PA Legislature to Consider Opening Two Year Window for Time Barred Sexual Abuse Claims
On May 6, 2025, the Pennsylvania House of Representatives’ Judiciary Committee announced its approval of two separate bills that would open a two-year window for victims of sexual abuse to file civil lawsuits for claims that are currently precluded by the statute of limitations or sovereign immunity. Both bills will now advance to the full Pennsylvania House of Representatives for further consideration.
In 2019, Pennsylvania passed legislation that extended the civil statute of limitations for childhood sexual abuse cases, giving victims until they turn 55 years old to file claims. However, the 2019 law does not apply retroactively, leaving some victims without recourse because their claims were already barred by the statute of limitations. The new bills aim to close that gap once and for all by allowing all victims of sexual abuse to file claims during a two-year window.
The two bills are House Bill 462 and House Bill 464:
House Bill 462: This bill provides a statutory two-year window during which survivors of childhood sexual abuse could file previously time-barred civil claims. It would also waive sovereign immunity retroactively under certain circumstances, allowing survivors to file claims against state and local agencies.
House Bill 464: This bill calls for an amendment to the Pennsylvania Constitution establishing a two-year window for survivors to bring forward civil claims that were previously blocked due to expired statutes of limitations. The amendment also waives sovereign immunity retroactively under certain circumstances.
The Judiciary Committee’s approval of the two bills followed a hearing where advocates and legal experts offered testimony in support of the legislation. Despite bipartisan support for these proposals over the last several years, previous efforts to pass such legislation have failed for various reasons.
When announcing the approval of the bills, Tim Briggs, Pennsylvania State Representative and Chair of the House Judiciary Committee, said “These bills are about fairness, healing and restoring the rights of people who were silenced for far too long.” “We owe survivors the chance to be heard in a court of law, no matter how much time has passed.” “The Judiciary Committee’s action is a powerful statement that justice delayed does not have to mean justice denied.” “We are finally moving toward a day when all survivors have the chance to seek accountability and healing.”
A similar law was passed in New York in 2019, after which we saw an explosion of sexual abuse cases filed in that jurisdiction. If either of the new Pennsylvania bills become law in the coming months, we expect that an enormous amount of sexual abuse lawsuits will be filed within that two-year window. It is important to start preparing now for the rush of claims that we anticipate will be filed once this legislation is passed.
China’s State Council Releases 2025 Legislative Plan – Amended Trademark Law in the Works
On May 14, 2025, China’s State Council released their 2025 Legislative Plan (国务院2025年度立法工作计划) including considering several IP-related laws and regulations. Specifically, “[i]n terms of implementing the strategy of rejuvenating the country through science and education and building a socialist cultural power, the draft amendment to the Trademark Law will be submitted to the Standing Committee of the National People’s Congress for deliberation… and the regulations on the protection of new plant varieties will be revised… The implementing regulations of the Copyright Law, the collective management regulations of copyright, the Internet Information Service Management Measures, the implementation regulations of the Cultural Relics Protection Law, [and] the integrated circuit layout design protection regulations … will be revised. Legislation work on the healthy development of artificial intelligence will be promoted.”
A list of legislative projects for 2025 follows. The full text of the announcement is available here (Chinese only).
I. Bills to be submitted to the Standing Committee of the National People’s Congress for deliberation (16 items)
1. Draft National Development Planning Law (drafted by the National Development and Reform Commission )
2. Draft Amendment to the Foreign Trade Law (drafted by the Ministry of Commerce )
3. Draft amendment to the Prison Law (drafted by the Ministry of Justice )
4. Draft Medical Insurance Law (drafted by the National Medical Insurance Administration )
5. Draft Social Assistance Law (drafted by the Ministry of Civil Affairs and the Ministry of Finance )
6. Draft Law on Protection and Quality Improvement of Cultivated Land (drafted by the Ministry of Natural Resources and the Ministry of Agriculture and Rural Affairs )
7. Draft Amendment to the Food Safety Law (drafted by the State Administration for Market Regulation )
8. Draft Amendment to the Banking Supervision and Administration Law (drafted by the Financial Supervision Administration )
9. Draft Amendment to the Tendering and Bidding Law (drafted by the National Development and Reform Commission )
10. Draft Amendment to the Certified Public Accountants Law (drafted by the Ministry of Finance )
11. Draft Amendment to the Road Traffic Safety Law (drafted by the Ministry of Public Security )
12. Draft Amendment to the Trademark Law (drafted by the National Intellectual Property Administration)
13. Draft Amendment to the Water Law drafted by the Ministry of Water Resources )
14. Draft Law on National Fire and Rescue Personnel (drafted by the Ministry of Emergency Management and the National Fire and Rescue Administration)
15. Draft Amendment to the Law of the People’s Bank of China (drafted by the People’s Bank of China )
16. Draft Financial Law (drafted by the People’s Bank of China, the State Administration of Financial Supervision, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange )
II. Administrative regulations to be formulated or amended (30 items)
1. Regulations on Securing Payments to Small and Medium-sized Enterprises (Revised) (drafted by the Ministry of Industry and Information Technology)
2. Provisions of the State Council on Regulating the Services Provided by Intermediary Institutions for Public Offering of Stocks by Companies (drafted by the Ministry of Justice, the Ministry of Finance, and the China Securities Regulatory Commission)
3. Regulations on the Protection of Ancient and Famous Trees (drafted by the Ministry of Natural Resources, the Ministry of Housing and Urban-Rural Development, and the National Forestry and Grassland Administration)
4. Housing Lease Regulations (drafted by the Ministry of Housing and Urban-Rural Development)
5. Interim Regulations on Express Delivery (Revised) (Drafted by the Ministry of Justice, the Ministry of Transport, and the State Post Bureau)
6. Provisions for the Implementation of the Anti-Foreign Sanctions Law of the People’s Republic of China (drafted by the Ministry of Justice )
7. Provisions of the State Council on the Settlement of Foreign-Related Intellectual Property Disputes (drafted by the Ministry of Justice, the National Intellectual Property Administration and the Ministry of Commerce)
8. Regulations on the Protection of Important Military Facilities (drafted by the Ministry of Industry and Information Technology, the State Administration of Science, Technology and Industry for National Defense, and the Equipment Development Department of the Central Military Commission)
9. Marriage Registration Regulations (Revised) (Drafted by the Ministry of Civil Affairs)
10. Measures for the Implementation of the Drug Administration Law of the People’s Republic of China by the Chinese People’s Liberation Army (Revised) ( Drafted by the Logistics Support Department of the Central Military Commission and the State Administration for Market Regulation)
11. Regulations on the Protection of New Plant Varieties (Revised) (drafted by the Ministry of Agriculture and Rural Affairs)
12. Measures for the External Use of the National Emblem (Revised) (drafted by the Ministry of Foreign Affairs)
13. Regulations on Government Data Sharing (drafted by the General Office of the State Council)
14. Rural Highway Regulations (drafted by the Ministry of Transport)
15. Miyun Reservoir Protection Regulations (drafted by the Ministry of Natural Resources)
16. Interim Measures for Compensation for the Use of Flood Storage and Detention Areas (revised) (drafted by the Ministry of Water Resources)
17. Commercial Mediation Regulations (drafted by the Ministry of Justice)
