California May Soon Require Owners To Register And Report Commercial Property
In California, it seems that everything must be registered and reported to the state. A spot bill, SB 789 (Menjivar) was recently amended to require that individuals and entities owning commercial property in the state to register with the California Department of Tax and Fee Administration. In addition, owners would be required to file an information return each year with the Department. The return would be required to disclose, inter alia, whether any buildings or portions of buildings were vacant during the prior calendar year.
The bill does not define “owning” and thus it would seem to require every person with an ownership interest in commercial property to register and report to the DTFA. Rather unhelpfully, the bill would require persons to “endeavor to ensure” that the same property is not listed on multiple returns. How this endeavoring is to occur is not explained.
Although the bill does not impose any new tax, it seems that likely that it is the first step in that direction, especially since the returns and disclosures are made to a taxing agency – the DTFA. In fact, a prior version of the bill would have imposed a tax on vacant property.
Morgan Lewis Expands Global Tax Team as Andrew Callaghan Joins in London
Morgan Lewis Expands Global Tax Team as Andrew Callaghan Joins in London. Morgan Lewis is expanding its global tax bench with the arrival of Andrew Callaghan, a seasoned tax adviser who joins the firm’s London office from Milbank. Andrew Callaghan brings extensive experience advising on the tax implications of domestic and international corporate and finance […]
New York Finds Personalized Analysis of Advertising Campaigns Is Taxable
New York State imposes sales tax on information services but excludes from tax “the furnishing of information which is personal or individual in nature and which is not or may not be substantially incorporated in reports furnished to other persons. . ..” Tax Law § 1105 (c) (1). In the Matter of Dynamic Logic v. Tax Tribunal of the State of New York, decided April 17, 2025, New York’s highest court held that an analysis of an advertising campaign that was specifically made for individual clients was taxable since the “the data generated for each report is incorporated into the MarketNorms database, which Dynamic separately markets and sells as an independent product.” Ultimately, the court concluded there was substantial evidence to support the Tribunal’s decision based on the finding that the information gathered was also included in a database used for other clients.
While the facts in the case were particularly complicated, the issue before the court was simple: Does the fact that the data the taxpayer accumulates is aggregated and anonymized and then used to establish industry “benchmarks” of averages for a broad range of advertising campaigns no longer qualify for the exclusion for services of a personal and individual nature? The majority held that it did.
The court took up a similar issue previously in Matter of Wegmans Food Mkts., Inc. v Tax Appeals Trib. of the State of N.Y. (33 NY3d 587 (2019)) where it concluded that if the information gathered is from publicly available sources, it is not personal and individual in nature. Much of that case involved a discussion on the applicability of the strict construction of tax exemptions, reversing precedents that held that exclusions from tax are construed in the taxpayer’s favor. The dissent in Dynamic Logic did not take issue with that, but rather relied on the plain language of the exclusion. The dissent examined the product that the taxpayer’s clients received to find it was personal and individual to that client, was confidential, and tailored to the needs of the client. This follows what had been a long-standing policy of tax agencies to look at the “true object” of the transaction to determine taxability. Applying the true object test, the dissent noted that each of the taxpayer’s clients received an analysis of their digital advertising that was specifically designed for them and their products. The fact that some of that data went into a larger database did not make it less personal. Quoting from the dissent, “‘[T]he majority today declares a new rule: in New York, the taxpayer always loses’ – Wegmans at 596 [Stein, J., concurring]).” TROUTMAN, J. (dissenting).
This decision highlights two potential obstacles for taxpayers seeking to challenge a tax determination in New York: 1) the courts, using the limited “substantial evidence” standard for review of Tax Tribunal decisions, may search the record for “any facts or reasonable inferences” (Dynamic Logic at page 4) that support affirming the administrative determination; and 2) strictly construing exemptions from tax and applying the same strict standard to exclusions from tax imposes a burden on taxpayers.
The Dynamic Logic case highlights some of the challenges with sales tax laws that were enacted based on a manufacturing economy from 1940 to 1960 and the application of these laws in 2025 to technology that was not envisioned when the statutes were drafted.
Following this and other recent cases, those selling information services or other digital products should carefully examine what they are selling and consider separately stating the price of each component of any packaged products to minimize sales tax exposure in the event any part might be considered taxable.
Impact of Tariffs on Commercial Contractual Performance: Can Tariffs Be a Force Majeure Event?
The Trump administration has adopted an aggressive trade policy, announcing a number of actions that will significantly impact global commerce. Most notably, President Donald Trump’s tariffs—and the retaliatory tariffs imposed by other nations—are already impacting suppliers’ and buyers’ ability to perform under commercial contracts. Tariffs may impact contracting parties in a variety of ways, including increasing the cost of performance. They can also cause supply chain disruptions, which, in turn, affect a party’s ability to perform under a contract, regardless of cost.
Contractual force majeure clauses may serve as a basis for relief when deals turn bad due to significant changes in trade regulations, including tariffs. Whether a force majeure clause operates to excuse a party’s performance will primarily depend upon the language of the contract.
Force Majeure Clauses Generally
Many commercial contracts contain “force majeure” provisions, which are designed to excuse nonperformance or delayed performance of contractual obligations for extraordinary, uncontrollable events that negatively impact a party’s ability to fulfill those obligations.1 In other words, force majeure provisions allocate the risk of events outside of the control of the parties that impact performance under a contract.2 There is no implied force majeure, meaning that a party can only invoke force majeure if the contract includes a force majeure provision.
