Late last fall, members of the American Institute of Architects (AIA) began receiving updates from the organization’s advocacy branch on how proposals for tax reform from the Trump Administration and Republicans in Congress would affect the profession. Within the AIA, advocacy positions had been formulated long before a final bill was released, with the organization matching positions to policy to determine where its lobbying efforts would have the greatest benefit for architects.
In the aftermath of last year’s election—in which AIA CEO Robert Ivy quickly committed to work with the President-elect on behalf of the entire AIA member body, then just as quickly issued several apologies—the AIA learned how polarized and how vocal its membership was. When strategizing positions related to tax reform, the AIA recognized that its members were as varied in their views as the country’s population, representing every shade on the political spectrum. Thus the AIA chose to focus on three issues that would have ramifications for all architects, regardless of their party affiliation: fair treatment for architects under the new tax laws; protection of the Federal Historic Tax Credit; and the preservation of another tax credit, known as 179D, for efficient building. “The bill at large had the ability to impact all architects in different ways,” says Cindy Schwartz, a senior director for advocacy within the AIA. “We’ve limited our communications and our work to these specific issues.”
The tax bill, at more than a thousand pages, contains far more complexities than most could begin to understand. In the simplest possible terms, the major change that the AIA pushed for was allowing architects to qualify for an automatic tax deduction. Under an earlier iteration of the new bill, some small businesses—those which are organized as S corporations and pass-through entities, and would therefore be subject to individual rates—would get an automatic 20 percent tax deduction; the AIA estimates that nearly 40 percent of architecture firms are organized this way. But architects and engineers were specifically listed as being excluded from eligibility for that deduction.
The AIA lobbied to remove architecture and engineering from the list of excluded services, thereby making architects and engineers eligible to receive the 20 percent deduction. The AIA teamed up with the National Society of Professional Engineers, sending a joint letter to members of Congress. “What we highlighted was that it was an issue of fairness for us, the fact that these professions were going to be treated so differently even from others within their own industry, based on the way they’d chosen to incorporate,” says Ian McTiernan, manager of federal relations for the AIA. “Those types of job-creating small businesses should be able to benefit from tax cuts that are going to help all other businesses in the country.”
Elsewhere in the tax bill, legislators in the House had slated for elimination the Historic Tax Credit, which provides incentives in the form of a 20 percent tax reduction in the amount spent on the rehabilitation of certified historic buildings. In the Senate’s version, the credit would have been reduced from 20 percent to 10 percent. But following lobbying efforts, the 20 percent credit was maintained, with a modification that the credit be spread over five years. “We worked with [Republican] Congressman Kevin Brady’s office from Texas to make known concerns about things in the initial bill,” McTiernan says. “We had state [AIA chapter] leaders reaching out, and we were able to get the Senate Finance Committee to make a change which restored the credit almost fully for registered historic buildings, which would have been cut in half.”
That the Historic Tax Credit remains in the final bill will have a huge effect on the profession, as the credit gives incentives to developers to upgrade aging structures that would otherwise face the wrecking ball. However, a related incentive, allowing a 10 percent credit for rehabilitation of any pre-1936 buildings, was repealed in the new bill. The AIA downplays that loss, instead focusing on the retention of the Historic Tax Credit: “Even under previous law, developers would typically pursue a historic designation to earn the 20 percent credit,” McTiernan says.
Without those tax credits, some projects simply wouldn’t happen, according to Marsha Maytum, FAIA, a principal with Leddy Maytum Stacy Architects in San Francisco as well as the incoming chair of the AIA’s Committee on the Environment. “Oftentimes, a landmarked building will have a lot of restrictions on what can and can’t be done to it, and if it’s not financially viable to rehabilitate it, it will just continue to decay,” Maytum says. “The tax credits provide some additional financial support to the organization trying to preserve the landmarked building.”
For instance, her firm’s recent work on Fort Mason in San Francisco took advantage of $7 million in federal tax credits to transform a former warehouse, which the Army had turned over to the National Park Service (NPS), into facilities for the San Francisco Art Institute. The $53 million project, which opened last fall, included $13 million in pier-structure upgrades by the NPS, and $40 million for renovations and improvements to the 1912 shed, which now houses studios, galleries, and maker spaces for the Art Institute. “The tax credits were an essential part of preserving that historic landmark, seismically upgrading it, integrating sustainable building systems and strategies, and getting a really vibrant arts organization into our community,” says Maytum.
The final piece of the AIA’s push to influence language in the tax bill, regarding energy efficiency, was less successful: a tax deduction for commercial-building owners who installed energy-efficient systems, known as the 179D deduction, expired in 2016 and was not restored. McTiernan is quick to point out that “energy tax incentives in general were not contemplated under the tax-reform bill.” He and the AIA advocacy team remain optimistic: “We’re holding out hope that there may be additional avenues to address that.”