18. Regulations on the Procedure for Formulating Administrative Regulations (Revised) (drafted by the Ministry of Justice)
19. Provisions on the Submission of Tax-Related Information by Internet Platform Enterprises (drafted by the State Administration of Taxation)
20. Regulations on the Management of Clinical Research and Clinical Transformation Application of New Biomedical Technologies (drafted by the National Health Commission)
21. Regulations on the Implementation of the Administrative Reconsideration Law (Revised) (drafted by the Ministry of Justice)
22. Regulations on Ecological Environment Monitoring ( drafted by the Ministry of Ecology and Environment)
23. Regulations on Nature Reserves (Revised) (drafted by the Ministry of Natural Resources and the National Forestry and Grassland Administration)
24. Securities Company Supervision and Administration Regulations (Revised) (drafted by China Securities Regulatory Commission)
25. Regulations on Promoting National Reading (drafted by the State Press and Publication Administration)
26. Regulations on Funeral and Interment Management (Revised) (drafted by the Ministry of Civil Affairs)
27. Urban Water Supply Regulations (Revised) (drafted by the Ministry of Housing and Urban-Rural Development)
28. Regulations for the Implementation of the Drug Administration Law (Revised) (drafted by the State Administration for Market Regulation and the National Medical Products Administration)
29. Regulations on Foundation Management (Revised) (drafted by the Ministry of Civil Affairs)
30. Regulations on Forest and Grassland Fire Prevention and Suppression (drafted by the Ministry of Emergency Management, the Ministry of Natural Resources, and the National Forestry and Grassland Administration)
Preparations are underway to revise … the Regulations for the Implementation of the Copyright Law, the Regulations on Collective Management of Copyrights, the Measures for the Administration of Internet Information Services , … the Regulations on the Protection of Integrated Circuit Layout Designs , … the Implementation Rules of the Counter-Espionage Law, …
Texas Governor Signs New Business-Friendly Governance Law to Promote In-State Corporate Growth: Senate Bill 29 Analysis
On May 14, 2025, Texas Governor Greg Abbott signed Senate Bill 29 (SB 29), which had been passed by the Legislature on May 7. The Bill, effective immediately, amends various provisions of the Business Organizations Code to make Texas a more attractive and predictable jurisdiction for entity formation and governance. That includes statutory reforms to enhance legal certainty for covered entities, reduce litigation exposure for corporate leaders, and ensure application of Texas law to internal governance disputes.
The Bill’s most notable and significant reforms to the Texas Business Organizations Code (TBOC) are addressed below.
1. Codification of the Business Judgment Rule
SB 29 codifies the Business Judgment Rule — a common law doctrine that immunizes corporate directors from personal liability for decisions made in good faith, with reasonable care, and in the best interests of the corporation. The codification of this long-standing legal doctrine is intended to allow corporate decision makers to confidently deploy capital and focus on managing their businesses rather than worry about personal liability risks.
In effectuating the Business Judgment Rule, SB 29 implements the following statutory reforms, which apply to public companies listed on a national exchange and any other corporation that affirmatively elects to be bound.1
The Bill creates a new Section 21.419 of the Business Organizations Code, which imposes a rebuttable presumption that corporate officers and directors act “(1) in good faith, (2) on an informed basis, (3) in furtherance of the interests of the corporation, and (4) in obedience to the law and the corporation’s governing documents.”
To rebut the above presumption, a party bringing a claim against managerial persons of a corporation must prove that (1) the actions or omissions of the officer or director constituted a breach of duty to the corporation, and (2) the alleged breach involves “fraud, intentional misconduct, an ultra vires act, or a knowing violation of law.”
Akin to Rule 9(b) of the Federal Rules of Civil Procedure, a claimant alleging “fraud, intentional misconduct, an ultra vires act, or knowing violation of law” must state with particularity the circumstances constituting fraud (which is a material change to Texas pleading standards).
The protections afforded under Section 21.419 above shall apply to all claims arising from alleged breaches of the duty of care, duty of loyalty, and any duties pertaining to corporate transactions with interested persons.
Notably, many future lawsuits — namely those involving public companies or $5 million in controversy — in which the now-codified Business Judgment Rule applies, can and should be litigated in the new Texas Business Court. See Tex. Gov’t Code § 25A.004(b), (d).
2. Enhanced Liability Protections for Officers and Directors of Limited Partnerships
A new Section 152.002(e) of the Business Organizations Code provides a unique protection for limited partnerships. As amended, the statute now provides that “a limited partnership may eliminate any or all of the duty of loyalty under [TBOC] Section 152.205, the duty of care under Section 152.206, and the obligation of good faith under Section 152.204(b), to the extent the partnership agreement expressly provides so.”
3. Enhanced Protections Against Derivative Shareholder Claims
The Bill imposes restrictive new provisions to limit abusive shareholder litigation. Most significantly, the law prohibits shareholders (or groups of shareholders) who beneficially own less than 3 percent of the corporate stock from bringing a derivative proceeding against publicly-listed companies or any other corporations (with 500 or more shareholders) that have opted into TBOC § 21.419. This new shareholder threshold requirement applies to all future derivative suits.
The new law also prevents plaintiffs’ counsel from recovering attorney’s fees in a derivative proceeding if the lawsuit’s sole outcome is that the corporation provides “additional or amended disclosures . . . to shareholders, regardless of materiality.”
To further bolster officer and director protections from claims arising from allegedly improper interested-party transactions, SB 29 further authorizes public companies and other opt-in corporations to form committees of independent and disinterested directors to review conflict transactions involving insiders. Corporations may petition the Texas Business Court, or district courts in some cases, for an adjudication of the independent and disinterested affiliation of any committee members. Any determination by the court of that issue shall be dispositive on the facts presented. If the corporation has already been sued, the court in which the lawsuit is pending must conduct an evidentiary hearing within 45 days (unless extended for good cause) as to whether the appointed officers and directors are indeed independent and disinterested.
4. Limitations on Shareholder Books and Records Requests
SB 29 provides a new limitation on shareholder books and records requests. Specifically, the statute precludes shareholders from submitting requests for emails, social media information, text messages or other similar electronic communications, unless the communication effectuates some corporate action.
The Legislature separately adds a new Section 21.218(b-2) to the Business Organizations Code that permits public corporations, and other opt-in corporations, to limit books and records requests during the pendency of an adversarial litigation or derivative proceeding against the company.
5. Mandatory Venue Provisions
The new law permits corporations to mandate in their governing documents that one or more courts in the state serve as the “exclusive forum and venue” for internal governance claims. This provides a strategic and potential economic benefit to corporations facing litigation in the state.
6. Waiver of Jury Trial Rights
A new Section 2.116 is added to the Business Organizations Code to allow domestic entities to include a jury waiver provision in their governance documents. The jury waiver will be enforceable against any person that votes for or ratifies the change. The jury waiver will also be enforceable against equity shareholders of a public company that continue to maintain their shares. Courts will otherwise continue to recognize existing forms of enforceable jury waivers against persons bringing an internal entity claim.