While the language of force majeure clauses vary considerably, most clauses contain a list of events that will constitute a force majeure event, such as labor strikes, natural disasters, wars, or freight embargoes. Force majeure clauses often contain a “catchall,” such as “or other similar causes beyond the control of such party.”
Tariffs as a Force Majeure Event
The applicability of a force majeure clause to tariffs depends on the specific language in the contract.3 Force majeure clauses are “narrowly construed” and will only excuse a party’s nonperformance if the event alleged to have prevented performance is “specifically identified” in the parties’ contract.4 For instance, parties seeking to invoke force majeure clauses to excuse performance based on the COVID-19 pandemic were generally unsuccessful absent specific contractual language that contemplated disease, pandemics, or governmental action as a basis for excused performance. The requirement that the event must be expressly identified in the force majeure clause in order to excuse performance is “especially true where the event relied upon to avoid performance is a market fluctuation.”5 This narrow construction also applies to a “catchall” in a force majeure clause, cabining the meaning to “things of the same kind or nature as the particular matters mentioned.”6
A force majeure clause may excuse performance based on new or increased tariffs if it specifically identifies tariffs, governmental action, increased costs, or words to similar effect as a force majeure event. Absent a specific reference to tariffs, governmental action, or price or cost increases, it is unlikely that a party’s failure to perform under a contract will be excused.7 Moreover, certain force majeure clauses may specifically exclude price increases—such as those caused by new or increased tariffs—as a contingency.8
Effect of a Force Majeure Event on Performance
Even where new or increased tariffs can rightfully be deemed a force majeure event, performance is not necessarily excused.
If tariffs are within the scope of a force majeure clause, the question then becomes whether the tariffs affected the party’s ability to perform in the way required by the clause. Force majeure clauses often require a party to show that performance has become physically or legally impossible as a result of the event, not merely difficult or unprofitable. Where a contract requires impossibility, a change in market conditions due to tariffs is unlikely to be a force majeure event. Though tariffs will undoubtedly render performance under certain contracts more costly, a party may face challenges establishing that performance has been rendered impossible.9 This impossibility standard may be satisfied, however, where supply chain disruptions due to tariffs prevent a party from performing under a contract, regardless of cost.
On the other hand, clauses may have less stringent requirements (e.g., that the event renders performance “impracticable” or that performance was “hindered”).
Invoking a Force Majeure Clause
Even where a force majeure clause may otherwise afford relief, a party’s failure to follow the mechanics for invoking the clause—for instance, by not complying with notice requirements—could prevent reliance on it.
Moreover, force majeure clauses often require that the party impacted by the force majeure event take reasonable steps to prevent or mitigate the effects of the event. Even if not expressly stated, such a requirement may be implied.10
Takeaways
Changes to tariffs can increase cost, risk, and uncertainty for companies trading in goods across borders or relying on international supply chains. In this rapidly evolving tariff landscape, impacted companies will want to take the following actions:
Monitor President Trump’s executive orders issuing tariffs and his statements regarding future tariffs and trade policies to determine if your contract will be affected.
Review contractual language and assess how tariffs may impact existing and future contractual obligations.
Assess whether relief may be available based upon the terms of the contract or under applicable law.
Proactively discuss the impact of tariffs with contractual counterparties before disputes arise.
Consider whether the terms of existing contracts should be renegotiated or amended to take into account tariff volatility.
In new contracts, expressly allocate the risk of tariffs and address whether changes to tariffs amount to a force majeure event.
Where appropriate, companies should seek legal advice as to whether existing contractual terms provide relief from unexpected customs expense. As a global firm with offices in the United States, Europe, Asia, and beyond, our lawyers are well-positioned to provide that advice.
Footnotes
1 Phillips P.R. Core, Inc. v. Tradax Petroleum Ltd., 782 F.2d 314, 319 (2d. Cir. 1985) (noting that the purpose of a force majeure clause is “to relieve a party from its contractual duties when its performance has been prevented by a force beyond its contract or when the purpose of the contract has been frustrated”).
2 N. Ind. Pub. Serv. Co. v. Carbon Cnty. Coal Co., 799 F.2d 265, 275 (7th Cir. 1986) (finding that a force majeure clause was “not intended to buffer a party against the normal risks of a contract”).
3 In re Old Carco LLC, 452 B.R. 100, 119 (Bankr. S.D.N.Y. 2011) (“[W]hile courts will not presume that a change in economic conditions constitutes an excuse for nonperformance, this does not preclude the parties from negotiating for such an excuse.”).
4 Kyocera Corp. v. Hemlock Semiconductor, LLC, 313 Mich. App. 437, 447, 886 N.W.2d 445, 451 (2015) (“[I]f plaintiff had wished to protect itself from artificial market deflation because of government action (or, for that matter, excessive market downturns of any kind), it could have done so” in the contract); see In re Old Carco LLC, 452 B.R. at 119 (performance will be excused only “where a force majeure clause explicitly includes the event alleged to have prevented performance”).
5 In re Old Carco LLC, 452 B.R. at 119 (quoting United States v. Panhandle E. Corp., 693 F. Supp. 88, 96 (D. Del. 1988)); see OWBR Ltd. Liab. Co. v. Clear Channel Commc’ns Inc., 266 F. Supp. 2d 1214, 1224 (D. Haw. 2003) (concluding force majeure clause did not excuse nonperformance based upon changing economic conditions because the clause did “not contain language that excuses performance on the basis of poor economic conditions”); Stand Energy Corp. v. Cinergy Servs., Inc., 144 Ohio App. 3d 410, 760 N.E.2d 453 (Ohio Ct. App. 2001) (holding worsening economic conditions did not qualify as a force majeure event that would excuse performance where clause at issue was silent as to economic conditions).
