
owners now face the new 3.8 percent Medicare tax authorized by the Affordable Care
Act of 2010. With the federal government digging deeper into businesses' pockets,
it's no wonder we have not seen the strong economic growth that normally follows
Each employer must choose the best structure for their business, whether it is an
S corporation, Limited Liability Company, Partnership, Sole Proprietor or C corporation.
NRCA members are comprised of both C corporations and various types of pass through
entities that pay business income tax at the individual level. NRCA contractor members
range in size from companies with less than $1 million in annual sales volumes (40
percent of the current membership) to large, commercial contractors with annual
sales volumes of more than $20 million. NRCA also represents manufacturers, distributors
and other roofing industry participants that have a wide array of business structures.
Given NRCA's diverse membership, it is imperative that tax reform be comprehensive,
lowering both the corporate and individual tax rates in order to provide employers
with more capital to invest in and grow their business. A study conducted by Ernst
& Young found that pursing so-called "corporate-only" tax reform, in which only
the tax rate for C corporations is lowered, would increase the income taxes paid
by individual owners of flow-through construction businesses, on average, by 9 percent
or $26 billion annually. NRCA supports tax reform that lower rates for all types
of businesses and opposes any tax legislation that increases taxes on businesses
in the roofing industry.
Depreciation Reform for Commercial Roofs
During the 112th Congress, Representatives Tom Reed (R-N.Y.) and Bill Pascrell (D-N.J.)
introduced bipartisan legislation in H.R. 2962, the Roofing Efficiency Jobs Act,
to reform the depreciation schedule for commercial roofs. This legislation, which
had more than 70 bipartisan co-sponsors, simplifies taxes for small businesses of
all types by reducing the depreciation schedule for commercial roofs from 39 years
to 20 years. By removing an obstacle in the tax code to economic growth, this legislation
would facilitate the creation of an estimated 40,000 new private sector jobs among
roofing contractors and manufacturers.
Depreciation reform for commercial roofs is crucial today because between 1981 and
1993 the depreciation schedule for nonresidential property was increased from 15
years to 39 years. However, the current 39-year depreciation schedule is not a
realistic measure of the average life span of a commercial roof. A study by Ducker
Worldwide, a leading industrial research firm, determined the average life expectancy
of a commercial roof to be 17 years.
The large disparity between the current 39-year depreciation schedule and the actual
17-year average life span of a commercial roof is a major obstacle that prevents
building owners from replacing failing roofs in a timely manner. This slows economic
activity because an owner who replaces a roof before the 39 years have elapsed must
continue to depreciate that roof for tax purposes even though it no longer exists.
A Treasury Department Report corroborated this problem, finding "…a 'cascading'
effect, where several roofs are being depreciated at the same time, even though
only one is physically present." Given this situation, many building owners choose
to do only piecemeal repairs rather than replace a failing roof in its entirety.
Depreciation reform for commercial roofs would also provide additional economic
benefits by reducing energy costs for businesses that install new roofs. Due to
technological advances within the industry, today's commercial roofs are much more
energy-efficient than their predecessors. Removing the obstacle in the tax code
that inhibits building owners from performing full roof retrofits in a timely manner
will not only create new jobs in our industry but also will reduce energy costs
and consumption within the commercial building sector.
Reforming the outdated 39-year depreciation schedule for commercial roofs will produce
the following benefits by accelerating demand for commercial roofs:
Make the tax code simpler and more equitable for small businesses of all types
Add $1 billion of taxable annual revenue in the construction sector
Create nearly 40,000 new jobs among roofing contractors and manufacturers
Reduce energy usage by an estimated 13.3 million kilowatt hours, saving small businesses
millions of dollars in energy costs
Due to the unique economic benefits of this legislation, depreciation reform for
commercial roofs enjoys the support of a broad array of constituencies, including
business, manufacturer, labor union and energy efficiency organizations. NRCA strongly
urges the inclusion of this timely reform in any comprehensive tax reform bill,
and we wish to commend Representatives Reed and Pascrell and other many co-sponsors
of their legislation for their leadership on this issue.
Section 179 Expensing
NRCA supports making permanent Section 179 expensing levels at $250,000 and allowing
the deduction to be used for qualified real property. This expensing provision
encourages businesses to immediately deduct a sizable portion of their investments
in equipment in the year the investment is made rather than claiming the deduction
over a longer depreciation period, greatly simplifying tax preparation. Allowing
Section 179 to fall back to $25,000, as scheduled under current law, is unacceptable
to business owners who make strategic business decisions based on allowable expensing
S Corporation Modernization
NRCA supports H.R. 892, the S-Corporation Modernization Act, bipartisan legislation
recently introduced by Representatives Dave Reichert (R-Wash.) and Ron Kind (D-Wis.).
Many of the rules that govern the day-to-day management of S corporations date back
more than half a century and are badly in need of updating. This legislation is
designed to improve the tax rules governing S corporations to provide entrepreneurs
with increased access to much-needed capital. Key provisions include permanently
setting the built-in gains tax holding period to five years (down from 10 years);
increasing the "Sting Tax" gross receipts threshold from 25 percent to 60 percent
on passive investment income; and expanding the ability of S corporations to make
As stated earlier, many NRCA member businesses are closely held family businesses,
passed on from generation to generation. Much of the value of family-owned businesses,
especially those in the construction industry, is tied to illiquid assets such as
land, buildings and equipment. As such, new owners are often forced to sell these
assets, or the business itself, in order to pay the tax due when entrepreneurs transfer
their business to their heirs. This financial burden can be crippling to the viability
of the family business. Protecting these job creators from the estate tax is important
in order to keep them operating for future generations. In order to alleviate the
burden placed on family-owned businesses, Congress should permanently repeal the
estate tax in any truly comprehensive tax reform legislation.
Reform the Completed Contract Method of Accounting
Under current law, a business cannot use the Completed Contract Method (CCM) if
average annual revenues exceed $10 million. The business must instead use the Percentage
of Completion Method (PCM), adding complexity and potential cash-flow problems by
requiring quarterly income estimates. Because the $10 million threshold has existed
since 1986, Congress should increase the threshold to a more reasonable $40 million,
and indexing it for inflation. This would ease the compliance burden and let contractors
focus on job creation.
According to the Office of the Taxpayer Advocate, taxpayers (both individuals and
businesses) spend more than 6.1 billion hours to file their taxes. The tax code
contains almost 4 million words and, on average, has more than one new provision
added to it daily. In addition to low, pro-growth tax rates, business owners need
a permanent, cleaner, simpler and easily understandable tax code to allow them to
spend more of their time and resources working to grow their business.
NRCA looks forward to working with the Committee and the working groups towards
enacting tax reform that will generate greater economic growth within the roofing
industry by addressing the issues outlined above. If you have questions or need
more information regarding any of these matters, please contact Duane Musser or
Andrew Felz at (202) 546-7584.
Thank you for your consideration of NRCA's views.
1Robert Carroll and Gerald Prante, "The Flow-Through Business Sector
and Tax Reform," April 2011. 2Ducker Worldwide, "Comprehensive Nonresidential Building Analysis to
the Current Reality of Roofing Longevity," September 2003. 3Ducker Worldwide. 4US Department of Treasury, "Depreciation Recovery Periods and Methods,"
July 2000 5Ducker Worldwide. 6Ducker Worldwide. 7National Taxpayer Advocate, "2012 Annual Report to Congress" December
National Taxpayer Advocate.