Conclusion
The bill’s legislative author, Senator Bryan Hughes, has declared SB 29 as “groundbreaking legislation” that “will draw even more companies to Texas” by “ensuring that Texas businesses can confidently deploy capital . . . and adopting other common-sense provisions to let boards and shareholders focus on managing their business and not their legal risks.” Additional legislation is currently pending before the State Legislature, to expand the jurisdiction and scope of the Texas Business Court, that, if passed, will further complement Texas’s increasingly business-friendly laws and encourage companies to make Texas their home for business.
1 In addition to corporations, SB 29 adopts similar protections for limited liability companies and limited partnerships, as codified under new Sections 101.256 and 153.163 of the Business Organizations Code.
Florida’s Proposed Choice Act to Add Significant Teeth to Enforcement of Non-Compete Agreements
Recently, the Florida legislature passed the “Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth (CHOICE) Act.” For certain employees earning higher salaries, the CHOICE Act will make it much easier to enforce non-compete agreements in Florida and allow companies to enforce longer non-compete periods. It is expected that Governor DeSantis will sign the legislation soon, and the new law will take effect on July 1, 2025.
HIGHLIGHTS OF THE NEW LAW
It applies to “Covered Employees” which includes employees and independent contractors who either:
Work primarily in Florida; or
Work for an employer whose principal place of business is in Florida and their agreement is expressly governed by the Florida law.
A “Covered Employee” must also earn or be reasonably expected to earn a salary greater than twice the annual mean wage of the county in this state in which the covered employer has its principal place of business, or the county in this state in which the employee resides if the covered employer’s principal place of business is not in this state. Notably, “salary” includes the annualized base wage, salary, professional fees, and “other compensation for personal services” as well as “the fair market value of any benefit other than cash.” But “salary” does not include things such as health care benefits, severance pay, retirement benefits, expense reimbursement, discretionary incentives/awards, “distribution of earnings and profits not included as compensation for personal services,” or anticipated but indeterminable compensation such as tips, bonuses, or commissions.
”Health care practitioners” are exempted, but remain subject to current law, section 542.335.
The Act permits non-compete agreements up to four years in length. In contrast, under Florida’s current non-compete statute, employee-based non-competes lasting longer than 2 years are presumed to be unreasonable and unenforceable.
To fit under the Choice Act:
The employee must be advised in writing of the right to seek counsel before signing;
The employee must acknowledge in writing that the employee will receive confidential information or customer relationships during their employment;
If the employee has a garden-leave agreement, the non-compete period is reduced day-for-day “by any non-working portion of the notice period”; and
The employer must provide at least 7 days’ notice of the non-compete before an offer of employment expires or 7 days’ notice before the date that an offer to enter into a “covered non-compete agreement” expires.
The CHOICE Act also addresses Covered Garden Leave Agreements, which require employers to keep paying an existing employee for a certain period of time (up to 4 years) even though the employee is not required to perform any work. Garden Leave Agreements are common in sales and other customer relationship-based jobs as a way for employers to solidify and secure a departing employee’s client relationships before he or she starts a new job. Similar to Covered Non-compete Agreements, the Covered Garden Leave Agreements also require a seven-day notice period prior to signing, notice that advises the employee of the right to seek counsel, and an acknowledgment that the employee will receive access to confidential information or customer relationships.
For those covered, the CHOICE Act requires strict enforcement and makes it much easier for employers to obtain injunctions. Courts are required to preliminarily enjoin a Covered Employee from providing competing services to any business, entity, or individual during the non-compete period. Covered Employees can only modify or dissolve the injunction if they prove by clear and convincing evidence that (1) they are not in a competing role or will not use the employer’s confidential information or customer relationships, (2) the employer failed to pay or provide the consideration provided in the non-compete agreement following a reasonable opportunity to cure, or (3) the new employer seeking to hire the covered employee is not engaged in and is not planning or preparing to engage in business activity similar to the enforcing employer in the geographic area specified in the non-compete agreement.
The statute also requires courts to enjoin the new business or individual employing the employee subject to a non-compete or garden leave agreement, at which point the burden shifts to the new employer in the same manner as it shifts to the employee (although the new employer may not be allowed to claim “failure to pay” – i.e., the second defense noted above). Thus, businesses that are not parties to the non-compete agreement can still be subject to lawsuits and injunctive relief.
Notably, the Choice Act does not modify existing law, including Florida’s current non-compete law in section 542.335. Employees who are not “Covered Employees” under the CHOICE Act or who otherwise have not signed a non-compete that complies with the new Act can still have enforceable restrictive covenants under existing Florida law. But because section 542.335 places a significantly higher barrier on enforcing restrictive covenants, employers relying on non-compete agreements should obtain legal advice to determine whether to modify their agreements to take advantage of this new law.
NEXT STEPS FOR EMPLOYERS
Anyone with employees in Florida or with non-compete agreements that choose Florida law should contact an attorney to determine whether existing agreements should be revised in light of the CHOICE Act, and whether new agreements should take advantage of its provisions. It is likely that current agreements do not have certain language or meet the new notice requirements required under the Act.
Parties contemplating corporate transactions involving Florida businesses or Florida employees that include restrictive covenants may now wish to rely on a Florida choice-of-law provision (if applicable) rather than the law of a foreign jurisdiction, such as Delaware, which would not be affected by the CHOICE Act.
Companies should carefully review their current confidentiality policies and procedures to ensure that they are properly documenting employees’ receipt of and agreements to protect company confidential information and customer relationships.
Companies should review employee compensation to ensure that the employees whom the company desires to be subject to non-competes under the new law meet the “salary” threshold.
What California Employers Need to Know About Wage Deductions
It is important for employers in California to understand what is permitted for wage deductions to maintain compliance and avoid potential pitfalls.
Employers in California may lawfully withhold amounts from an employee’s wages if: (1) the employer is required to withhold certain amounts under state or federal law, such as federal and state income taxes, as well as contributions to Social Security and Medicare; (2) the employee expressly authorizes certain deductions in writing, such as the employee’s share of insurance premiums, benefit plan contributions or other deductions not amounting to a rebate on the employee’s wages; (3) the deductions are mandated by Court order, such as child support, alimony, or debt repayment (garnishments); or (4) the deduction is expressly authorized by a wage or collective bargaining agreement, such as union dues or negotiated contributions.
However, there are certain deductions that California law prohibits, and, in many cases, the prohibition applies notwithstanding the employee’s written consent to the deduction.
Employers are not allowed to collect, take, or receive tips or gratuity left for an employee.
Costs associated with taking photographs or obtaining bonds required by the employer must be covered by the employer, as must the cost of uniforms if they are mandatory. Furthermore, employees must be reimbursed for business-related expenses incurred during the performance of their duties.
Employers are generally prohibited from deducting wages for cash shortages, breakages, or losses of equipment that were borne from negligence or regular business operations. Although deductions of amounts borne from losses from an employee’s dishonesty, willfulness, or gross negligence may be permissible, employers should still proceed cautiously and consult with legal counsel before doing so. Moreover, recovering losses from payroll errors or past salary advances garners increased scrutiny from the courts.
Employees are protected from termination solely due to the existence or threat of wage garnishments.
To maintain compliance, employers should focus on clear communication with their workforce, ensuring that wage deductions are well-explained and authorized in writing. It is essential to conduct regular audits of payroll practices to ensure adherence to both state and federal laws.