6 JN Contemp. Art LLC v. Phillips Auctioneers LLC, 29 F.4th 118, 124 (2d Cir. 2022) (quoting Kel Kim Corp. v. Cent. Mkts., Inc., 70 N.Y.2d 900, 903, 519 N.E.2d 295 (1987)).
7 Kyocera Corp., 313 Mich. App. at 449–50, 886 N.W.2d at 452–53 (concluding tariffs imposed as part of “trade war” did not constitute a force majeure event because tariffs merely caused the plaintiff’s performance to “become unprofitable or unsustainable,” a risk that plaintiff assumed in the parties’ contract); Shelter Forest Int’l Acquisition, Inc. v. COSCO Shipping Inc., 475 F. Supp. 3d 1171, 1187 (D. Or. 2020) (holding tariffs imposed as part of “trade war” did not constitute force majeure event where agreement provided that “changing markets” would not constitute force majeure).
8 BAE Indus. v. Agrati – Medina, LLC, No. 22-12134, 2022 U.S. Dist. LEXIS 169785, at *13–15 (E.D. Mich. Sept. 20, 2022) (enforcing contractual obligations where COVID-19 caused steel prices to rise unexpectedly because force majeure clause excluded price increases as a contingency).
9 Coker Int’l, Inc. v. Burlington Indus., Inc., 747 F. Supp. 1168, 1170 (D.S.C. 1990), aff’d, 935 F.2d 267 (4th Cir. 1991) (making distinction between impossible performance and increased cost of performance).
10 Odyssey Mfg. Co. v. Olin Corp., No. 8:23-cv-940-TPB-CPT, 2023 U.S. Dist. LEXIS 143592, at *6 (M.D. Fla. Aug. 16, 2023) (“[E]ven if a true force majeure event exists, [the nonperforming party’s] exercise of its discretion to determine what is fair and reasonable is necessarily limited by the duty of good faith and fair dealing.”).
Trump Issues Executive Order Targeting State Action on Climate Change
Earlier this month, President Trump issued an executive order that sought to target actions undertaken by individual U.S. states to combat climate change, for the stated purpose of ensuring “American energy dominance.” Specifically, the executive order took issue with the following actions, among others: (1) “State and local governments seek[ing] to regulate energy beyond their constitutional or statutory authorities”; (2) “States target[ing] or discriminat[ing] against out-of-State energy producers”; (3) “States subject[ing] energy producers to arbitrary or excessive fines through retroactive penalties”; (4) “enacting[] burdensome and ideologically motivated ‘climate change’ or energy policies”; (5) “States . . . dictat[ing] national energy policy”; and (6) “su[ing] energy companies for supposed ‘climate change’ harm under nuisance or other tort regimes that could result in crippling damages.” In other words, this executive order targeted the entire range of legal actions embraced by climate activists–ranging from collaborating with friendly state governments to enact regulations to strategic tort litigation–in an effort to have the federal government stymie such activities.
While the executive order identifies a particular course of action that the executive will pursue–namely, that the “Attorney General . . . shall identify all State and local laws, regulations, causes of action, policies, and practices . . . that are or may be unconstitutional, preempted by Federal law, or otherwise unenforceable” and “take all appropriate action to stop the[ir] enforcement”–it is not clear that the ultimate impact of this executive order will ultimately be meaningful. The executive branch does not possess the unilateral power to terminate civil lawsuits brought by private parties in the courts, nor can the federal government simply override state governments without clear and express authority to do so, as per the U.S. Constitution. Nonetheless, while the practical impact may be negligible, this executive order sends a strong signal–albeit confirmatory–of the policy priorities of the second Trump Administration.
(a) The Attorney General, in consultation with the heads of appropriate executive departments and agencies, shall identify all State and local laws, regulations, causes of action, policies, and practices (collectively, State laws) burdening the identification, development, siting, production, or use of domestic energy resources that are or may be unconstitutional, preempted by Federal law, or otherwise unenforceable. The Attorney General shall prioritize the identification of any such State laws purporting to address “climate change” or involving “environmental, social, and governance” initiatives, “environmental justice,” carbon or “greenhouse gas” emissions, and funds to collect carbon penalties or carbon taxes. (b) The Attorney General shall expeditiously take all appropriate action to stop the enforcement of State laws and continuation of civil actions identified in subsection (a) of this section that the Attorney General determines to be illegal.
www.whitehouse.gov/…
What Every Multinational Company Should Know About … Potential Antitrust Exposure of Tariff-Related Pricing Changes
As companies face mounting cost and supply pressures from rising tariffs, pricing managers are under growing pressure to adjust pricing strategies in fast-moving and uncertain conditions. As recently reported by the Wall Street Journal, companies have employed various strategies to deal with increased costs, with 47% of small businesses reporting they already have increased prices in 2025 and 60% indicating they plan to do so in the next three months.
Gathering timely and accurate market intelligence is often a critical component of informed decision making when it comes to developing a sound pricing strategy. Many such efforts are legitimate and should not draw scrutiny from enforcement officials. U.S. antitrust regulators, however, have made clear that tariff-related uncertainty is no excuse for crossing competitive boundaries. Further, the Department of Justice (DOJ) and other global authorities are actively scrutinizing whether businesses are using trade disruptions as a pretext for coordinated pricing behavior. In sectors already strained by supply-chain volatility, rising input costs, and unpredictable demand, enforcers are signaling their heightened vigilance for signs of anticompetitive conduct. For example, the Korea Fair Trade Commission (KFTC) noted in its annual work plan for 2025 that given “domestic and international uncertainties,” it would implement measures enhancing economic recovery, including by cracking down on vertical relationships harming small business owners and monitoring for collusion in four key sectors (“health and safety,” “food, clothing, and shelter,” “construction and intermediate goods,” and “public procurement”).