Tax Revolution: Come Together for The One, Big, Beautiful Bill
On May 14, the US House Ways and Means Committee advanced its initial markup version of The One, Big, Beautiful Bill, following 17 hours of a Committee meeting to markup the bill with no changes from the 389-page text that was released on May 12.
The Ways and Means portion is part of a larger budget reconciliation bill that Congressional Republican leadership intends to finalize and send to the President’s desk by July 4. The legislation awaits further consideration in the US House of Representatives, with a Budget Committee markup now scheduled for Friday, and then eventually in the US Senate.
Accordingly, the legislative text of the Bill is likely to change, and the ultimate timing of a final reconciliation bill remains uncertain. For example, if the Senate modifies federal spending cuts elsewhere in the comprehensive budget reconciliation bill, it could impact the net revenue impacts of the legislation. With extremely narrow majorities in the House and Senate, just a few members can bring the process to a halt by withholding their support for provisions outside of the tax title or for the tax package itself. Thus, the tax provisions remain a moving target and may well merit advocacy by stakeholders who so far have not engaged with Congress. This client alert summarizes some of the key tax policy initiatives affecting for-profit, business enterprises that are addressed in the Bill and that could impact many industries, ranging from sports franchises to renewable energy.
Qualified Business Income (QBI) Deduction (Code Section 199A)
An individual may generally deduct 20% of qualified business income (QBI) earned through a disregarded entity, S corporation, or partnership. This QBI deduction is set to expire for taxable years beginning after December 31, 2025. The Bill proposes to make the QBI deduction permanent and increase the rate from 20% to 23% for taxable years beginning after December 31, 2025, among other changes, such as modifying the phase-in of certain limitations.
Permanent Elimination of Miscellaneous Itemized Deductions (Code Section 67(g))
The Bill proposes to completely repeal miscellaneous itemized deductions (making permanent the temporary suspension of these deductions under the 2017 Tax Cuts and Jobs Act).
SALT Cap
The Bill proposes to increase the current $10,000 cap on the deductibility of state and local taxes (set to expire on December 31, 2025) to $30,000 subject to phase-out for married filing jointly taxpayers with modified adjusted gross income (AGI) above $400,000 (with a lower $200,000 threshold for married individuals filing separately). For certain Republican House members, the SALT cap is a pivotal policy issue that will dictate their vote on the Bill. Thus, it is expected that this provision will be heavily negotiated among Republicans.
Bonus Depreciation (Code Section 168(h))
The Bill proposes to allow taxpayers to permanently deduct 100% of the cost of “qualified property” acquired on or after January 20, 2025. Under current law, taxpayers generally may deduct the costs incurred to acquire “qualified property” (i.e., equipment and machinery) used in a trade or business on an accelerated schedule. The accelerated schedule for such deductions is set to fully phase out in 2027.
Increase Expensing Limitations (Code Section 179)
The Bill proposes to expand expensing limitations on qualifying property by increasing (1) the $1,250,000 cap to $2,500,000 and (2) the phase-down threshold to $4,000,000. Under current law, taxpayers may elect to immediately expense 100% of the cost of certain qualifying property (i.e., machinery and equipment), instead of recovering those costs through depreciation. Current law imposes a $1,250,000 cap on such expensing, with a phase-down beginning once the qualifying property costs exceeds $3,130,000.
Research and Experimental Expensing (Code Section 174)
The Bill proposes to allow taxpayers to deduct 100% of expenditures incurred with respect to research and experimental activities conducted in the United States beginning after December 31, 2024, and before January 1, 2030. Under current law, taxpayers are required to amortize expenditures incurred with respect to research and experimental activities conducted in the United States over a five-year period, with expenditures attributed to research conducted outside the United States subject to a longer 15-year amortization schedule.
Interest Deductions (Code Section 163(j))
The Bill proposes to expand a taxpayer’s ability to deduct business interest expense. Under current law, a taxpayer’s business interest expense deduction generally is capped at the sum of (1) business interest income for the taxable year or (2) 30% of adjusted taxable income (i.e., the taxpayer’s earnings before interest and taxes (EBIT)), plus (3) “floor plan financing interest” for the taxable year (generally, interest with respect to debt incurred to finance motor vehicles held in inventory for sale or lease to customers). The Bill proposes to expand the limit on deductible interest expense by revising the definition of adjusted taxable income to equal the taxpayer’s EBITDA (earnings before interest, taxes, depreciation, and amortization), thereby allowing for larger interest deductions. The Bill also would include in the calculation of the cap any floor plan financing interest for certain trailers and campers designed to be towed by or affixed to a motor vehicle.
Special Depreciation for Qualified Production Property
The Bill proposes to allow taxpayers to deduct 100% of the cost of “qualified production property” in the year such property is placed in service. Qualified production property generally would include depreciable property that is used by the taxpayer as an integral part of a “qualified production activity” (the manufacturing, production, or refining of tangible personal property). In effect, the Bill would allow taxpayers to immediately deduct 100% of the cost of certain new factories and improvements to existing factories and certain other structures, a significant change from the current law, under which taxpayers generally are required to deduct the cost of nonresidential real property over a 39-year period.
Qualified Opportunity Zones (QOZ) (Code Section 1400Z-2)
Under current law, taxpayers may invest capital gains into qualified opportunity zones and (1) defer the recognition of those gains until December 31, 2026, and (2) exclude from taxation the gains generated from the sale of certain qualified opportunity zone (QOZ) property that has been held for at least 10 years. Investments made after December 31, 2026, are not eligible for such QOZ tax benefits. The Bill proposes to reopen the QOZ program by extending tax benefits to investments made after January 1, 2027, and before December 31, 2033. The Bill also proposes several modifications to the QOZ program. It would establish a process for re-designating QOZs and would require certain rural areas to be designated as QOZs. Additionally, it would provide a 20% step-up in basis for investments in rural QOZs that meet certain holding-period requirements, allow taxpayers to invest up to $10,000 of after-tax ordinary income into QOZs and reduce the rehabilitation cost requirements for investments in rural QOZ areas.
Exclusion of Interest on Loans Secured by Rural or Agricultural Real Estate
The Bill proposes to create a new 25% exclusion of interest income for certain loans secured by qualifying rural or agricultural real estate.
Limitation on Amortization of Sports-Related Intangibles (Code Section 197)
The Bill proposes to limit the amortization of intangible property (e.g., goodwill) of sports franchise businesses to 50% of the cost basis of such intangible property. Under current law, when a buyer acquires a sports franchise business, the buyer generally is able to amortize 100%of the acquired goodwill of the sports franchise over 15 years.
Termination of Certain Energy Tax Credits
The Bill proposes to terminate the following energy tax credits, effective December 31, 2025: the previously owned clean vehicle credit (Code Section 25E), the clean vehicle credit (Code Section 30D), the qualified commercial clean vehicles credit (Code Section 45W), the alternative fuel vehicle refueling property credit (Code Section 30C), and the clean hydrogen production credit (Code Section 45V), (with respect to the clean hydrogen production credit, for facilities the construction of which begins after December 31, 2025).