Heightened Regulatory Vigilance Around Tariff-Driven Pricing Adjustments
Roger Alford, Principal Deputy Assistant Attorney General at the DOJ Antitrust Division, recently emphasized the need for competition authorities to remain vigilant for signs of collusion and manipulation of dynamic pricing models, particularly as companies adjust to heightened tariff levels. He warned that the imposition of trade barriers — such as tariffs that could reduce competition from abroad — can lead to market concentration, reducing the number of active suppliers and thereby increasing the risk of coordinated pricing or supply restrictions. Alford reiterated his warning in a media interview and noted that state attorneys general can sue for price gouging. He also shared that federal authorities are ready to act even in the absence of collusion. “I won’t give people comfort to feel free to price high, as long as you do it on your own [without colluding],” insisted Alford. “We’ll monitor the negative consequences of these tariffs very closely.”
In a social media post, FTC Chairman Andrew Ferguson also cautioned against increasing prices under the guise of responding to tariffs: “President Trump is reorienting our nation’s economy to put Americans first. As we adjust to the new economic order, the [FTC] will be watching closely to make sure American companies are vigorously competing on prices. These necessary tariffs should not be interpreted as a green light for price fixing or any other unlawful behavior. We will always protect American consumers.” Ferguson’s post came shortly after President Trump delivered a similar message to U.S. carmakers, urging them not to abuse tariffs by piling on additional price hikes.
One example of such scrutiny is the DOJ’s recent investigation into egg prices. Despite arguments that rising egg prices resulted from market factors such as avian influenza outbreaks disrupting supply, after the DOJ issued subpoenas to major egg producers to examine potential collusion, prices dropped sharply, from $8 to $3 per dozen. Alford cited this as an example of risk that companies may engage in anticompetitive conduct in response to external pressures.
This is not the first time regulators have indicated they would aggressively investigate price increases during periods of systemic disruption. For example, during the COVID-19 pandemic, the DOJ and the FTC issued joint guidance stating they were on the alert for individuals and businesses using the pandemic as “an opportunity to subvert competition or prey on vulnerable Americans.” The joint guidance further stated the agencies would stand ready to “pursue civil violations of the antitrust laws, which include agreements between individuals and business to restrain competition through increased prices, lower wages, decreased output, or reduced quality as well as efforts by monopolists to use their market power to engage in exclusionary conduct.” The joint guidance also noted the agencies would “prosecute any criminal violations of the antitrust laws, which typically involve agreements or conspiracies between individuals or businesses to fix prices or wages, rig bids, or allocate markets.”
Characterizing any price increases as a “tariff surcharge” also may raise scrutiny by regulators if doing so might promote coordination among competitors. For example, from 2006–2010, the DOJ Antitrust Division successfully investigated and prosecuted air cargo companies for colluding to implement fuel and security surcharge increases in response to rising security costs and oil prices. Coordination on the timing, surcharge range, or even the description and justification for surcharges could result in exposure to antitrust scrutiny. Even the act of collecting information — particularly around competitors’ pricing or cost projections — can raise antitrust concerns if not properly structured. In recent years, the Antitrust Division has initiated civil antitrust actions against companies in various sectors that shared sensitive cost and pricing data under the theory that such conduct facilitated price collusion.
Practical Guidelines for Pricing Managers Navigating Tariff and Antitrust Risks
In this environment, pricing managers must walk a careful line between pricing responsively and implementing pricing changes that raise antitrust compliance risks, particularly when gathering market intelligence to inform pricing decisions. To mitigate exposure, consider the following guidelines:
Document the Independence of Decision Making: When adjusting pricing, document the independent nature of the pricing decisions by setting forth the business rationale for the changes based on your unique supply and cost structures.
Avoid Questionable Competitor Contacts: Gathering market intelligence is a necessary part of the decision-making process, but obtaining market information directly from competitors will always be viewed as problematic by antitrust enforcers.
Rely on Third Parties or Public Sources of Information: Whenever possible, rely on independent consultants or research firms with experience in collecting and disseminating market data in an antitrust-compliant manner.
Document the Business Rationale for Collecting Market Intelligence: Maintain a record of why market information is being gathered and how it will be used (e.g., for gaining a high-level understanding of industry trends to remain competitive when implementing pricing adjustments). This helps demonstrate a legitimate, procompetitive purpose for the activity.
Exercise Heightened Caution with Forward-Looking Information: Information about competitors’ forward-looking pricing, production levels, or future market behavior is particularly sensitive and can raise red flags. Ensure any analysis involving projections does not imply alignment or mutual awareness among market participants. Be mindful that competitors can be prosecuted for reaching an agreement even when using a third party as a conduit to reach the agreement.
Run Drafts Past Antitrust Counsel: Before circulating or relying on competitive intelligence, pricing models, or benchmarking documentation — especially where external market data is used — consult with antitrust counsel to confirm that the content and context comply with applicable laws.
By following these steps, companies can be better prepared to respond swiftly and effectively in the event of an unannounced government inspection. Proactive preparation is critical to minimizing disruption, protecting legal rights, and ensuring compliance in high-stakes enforcement scenarios.
Sweeping Changes to Indiana’s “Controlled Project” Rules Could Impact Local Governments as Soon as July
On April 10, 2025, Indiana Governor Mike Braun signed Senate Enrolled Act 1 (SEA 1) into law, introducing a number of changes to the state’s property tax and local income tax system.
In the meantime, we want to alert our non-public school corporation clients to a key, time-sensitive change: SEA 1’s expansion of the definition of a “controlled project,” which brings previously exempt projects within the scope of Indiana’s petition-remonstrance and referendum requirements.
Many local government entities have previously undertaken capital projects which were outside the scope of these statutory processes. However, SEA 1 now extends these voter-triggered mechanisms to cover a broader range of political subdivisions and projects, including those initiated by cities, towns, counties, and special districts such as library districts, fire protection districts, and redevelopment districts.
Subject to the controlled project exceptions provided in law, these new categories of controlled projects will apply to any projects:
Approved by a resolution of the non-school corporation governmental entity adopted on or after July 1, 2025; and
Expected to be financed, in whole or in part, by bonds or leases paid from that governmental entity’s debt service fund.
These projects may be subject to the petition-remonstrance process or a mandatory referendum process in accordance with the below:
For Cities, Towns, and Counties:
Current Debt Service Fund Tax Rate
Project Requirements
Less than $0.25
Not subject to petition-remonstrance process or referendum process.
Greater than $0.25 but less than $0.40
Subject to petition-remonstrance process if requested by community.
Greater than $0.40
Must be approved via referendum.
For All Other Political Subdivisions** (Except Public School Corporations):
Current Debt Service Fund Tax Rate
Project Requirements
Less than $0.05
Not subject to petition-remonstrance process or referendum process.
Greater than $0.05 but less than $0.10
Subject to petition-remonstrance process if requested by community.
Greater than $0.10
Must be approved via referendum.
** Category includes municipal corporations, such as library districts, fire protection districts, special service districts, airport authorities, and all other separate local governmental entities that can finance projects through bonds or leases paid from ad valorem property taxes, and all special taxing districts, including, but not limited to, park districts, sanitary districts, and redevelopment districts.
However, governmental entities can avoid triggering the petition-remonstrance or referendum process under SEA 1 by taking the following steps on or before June 30, 2025:
Adopting the necessary ordinance or resolution approving the project and its financing; and
Holding any necessary public hearings related to the project and financing.
If both steps are completed by June 30, 2025, your project will not be subject to the new requirements.
Please note that due to other changes in SEA 1, referenda for controlled projects may only be on the ballot in general elections, so if your upcoming project is subject to a mandatory referendum under the new rules, it will not be on the ballot until November 2026.
Germany’s 2025 Coalition Agreement: Reforms for the Media, Film, and Creative Industries
The newly published German Coalition Agreement 2025 (CA 2025), German language version available here, outlines the agenda of the new German government for the next four years. For the government’s cultural and media policy, the CA 2025 outlines measures that seek to strengthen Germany as a filming location and further develop the film industry. Proposals on new regulation and funding instruments relevant to the media, film, and other creative industries are particularly noteworthy.
Film Funding Reform and Production Subsidies: Tax Incentive Model and Investment Obligation
Film Funding System Reform: The federal government announced a fundamental reform of the film funding system (Z. 3889) to sustainably strengthen Germany’s international competitiveness as a filming location.
Tax Incentive Model: The government plans to introduce a tax incentive model (Z. 3890) that would make film production investments more attractive. The previous federal government had already discussed a similar model, under which a certain percentage – the considerations ranged between 10% and 30% – of eligible production costs for films or series would be tax-deductible. Many European countries already implement this kind of incentive. The specific details (including the final percentage) of the proposed model must still be negotiated between the new coalition parties.
Investment Obligation: An investment obligation would supplement the tax incentive model (Z. 3890), another measure that the previous federal government had considered. VOD platforms would be required to reinvest a certain percentage – 20% was the number previously discussed – of their German revenues into European productions. However, the specifics of this requirement remain unclear and would need to be worked out by the new coalition.
German Film Subsidy Act: The German Film Subsidy Act (Filmförderungsgesetz) is to be further developed in close consultation with the industry (Z. 3891); however, the CA 2025 does not specify any key areas or specific amendments.
Investment Incentives: The German government wants to support cinema operators through reliable investment incentives (Z. 3892) and targeted support for cultural diversity.
Platform Levy: The German government will look into imposing the long-discussed levy for online media platforms; the revenues are intended to “strengthen Germany as a media location” (Z. 3913). Details concerning the levy, such as its intended scope and targets, remain unclear.
Film Heritage: The German government would also advance the digital preservation of film heritage (Z. 3893).
Focus on the Music Industry, Clubs, and Publishing
Pop Culture Promotion: The federal government is committed to the targeted promotion of the music industry and pop culture – in particular through a “Music Initiative” (Z. 3895) and other federally funded programs.
Protection of Clubs: So-called “cultural protection areas” (Kulturschutzgebiete) would be established (Z. 3896) in which clubs are considered protected cultural venues.
Musical Instrument Manufacturing: A more sector-specific regulatory framework is also being considered for musical instrument manufacturers (Z. 3898).
Publishing: The federal government and the states will look into establishing structural subsidies to ensure diversity in the German book market (Z. 3899).
Fair Remuneration Models and Social Security for Creatives
Fair Renumeration: A central concern of the federal government is to strengthen fair and transparent remuneration models, particularly in the digital music market (Z. 3903). The aim is to ensure that creative services are adequately remunerated, and intellectual property rights can be consistently enforced (Z. 3902).