Phase-Out and Restrictions on the Clean Electricity Production Credit (Code Section 45Y) and the Clean Electricity Investment Credit (Code Section 48E)
The Bill proposes to phase out the clean electricity production credit (i.e., the new Production Tax Credit or PTC) and the clean electricity investment credit (i.e., the new Investment Tax Credit or ITC) as follows: a 20% credit reduction for facilities placed in service in 2029, a 40% reduction for facilities placed in service in 2030, a 60% reduction for facilities placed in service in 2031, and complete phaseout after December 31, 2031.
Repeal of “Transferability” of Certain Clean Energy Tax Credits
The Bill proposes to repeal “transferability” (i.e., a new method of credit monetization created under the Inflation Reduction Act) of various clean energy tax credits generally with effect for facilities placed in service after December 31, 2027, and certain other types of credits generated after 2027. Affected credits include the Clean Electricity Production Credit (Code Section 45Y), the Clean Electricity Investment Credit (Code Section 48E), the Clean Fuel Production Credit (Code Section 45Z), Zero-Emission Nuclear Power Production Credit (Code Section 45U), Carbon Oxide Sequestration Credit (Code Section 45Q), the Advanced Manufacturing Production Credit (Code Section 45X), and the Energy Credit (Code Section 48).
Restrictions on Certain Energy Tax Credits for Taxpayers Connected with Certain Foreign Entities
The Bill also proposes to restrict eligibility for certain energy tax credits for taxpayers connected with certain foreign entities (i.e., “foreign entities of concern” and certain other foreign entities). Affected credits include the Clean Electricity Production Credit (Code Section 45Y), the Clean Electricity Investment Credit (Code Section 48E), the Clean Fuel Production Credit (Code Section 45Z), Zero-Emission Nuclear Power Production Credit (Code Section 45U), Carbon Oxide Sequestration Credit (Code Section 45Q), the Advanced Manufacturing Production Credit (Code Section 45X), and the Energy Credit (Section 48).
Phase-Out of Zero-Emission Nuclear Power Production Credit (Code Section 45U)
The Bill proposes to phase out the zero-emission nuclear power production credit (Code Section 45U) as follows: 20% credit reduction for electricity produced in 2029, a 40% reduction for electricity produced in 2030, a 60% reduction for electricity produced in 2031, and no credit available after December 31, 2031.
Phase-Out of Advanced Manufacturing Production Credit (Code Section 45X)
The Bill proposes to eliminate the advanced manufacturing production credit (Code Section 45X) for wind energy components sold after December 31, 2027, and eliminates the credit for all other components sold after December 31, 2031.
Phase-Out of Credit for Certain Energy Property (Code Section 48)
The Bill proposes to phase out the energy property credit (Code Section 48) with respect to geothermal heat pump property as follows: the base credit for geothermal heat pump property that begins construction after December 31, 2029, and before January 1, 2031 is 5.2%; the base credit for geothermal heat pump property that begins construction after December 31, 2030, and before January 1, 2032 is 4.4%; and complete phaseout for geothermal heat pump property that begins construction on or after January 1, 2032.
The House Ways and Means markup has produced a tax rewrite that better reflects the politics of reconciliation than the ideal of tax policy. Ultimately, the Ways and Means legislation will face a buzz saw of parochial roadblocks, like the SALT dispute, before the Senate offers its perspective. If this reconciliation bill passes, it will likely contain something close to this.
– Phil English, Former Ways and Means Committee member
Rachel Scott , Jivesh Khemlani , William R. Mitchell , and Philip S. English also contributed to this article.
Public Finance Provisions in the House Tax Bill Impacting Municipal Market Participants
The House Committee on Ways and Means advanced a tax bill on May 14, 2025, as part of the budget reconciliation legislation aimed at enacting the Trump administration’s fiscal priorities. Notably, the proposed legislation does not eliminate or limit the exclusion of interest from gross income for federal income tax purposes for any class of municipal bonds. Among the proposed changes to current tax law, the bill includes provisions impacting the municipal market and its participants that would:
i.
enhance the low-income housing tax credit,
ii.
increase the rate of, and the range of institutions subject to, the endowment tax added in 2017,
iii.
make technical amendments to the small issue manufacturing bond provisions, and
iv.
curtail the continued availability of clean energy credits for new projects.
Low-Income Housing
The bill proposes several changes to the low-income housing tax credit program, including:
Temporarily lowering the tax-exempt bond-financing requirement for projects using the “4%” low-income housing tax credit to 25% of the project’s aggregate basis, down from the current 50%. This lower threshold would apply to buildings placed in service after Dec. 31, 2025, where at least 5% of the financing is sourced from bonds issued between Dec. 31, 2025, and Jan. 1, 2030.
Increasing the ceiling on housing tax credits allocable by states by 12.5% for calendar years 2026 through 2029.
Raising the eligible basis for buildings placed in service between Dec. 31, 2025, and Jan. 1, 2030, by up to 30% for projects in rural and Indian areas, as defined under section 4(11) of the Native American Housing Assistance Self Determination Act of 1996.
Endowment Tax
The proposed legislation includes changes to the excise tax imposed on private colleges, universities, and foundations:
Increasing the excise tax rate for private colleges and universities with endowments of more than $750,000 per eligible student from the current flat rate of 1.4% to an annual rate ranging between 7% and 21%, depending on the institution’s student-to-endowment value ratio.
Narrowing the definition of eligible students to those meeting the student eligibility requirements under section 484(a)(5) of the 7 Higher Education Act of 1965, generally limited to U.S. citizens and permanent residents.
Including income derived from student loan interest and royalties from federally subsidized research in the calculation of net investment income subject to the excise tax.
Exempting certain religiously affiliated colleges and universities from the endowment tax.
Raising the excise tax rate on private foundations’ net investment income from the current flat rate of 1.39% to an annual rate of up to 10% for private foundations with assets of at least $5 billion.
Small Issue Bonds
The bill proposes technical changes to Section 144 of the Internal Revenue Code to reflect updates made to the capitalization of certain startup costs.
Clean Energy Tax Credits
The bill aims to accelerate the phase-out and termination of various clean energy tax credit programs:
Gradually phasing out the 48E Investment Tax Credit and 45Y Production Tax Credit starting in 2029, with full elimination by 2032.
Repealing the transferability of credits for projects commencing construction after Dec. 31, 2027, and clean fuel production starting after the same date.
Terminating tax credits for electric vehicles and chargers sold or placed in service after Dec. 31, 2025, with limited exceptions.
Next Steps
The reconciliation bill, including these tax provisions, will be consolidated by the House Budget Committee and subsequently reviewed by the Rules Committee before consideration on the House floor. Once passed, the bill will require approval by both chambers of Congress, with differences resolved before enactment. The legislative process may bring changes to these tax provisions.
Equal Protection Not on the Menu This Time
In North End Chamber of Commerce (“NECC”) v. City of Boston, the NECC and several restaurants in the North End neighborhood of Boston (“Plaintiffs”) filed suit against the City of Boston (“City”), alleging that the City unlawfully curtailed and later banned on-street dining in the North End. The Court granted the City’s motion to dismiss Plaintiffs’ complaint (“Complaint”).