Social Security for Artists: At the same time, the social security systems for artists and creatives would be strengthened and better aligned with the often project-based, hybrid forms of employment in the arts and creative industries (Z. 3905).
Preserving Media Diversity
Maintaining the Dual Broadcast System: The government wants to strengthen both the public broadcast system (Z. 3911) and the regulation and refinancing of private media companies (Z. 3912).
Strengthening Competition: Antitrust law would be further developed at all levels and integrated with the state media concentration laws in order to control mergers between media companies and media-related infrastructure providers (Z. 3920).
European Dimension, Games, and Youth Protection
Development of a European Media Platform: The government supports developing a European media platform involving ARTE, the Franco-German public service broadcaster (Z. 3941). This aligns with existing plans to further develop ARTE into a pan-European platform by expanding its multilingual offerings and strengthening partnerships with other European media organizations.
Protection of Minors: The German government emphasizes the importance of media literacy in today’s digital era and plans to increase the protection of minors in the media (Z. 3944). The aim is to create a coherent legal framework across Europe, federal, and state levels to reduce parallel structures and simplify law enforcement (Z. 3946). Specifically, the Youth Protection Act would align with the Digital Services Act (DSA) and the State Treaty on the Protection of Minors in the Media (Z. 3947). A particular focus is on technical protection measures, as the German government wants age verification systems on digital devices to become the standard across Europe – with potential implications for device manufacturers, platform operators, and app providers (Z. 3948).
Games: Games are a cultural asset and an innovation driver, which is why the government plans to support the gaming industry through tax incentives and reliable programs.
Conclusion
The CA 2025 highlights the vital role of the media and creative industries, along with media diversity, in strengthening Germany’s position as a hub for innovation and culture. To address current and emerging challenges, the new federal government is considering a range of regulatory measures aimed at supporting and safeguarding this sector. In particular, tax incentives, investment obligations, a proposed new platform levy, and modified concentration laws for media companies represent central levers that industry players should observe from an early stage and take advantage of opportunities for consultation and engagement.
Overview of Section 232 Tariffs on Steel and Aluminum: What Importers Need to Know
The implementation of new 25% Section 232 duties on steel, aluminum, and certain derivatives, effective March 12, 2025, which are in addition to any special rate of duty otherwise applicable, are affecting importers globally. Here is a breakdown of what these new tariffs entail:
1. Nature of Section 232 Tariffs and Interaction with Reciprocal Tariffs
On March 12, 2025, President Trump implemented 25% tariffs on steel and aluminum under Section 232 of the Trade Expansion Act of 1962. These duties, applied in addition to any existing special rates, aim to address national security concerns by bolstering domestic production. The additive nature of these tariffs has significantly raised the cost of imported steel and aluminum products, impacting budgets and pricing strategies for businesses reliant on these materials.
Subsequently, on April 5, 2025, the Trump Administration imposed a 10% baseline tariff on all imports to the United States, invoking the International Emergency Economic Powers Act (IEEPA) to address the national emergency posed by the persistent trade deficit. Building on this, the United States applied country-specific reciprocal tariffs as determined by the United States Trade Representative (USTR) which has been paused until July 9, 2025.
In its executive order, the Trump Administration explicitly excluded products already subject to Section 232 measures from the baseline and reciprocal tariff regime. Consequently, while Section 232 duties have increased the costs of imports like steel and aluminum, these products do not face additional tariffs under the reciprocal system as of this writing.
2. Immediate application and elimination of exemptions
These duties apply to imports made from March 12, 2025, onward. Notably, the new tariffs eliminate previous country exemptions and tariff-rate quota agreements, and they terminate the product exclusion process. Consequently, no new exclusion requests will be accepted, and existing exclusions will expire without renewal.
For those reasons, imports from countries previously subject to country exemptions are now subject to these tariffs (i.e., Australia, Canada, Mexico, the EU, the UK, Japan and South Korea).
However, we might see some country-specific bilateral trade agreements in due course that could exempt certain countries from these duties.
3. Exemptions from Derivative Articles – No Duty Drawback
Critically, the additional duties on derivative steel articles would exclude steel articles that are processed in a third country from steel that was melted and poured in the United States. The same exemption applies to derivative aluminum articles. This applies to all the listed derivative HTS codes to which the new Section 232 tariffs would otherwise apply, so businesses need to start mapping their suppliers’ supply chains for products in those codes to identify US content if they have not already done so.
Unfortunately, no duty drawback is available for these duties. Businesses that would reexport the listed products from the United States to third countries should consider rearranging their shipping so that listed products ultimately destined for third countries are shipped there directly and not imported first into the United States.
4. Expansion of Previous Proclamations
This trade action, via presidential proclamation, is an expansion of President Trump’s previous proclamations from 2018, now covering all products and derivatives from the original proclamations plus additional derivative products. The 2025 proclamations rely on definitions of steel and aluminum articles from the 2018 proclamations.
For ease of reference, we provide all such descriptions and HTS codes of steel products and derivatives listed or linked below:
Steel Products Subject to the 2018 (and thus 2025) 232 Tariffs
Proclamation 9705 (Mar. 8, 2018) defined steel articles at the Harmonized Tariff Schedule (HTS) 6-digit level as: 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.11 through 7306.90.
Proclamation 9980 (Jan. 24, 2020) defined derivative steel articles as an article in which:
steel accounted for, on average, at least two-thirds of the product’s total material cost; and where
import volumes of such derivative article increased year to year in comparison to import volumes the preceding two years; and
import volumes of such derivative article exceeded the 4 percent average increase in the total volume of goods imported.