In response to the COVID-19 pandemic in 2020, the City implemented an outdoor-dining program authorizing restaurants in designated areas to offer dining on public streets. In 2022, the City imposed an “impact fee” of $7,500 on participating North End restaurants and a monthly fee of $480 for each parking space used by the restaurants’ outdoor patios. The City did not charge these fees to participating restaurants in any other Boston neighborhood. The City also limited the outdoor-dining season in the North End to five months, compared to the eight-to-nine months outside of the North End. The following year the City completely banned on-street dining in the North End but not elsewhere. Plaintiffs then filed the Complaint.
The City moved to dismiss, claiming the Complaint failed to state a claim upon which relief could be granted and that it violated Rule 8(a)(2) of the Federal Rules of Civil Procedure (“Rule 8”). The Court agreed with the City as to compliance with Rule 8. Rule 8 requires a plaintiff to write “a short and plain statement of the claim showing that the pleader is entitled to relief.” The Court concluded that the Complaint, which was over two hundred pages long and “omitted virtually no detail,” contained excessive assertions that were unnecessary to advance the causes of action. The Court warned that “unnecessary prolixity” is disfavored by the Court because it imposes a significant burden on both the Court and the responding party.
Plaintiffs also claimed that the NECC lacked associational standing to sue either directly or on behalf of its members. The Court disagreed, holding that the NECC had standing to sue for its equitable relief claim, but did not have standing to sue for monetary damages. The NECC was not entitled to compensation for the various injuries suffered by its members, and the member restaurants were necessary parties to assess each of their damages separately.
The Court next concluded that Plaintiffs’ equal protection claims failed. First, the Court reasoned that Plaintiffs failed to allege the sort of discrimination that would trigger strict scrutiny. Strict scrutiny is triggered if the action in question burdens a suspect class, has discriminatory intent with respect to racial or national origin, or impinges upon a fundamental right. The Court disagreed that the Constitution vested Plaintiffs with a fundamental right to on-street-dining. Nor did the City’s policies explicitly differentiate among individuals based on a suspect classification, such as race, ethnicity, or national origin. The Court also disagreed that the City acted with discriminatory intent where Plaintiffs failed to identify a “clear pattern” of conduct historically targeting the North End or “white, Italian Americans.” Nor was there evidence that the regulations had disproportionate impact on persons of Italian heritage. Plaintiffs therefore failed to plausibly allege the sort of discrimination that would trigger strict scrutiny.
The Court proceeded to apply rational-basis review, under which a classification will withstand a constitutional challenge so long as it is rationally related to a legitimate state interest and is neither arbitrary, unreasonable nor irrational. Here, to justify the fees imposed on Plaintiffs, the City considered the “unique impacts of outdoor dining on the quality of residential life,” such as “trash, rodents, traffic, and parking problems.” To justify the ban on on-street dining in the North End, the City cited the North End’s high density of restaurants and foot traffic, narrow streets and sidewalks, resident parking scarcity, and other related considerations. The City also pointed to the scheduled closures of the Sumner Tunnel and continued congestion around the North Washington Street Bridge construction project. The Court concluded that the City’s explanations for the policies sufficiently showed that the reasons underlying the policies were rationally related to legitimate government interests.
The Court also addressed Plaintiffs’ “class-of-one” claim, whereby an equal protection claim may in some circumstances be sustained when a plaintiff alleges that she has been intentionally treated differently from others similarly situated and that there is no rational basis for the difference. The Court reasoned that neither the neighborhood itself nor the restaurants therein were similarly situated to those outside the North End because the North End is exceptionally dense and located adjacent to two major construction projects. The Court also held that Plaintiffs failed to plausibly plead that the City acted with bad faith or had malicious intent to injure them, and therefore concluded that the Complaint failed to plausibly plead a class-of-one claim.
Plaintiffs also asserted violations of procedural and substantive due process. As the Court explained, the former ensures that government will use fair procedures with respect to a constitutionally protected property interest, and the latter functions to protect individuals from particularly offensive actions by officials even when the government employs facially neutral procedures in carrying out those actions. The Court held that both claims failed because Plaintiffs plainly did not have a property interest in on-street-dining licenses.
Finally, Plaintiffs alleged that the impact and parking fees imposed on Plaintiffs for the outdoor-dining program constituted an unlawful tax. The Court disagreed. The fees were not an unlawful tax where: (1) they were charged in exchange for a benefit (a permit to authorize on-street dining that would otherwise be unlawful); (2) Plaintiffs paid the fee by choice, and had the option to avoid the charge by not participating in the program; and (3) the charges were collected to compensate the governmental for its expenses in providing the services rather than to raise revenue. For example, the impact fee paid for services that were related to the program, including rat baiting, power washing of sidewalks, and painting of street lane lines. The parking fees were paid directly to garages to provide parking for residents who lost it as a result of the outdoor-dining program. Plaintiffs therefore failed to show that the fees were unlawful taxes.
For all these reasons, the Court allowed the City’s Motion to Dismiss.
AG’s Power Holds, but Agency Shortcuts Don’t
In Att’y Gen. v. Town Milton, the court ruled that the Massachusetts Bay Transportation Authority (“MBTA”) Communities Act, G. L. c. 40A, § 3A (“Section 3A”), is constitutional, and that the Attorney General has the authority to sue to enforce it and obtain injunctive relief compelling compliance. However, because the Executive Office of Housing and Livable Communities (“HLC”) did not comply with the Administrative Procedure Act (“APA”) when promulgating the corresponding guidelines, the guidelines were unenforceable.
Section 3A was enacted to address the housing crisis in Massachusetts. It requires that cities and towns that benefit from having local access to MBTA services adopt zoning laws that provide for at least one district where multifamily housing is “as of right” located near their local MBTA facilities. The statute provides that noncompliant MBTA communities are ineligible for funds from certain state funding sources. Section 3A directs the HLC and three other State agencies to promulgate guidelines to determine if an MBTA community has complied with § 3A. HLC issued its final guidelines in August 2023, but did not file with the Secretary of the Commonwealth a notice of public hearing, a notice of proposed adoption or amendment of a regulation, or a small business impact statement within the meaning of the APA.
In February 2024, residents of the town of Milton (“Town”), an MBTA community, voted down a proposed zoning scheme to satisfy the requirements of Section 3A. The Attorney General then brought suit against the Town to enforce compliance with Section 3A. The Town denied violation of Section 3A and filed a counterclaim seeking declaratory relief. The Town asserted that Section 3A provides for an unconstitutional delegation of legislative authority because it improperly vests HLC with the power to make fundamental policy decisions. The Town further claimed that HLC’s guidelines were not promulgated in accordance with the APA. Lastly, the Town argued that the Attorney General lacks the power to enforce the act.
The Court granted declaratory relief in part and dismissed the Town’s remaining claims. First, the Court held that Section 3A was constitutional. The legislative delegation of authority to HLC to determine whether a community is in compliance with Section 3A did not violate the separation of powers doctrine.1 The Legislature did not improperly abandon its policy-making role where: the language of the statute made clear the Legislature’s policy goal, the parameters provided by § 3A were sufficient to guide the HLC, and § 3A sufficiently guarded against potential abuses of discretion by HLC.