Those proclamations also included the following HTS codes:
HTS Heading
Product Type
Description
Source
7208, 7209, 7210, 7211, 7212, 7225, 7226
Steel Product
Flat-rolled products
Proclamation 9705
7213, 7214, 7215, 7227, 7228
Steel Product
Bars and rods
Proclamation 9705
7216 (except subheadings 7216.61.00, 7216.69.00 or 7216.91.00)
Steel Product
Angles, shapes and sections of iron or nonalloy steel
Proclamation 9705
7217, 7229
Steel Product
Wire
Proclamation 9705
7301.10.00
Steel Product
Sheet piling
Proclamation 9705
7302.10
Steel Product
Rails
Proclamation 9705
7302.40.00
Steel Product
Fish-plates and Sole plates
Proclamation 9705
7302.90.00
Steel Product
Other products of iron or steel
Proclamation 9705
7304, 7306
Steel Product
Tubes, pipes and hollow profiles
Proclamation 9705
7305
Steel Product
Tubes and pipes
Proclamation 9705
7206, 7207, 7224
Steel Product
Ingots, other primary forms and semi-finished products
Proclamation 9705
7218, 7219, 7220, 7221, 7222, 7223
Steel Product
Products of stainless steel
Proclamation 9705
7317.00.30
Derivative Steel Product
Nails, tacks (other than thumb tacks), drawing pins, corrugated nails, staples (other than those of heading 8305) and similar articles of iron or steel, whether or not with heads of other materials (excluding such articles with heads of copper), suitable for use in powder-actuated handtools, threaded
Proclamation 9980
7317.00.5503, 7317.00.5505, 7317.00.5507, 7317.00.5560, 7317.00.5580, 7317.00.6560 only and not in other numbers of subheadings 7317.00.55 and 7317.00.65
Derivative Steel Product
Nails, tacks (other than thumb tacks), drawing pins, corrugated nails, staples (other than those of heading 8305) and similar articles of iron or steel, whether or not with heads of other materials (excluding such articles with heads of copper), of one piece construction, whether or not made of round wire
Proclamation 9980
8708.10.30
Derivative Steel Product
Bumper stampings of steel, the foregoing comprising parts and accessories of the motor vehicles of headings 8701 to 8705
Proclamation 9980
8708.29.21
Derivative Steel Product
Body stampings of steel, for tractors suitable for agricultural use
Proclamation 9980
Additional Derivative Steel Products Subject to the 2025 232 Tariffs
The exact HTS codes of additional derivative steel products subject to the new tariffs are provided in pages 12-14 of Proclamation 10896 (Feb. 10, 2025).
For any derivative steel article identified in Annex I of Proclamation 10896 that is not in Chapter 73 of the HTSUS, the additional ad valorem duty shall apply only to the steel content of the derivative steel article.
5. Calculating Section 232 Tariffs on Steel and Derivative Steel Products
The calculation of these tariffs involves determining the value of the steel or aluminum content, which is:
The total price paid or payable for the steel or aluminum content itself, excluding any costs related to transportation, insurance, and other services associated with the shipment from the country of exportation to the country of importation.
This value is typically reflected in the invoice that the buyer pays to the seller for the steel or aluminum content.
Here are some scenarios considering the HTS codes above:
SCENARIO 1–If an article is identified in Proclamation 9705 or 9980, the Section 232 tariff will apply to the entire merchandise value.
Example: A steel body stamping classified under HTS 8708.29.21 and thus classified under Proclamation 9980, has a value of $100. The Section 232 tariff will be $25.
SCENARIO 2– If the article is identified in new Proclamation 10896 and is in Chapter 73, the tariff again applies to the entire merchandise value.
Example: A stainless steel pan classified under HTS 7323.93.00 has a value of $100. Because the pan is identified by new Proclamation 10896 and is classified in Chapter 73, the value of the entire merchandise is subject to the 25% duty. Thus, the Section 232 tariff will be $25.
SCENARIO 3– If the article is identified in new Proclamation 10896 but is not in Chapter 73, the tariff applies only to the steel content value.
Example: A passenger elevator part classified under HTS 8431.31.00, with a steel content valued at $75 out of a total $100, will incur a tariff of $18.75, because only the value of the steel content is subject to the 25% duty.
The implementation of these new Section 232 duties introduces significant changes for importers of steel and aluminum products. Understanding the details of these tariffs and their implications is essential for businesses consider strategic adjustments within their supply chains to mitigate the impact of these new duties.
Financial Institutions May Have Civil and Criminal Exposure for Knowingly or Unknowingly Assisting Customers Who Support Terrorist Activities
While there have been numerous shifts in government enforcement priorities in the past three months, there does appear to be one area where the status quo has remained the same. This new administration has made it clear that preventing financial institutions from working with terrorist organizations remains a top concern. While the administration has added “new” entities to its lists in the form of drug cartels and other nefarious groups, none of this changes the fact that it is as important as ever for banks and similar financial institutions to maintain effective compliance to avoid the government’s crosshairs. Moreover, if one of these banned entities does become inadvertently involved with a financial institution, it is equally as important to know how to get in front of the issue to mitigate the relevant and serious risk.