Second, the Court held that the Attorney General is empowered to enforce Section 3A notwithstanding the lack of any reference to such power in the statute and notwithstanding the penalties already provided for in the statute. The Court explained that the Attorney General has broad authority to enforce the laws of the Commonwealth and act in the public interest, and that the enforcement power is not dependent upon whether a particular statute references such power. The Court rejected the Town’s argument that the Attorney General may not bring an enforcement action because Section 3A already includes consequences for noncompliance (ineligibility for certain funding sources). The Court found that the Legislature did not intend that the only consequence for an MBTA community for failing to comply with the act would be the loss of funding opportunities. The Court recognized that the Attorney General, as the chief law enforcement officer of the Commonwealth, has authority to seek injunctive relief compelling compliance with state statutes in the absence of some express statute to the contrary.
Lastly, the Court held that HLC’s guidelines as promulgated were unenforceable because HLC failed to comply with the APA. The APA requires State agencies to take certain steps when promulgating regulations in order to give notice and afford interested persons an opportunity to present data, views, or arguments. The Court explained that the purpose of the APA is to create uniformity in agency proceedings and to establish a set of minimum standards of fair procedure below which no agency should be allowed to fall. The Court noted that the APA leaves no room for substantial compliance with respect to promulgating rules and that strict compliance for agencies is compelled by the plain terms of the statute. The Court held that because HLC failed to file notice of a proposed regulation with the Secretary of the Commonwealth along with a small business impact statement, as required by the APA, HLC’s guidelines were legally ineffective and had to be repromulgated in accordance with G. L. c. 30A, § 3, before they could be enforced.
The Court remanded the case, directed the single justice to enter a declaratory judgment consistent with the Court’s opinion, and dismissed the remaining claims.
1The Court explained that to determine whether a legislative delegation of authority violates the separation of powers doctrine, Courts consider three factors: (1) did the Legislature delegate the making of fundamental policy decisions, rather than just the implementation of legislatively determined policy; (2) does the act provide adequate direction for implementation; and (3) does the act provide safeguards such that abuses of discretion can be controlled?
New White House Guidance Moves ‘Social Cost of Carbon’ Metric to Side Burner
For decades, regulators have tried to quantify harm related to emissions, including the “social cost of carbon” (SCC), but that approach has now changed. The Trump Administration recently released a memorandum seeking to discontinue regulatory use of SCC except as required by law.
The guidance, available here, entitled “Guidance Implementing Section 6 of Executive Order 14154, Entitled ‘Unleashing American Energy’” states that regulators have frequently used SCC where not explicitly required by statute and that the Administration has already pared back many of those programs.
Below, we will describe SCC, discuss how prior Administrations addressed it, and outline issues the regulated community should watch for in coming years.
What Is in the Guidance?
The new Guidance — issued by the White House in consultation with the Environmental Protection Agency (EPA) — initially states that “calculation of the social cost of carbon ‘is marked by logical deficiencies, a poor basis in empirical science, politicization, and the absence of a foundation in legislation.’” (For more on “Unleashing American Energy,” see here.) The Guidance continues by elaborating on Section 6’s requirements:
That situations “where agencies will need to engage in monetized greenhouse gas emission analysis will be few to none.”
That where legally required to calculate estimates, regulatory personnel should be guided by the 2003 Circular A-4, and not by the 2023 replacement.
That any regulatory or permitting analysis should be limited to “the minimum consideration required to meet a statutory requirement” and that agencies should consult with EPA to see what this entails.
That no “Supreme Court case law of which OIRA or the EPA is aware provides that greenhouse gas emissions must be quantified or that agencies must monetize the impact of such quantifications in connection with any particular statutory regime or as a general matter” and that agencies should consult with the US Department of Justice (DOJ) if lower court decisions appear to require quantification to ascertain whether agencies should deploy the “nonacquescence” doctrine.
That quantification of SCC can be uncertain and misleading due to reasons ranging from climate changes having multiple factors to changes in world birth rates to disputes over the appropriate discount rates to deploy.
What Is SCC?
The SCC is a metric used to quantify the economic damages associated with an incremental increase in carbon dioxide emissions in a given year. It represents the monetary value of the long-term harm caused by a ton of carbon dioxide emissions, including impacts on agriculture, health, property damages from increased flood risk, and changes in energy system costs. While controversial, SCC has been crucial for policymaking, helping governments and organizations assess the benefits of reducing emissions versus the costs. By incorporating SCC into decision-making, regulators are able to guide investments and regulations toward more sustainable and climate-friendly practices.
History of SCC
The primary tool regulators use to estimate the cost and benefits of regulation is called Circular A-4. This and other tools are often widely debated and contentious. Key precedent here includes the Clinton Administration’s 1993 Executive Order instructing agencies to “assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating [when] deciding whether and how to regulate.”
Subsequent Administrations implemented the Clinton Executive Order under the George W. Bush Administration’s 2003 Circular A-4, which compelled agencies to measure and report the “benefits and costs of Federal regulatory actions” using a standard set of metrics. Relevant here, Circular A-4 instructs agencies to use both a 3% and 7% discount rate when conducting regulatory analyses and to consider domestic, and not global, costs and benefits.
The Obama Administration was the first to directly consider the “social cost of carbon” in 2009. While it purported to follow guidance contained in Circular A-4, it rejected the use of both 3% and 7% discount rates as well as consideration of only domestic effects based on the global impact of carbon dioxide emissions. (See here.) After the first Trump Administration halted these efforts, the Biden Administration reinstated them through its own Executive Order. After a Louisiana District Court struck down the Biden Administration’s efforts citing the “major questions doctrine,” in 2022, the Fifth Circuit overturned this decision and permitted the Biden Administration to return the metric to use. In 2023, The Biden Administration proposed further modifications to Circular A-4. (For more see here.) After the Trump Administration took office in January, it sought to rescind the Biden Administration’s changes and claimed to revert to the 2003 version.
What to Watch
The Trump Administration’s SCC efforts focus on these themes:
SCC and “Energy Dominance”
TheTrump Administration’s energy policies emphasize increased development of fossil fuels driving down per-unit costs of energy even if energy consumption were to increase. Accounting for carbon costs could serve to make fossil fuels appear more costly and less viable as regulatory analyses would need to factor in costs associated with climate change which are believed to follow from fuel use. (For more see here and here.)
“Nonacquiescence”
The guidance invokes the legal “nonacquiescence” doctrine in which agencies assert that court decisions which are incongruent with agency preferences are nonbinding. This note builds on both the “Unleashing America Energy” Executive Order and the Trump Administration’s April suite of actions, which call for agencies to search out for escape hatches for regulations determined to be inconsistent with Administration priorities.
SCC and Deregulation
The effort to deemphasize calculation of SCC is consistent with other recent “deregulatory” developments including directing the DOJ to evaluate whether state energy-related actions interfere with federal priorities, moving toward “zero-based” regulatory budgeting including far broader incorporation of regulatory sunset provisions which terminate regulations after relatively short periods of time, and directing agencies to take a hard look at regulations to assess whether they were inconsistent with US Supreme Court precedent. (For more see here.)
Deemphasized Climate Data
Finally, the SCC guidance was released on the heels of news accounts indicating that federal regulators including the National Oceanic and Atmospheric Administration (NOAA) would no longer track the cost of climate-fueled weather events like floods, heat waves, and wildfires. In a statement released with this policy change, NOAA indicated that the change was “in alignment with evolving priorities, statutory mandates, and staffing changes.”
Employment Law This Week – Episode 390 – Independent Contractor Rule, EEO-1 Reporting, and New York Labor Law Amendment [Video, Podcast]
This week, we’re covering the U.S. Department of Labor’s (DOL’s) decision to halt enforcement of the Biden-era independent contractor rule, the upcoming EEO-1 reporting season (starting on May 20), and New York State’s new labor law amendment, reducing damages for first-time frequency-of-pay violations.
DOL Halts Enforcement of Independent Contractor Rule
The DOL will no longer enforce the Biden-era independent contractor rule, which sought to tighten the criteria under which a hired worker can be considered an independent contractor for purposes of the Fair Labor Standards Act. The agency will now revert to the less stringent “economic realities” test.
EEO-1 Reporting Begins Soon
The proposed 2024 EEO-1 Component 1 data collection season is scheduled to begin on May 20, with a deadline to file by June 24. As expected, Component 2 pay data collection will not be required this year or in the coming years.
New York Amends Labor Law to Limit Damages in Frequency-of-Pay Lawsuits
New York Governor Kathy Hochul signed into law a budget bill that includes an amendment to the New York Labor Law that dramatically limits the relief employees can seek for first-time violations of frequency-of-pay provisions.
Beneficial Owner Disclosure Under the New York LLC Transparency Act
After a rollercoaster of activity related to the federal Corporate Transparency Act (CTA), the US Treasury Department (Treasury) announced on March 2 that it will not enforce any penalties or fines associated with beneficial ownership information reporting for US reporting companies.
See “Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies” press release here.
In response, the Financial Crimes Enforcement Network (FinCEN) issued an interim final rule that revised the definition of “reporting company” to include only foreign entities (see 31 C.F.R. § 1010.380(c)(1), effective March 26). For those limited liability companies (LLCs) formed or authorized to do business in New York, however, the New York LLC Transparency Act (NY LLC Act) is still forthcoming and will require reporting similar in certain respects to what would have been required for such companies under the CTA.
On March 1, 2024, New York Governor Kathy Hochul signed into law the New York Senate Bill 8059, thereby amending the NY LLC Act originally passed on December 23, 2023 (New York Senate Bill 8059, signed by Governor Hochul subject to chapter amendment).[1] The NY LLC Act requires LLCs formed or authorized to do business in New York, to report their beneficial owners and company applicants to the New York Department of State. The following is a brief summary of some of the key provisions of the NY LLC Act, and the significant effect that has been produced as a result of the changes in certain federal CTA definitions to which the NY LLC Act is anchored.
Definitions
Many key terms under the NY LLC Act are defined by reference to the definitions under the CTA, such as “beneficial owner” (31 U.S.C. § 5336(a)(3)), “reporting company” (31 U.S.C. § 5336(a)(11)), “exempt company” (31 U.S.C. § 5336(a)(11)(B)), and “applicant” (31 U.S.C. § 5336(a)(2)). However, with respect to the definition of reporting company, under the NY LLC Act, a reporting company means only LLCs formed or authorized to do business in New York.
As noted above, FinCEN issued an interim final rule revising the definition of “reporting company” to include only entities that were formed under the laws of a foreign country. If the NY LLC Act is not also amended to undo the effect of the revisions issued by FinCEN, the NY LLC Act would appear to only apply to foreign (i.e., non-US) formed LLCs that are authorized to do business in New York and would not apply to LLCs formed in New York or in any other US state. Accordingly, the NY LLC Act will likely also need revisions, at least to its definition provisions.
Initial Beneficial Ownership Disclosure
As noted above, each reporting company is required to file a beneficial ownership disclosure with the New York Department of State. The disclosure must identify each beneficial owner of the reporting company and each applicant with respect to the reporting company. The information required to be disclosed follows: (a) full legal name, (b) date of birth, (c) current home or business street address, and (d) a unique identifying number from an acceptable identification document such as (i) an unexpired passport, (ii) an unexpired state driver’s license, or (iii) an unexpired identification card or document issued by a state or local government agency.
All beneficial ownership disclosures shall be submitted electronically as prescribed by the New York Department of State. As of the date of this article, there is no program on the New York Department of State’s website for the submission of the beneficial ownership disclosures. The NY LLC Act explicitly allows for such disclosures to be signed electronically.
Exempt Companies
An LLC formed or authorized to do business in New York will be exempt from having to file the beneficial ownership disclosure if it meets one of the 23 exemptions (or 24 exemptions, considering the interim final rule under the CTA) enumerated under the CTA (31 U.S.C. § 5336(a)(11)(B)), such as, securities reporting issuers, banks, credit unions, securities brokers or dealers, venture capital fund advisers, accounting firms, tax-exempt entities, and large operating companies. Each exempt company is required to electronically file an attestation indicating the specific exemption claimed and the facts on which the exemption is based. In addition, the attesting company is required to file an annual statement with respect to its exempt status, as will be further described below.
Date of Initial Reporting with the New York Department of State
Companies Formed Prior to January 1, 2026
Each reporting company formed or authorized to do business in New York before January 1, 2026 (the effective date) of the NY LLC Act must file its beneficial ownership disclosure with the New York Department of State no later than January 1, 2027. Each exempt company formed or authorized to do business before the effective date of the NY LLC Act must file its attestation of exemption with the New York Department of State no later than January 1, 2027.
Companies Formed on or After January 1, 2026
Each reporting company formed or authorized to do business in New York after the effective date must file the beneficial ownership disclosure no later than 30 days after the initial filing of articles of organization or application for authority to do business in New York. Similarly, each exempt company formed or authorized to do business in New York after the effective date must file the attestation of exemption no later than 30 days after the initial filing of articles of organization or application for authority to do business in New York.
Annual Reporting
Next, after the reporting company has filed its initial beneficial ownership disclosure or attestation of exemption, as the case may be, it is required to electronically file a statement annually confirming or updating the following; (1) their beneficial ownership disclosure information; (2) the street address of its principal executive office; (3) status as an exempt company, if applicable, and (4) such other information as may be designated by the New York Department of State.
Failure to File
If a reporting company fails to file the beneficial ownership disclosure, attestation of exemption or annual statement, as the case may be, for a period exceeding 30 days, the reporting company will be shown as past due on the records of the Department of State. If the reporting company fails to file the requested information for a period of two years, it will be shown as delinquent on the records of the Department of State. Further, the NY LLC Act authorizes the attorney general to assess a fine of up to $500 for each day the company is past due and/or delinquent. In addition, the New York Attorney General can bring an action to suspend, cancel, or dissolve any delinquent company.
With the revision of the definition of reporting company under the CTA to eliminate domestic US reporting companies from its scope, the fate of the NY LLC Act should be closely monitored. As noted above, the NY LLC Act specifically incorporates by reference certain definitions under the CTA. In light of the revisions made under the interim final rule issued by FinCEN, the New York Legislature may potentially be inclined to review these definitions and make changes to the NY LLC Act to counteract the effect of FinCEN’s interim final rule as it pertains to domestic (i.e., non-foreign) LLCs.
[1] New York Senate Bill 995-B (enacted December 22, 2023), as amended by Chapter Amendment on March 1, 2024 (Senate Bill 8059/Assembly Bill 8544).