For decades, terrorist organizations have tried to access the U.S. financial system to fund their terrorist operations around the world. Terrorist organizations and other criminals use various strategies to conceal the nature of their activities, including money laundering and structuring. The U.S. government has multiple tools for combatting terrorists’ abuse of the U.S. financial system. Congress enacted the Currency and Foreign Transaction Reporting Act of 1970, as amended (referred to as the Bank Secrecy Act or BSA) to monitor the source, volume, and flow of currency and other monetary instruments through the U.S. financial system to detect and prevent money laundering and other criminal activities. After the terrorist attacks on Sept. 11, 2001, Congress strengthened the BSA framework through the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. Among other things, the USA PATRIOT Act targeted terrorist financing and enhanced enforcement mechanisms to combat it. Indeed, there are numerous other statutes and regulations that may come into play in cases involving terrorist financing. Those statutes and regulations rely heavily on U.S. financial institutions to identify and report bad actors.
The risks involved when banks fail to follow these statutes and regulations are severe, and this GT Advisory summarizes the current laws that the government uses to try to eliminate terrorist organizations’ ability to move funds for their nefarious activities. U.S. financial institutions and their employees have substantial exposure if they knowingly or unknowingly assist customers in supporting or financing terrorist activities. As mentioned above, while the new administration is changing the way the government addresses the threat of terrorist funding in some ways, the basic tools used in detecting and prosecuting remain largely the same. Some of the government’s tools that should be considered in creating effective compliance for financial institutions include the following.
1. Terrorist Support and Financing Violations
The most powerful tool in U.S. law enforcement’s quiver in curbing terrorist financing involves statutes proscribing the provision of material support to designated terrorist organizations. The government can prosecute individuals and entities that facilitate or finance terrorism under multiple statutes: (i) 18 U.S.C. § 2339A, which prohibits persons from providing material support or resources, including financial services, knowing that they will be used in preparation for or in carrying out certain predicate offenses associated with terrorism; (ii) 18 U.S.C. § 2339B, which prohibits knowingly providing material support to designated foreign terrorist organizations; and (iii) 18 U.S.C. § 2339C, which prohibits providing or collecting funds with the knowledge or intention that they will be used to carry out a terrorist attack. The statutes are complex, but it is important to note that conspiring to commit terrorism or aiding and abetting the commission of terrorism are punishable as if the person has committed the crime himself. Moreover, under 18 U.S.C.§ 2339C, an individual or entity can be prosecuted for concealing the nature, location, source ownership, or control over any material support or resources knowing that they will be or were provided to support terrorist activity. All of these statutes include severe criminal penalties for individuals and entities. These statutes apply to banks and other financial institutions similarly to how they would apply to anyone that helps known terrorists and, consequently, contain penalties to reflect the severity of the underlying conduct.
More specifically, under 18 U.S.C. § 2339B, if a financial institution becomes aware that it has possession of or control over funds of a foreign terrorist organization or its agent, the financial institution is required to retain possession or control over the funds and report the existence of the funds to the Secretary of Treasury in accordance with the regulations. The failure to do so may result in a civil penalty equal to the greater of $50,000 per violation or twice the value of the funds over which the financial institution was supposed to retain possession or control. The material support statute specifically states that it applies extraterritorially, meaning that the law reaches individuals, companies, and conduct that is normally beyond the reach of U.S. jurisdiction. Since the statute’s inception, U.S. courts have affirmed criminal convictions and civil penalties based on its broad extraterritorial reach.
2. IEEPA Violations
While not as chilling as the threat of being charged as supporting terrorism, the executive branch also can use its emergency powers to curb and punish financial institutions that conduct transactions with designated terrorists. This issue of emergency powers has been in the news recently because of the current administration’s discussion of using these powers to curb narcotics trafficking by targeting the various drug cartels.
Specifically, the International Emergency Economic Powers Act (IEEPA) delegates authority to the president of the United States to regulate financial transactions to address threats following the declaration of a national emergency. As mentioned above, President Trump has issued multiple executive orders (EOs) designating terrorists or terrorist groups. The EOs prohibit U.S. persons from engaging in transactions with the designated terrorists or terrorist groups. The Office of Foreign Assets Control (OFAC) enforces sanctions against U.S. persons or non-U.S. persons with a U.S. nexus who deal with designated terrorists or terrorist groups. Financial institutions must notify OFAC of any blocked transactions and file an annual report. A financial institution that willfully violates an executive order or IEEPA implementing regulation may be charged criminally. The fines for a financial institution found to have violated these orders may be high and also involve potentially damaging collateral effects, such as debarment.
3. Money Laundering
While money laundering has always been a relevant risk for financial institutions, in light of the new administration’s views on stopping both terrorism and narcotics trafficking, the industry should expect that the administration will pursue these laundering cases with greater zeal than the prior one. If a U.S. financial institution or its employees willfully assist a customer in laundering money, the government may charge the financial institution or its employees with conspiracy to commit money laundering. While laundering may occur throughout the United States in any location where a nefarious individual is trying to hide ill-gotten proceeds, the increased focus on international criminal and terrorist activities will result in greater detection of laundered amounts and, consequently, much higher fines.
The government may also charge international money laundering in terrorist financing cases. International money laundering is sometimes referred to as “reverse money laundering” because it involves the transfer of legitimate funds abroad for an illegal purpose. 18 U.S.C. § 1956(a)(2)(A) prohibits the transport, transmission, or transfer of funds and monetary instruments of funds from the United States to a place outside of the United States with the intent to promote a specified unlawful activity. Specified unlawful activities include the terrorism material support offenses, IEEPA violations, and other criminal activities connected to terrorism.
Most importantly, money laundering is something that a financial institution is legally required to take steps to detect and prevent. These efforts will never be perfect but taking steps to enact effective compliance is critical to mitigating the risk of fines and penalties and, in some circumstances, may even change charging decisions. Effective compliance programs that are continuously reviewed and improved are key to mitigating the risk of fines and penalties if cases like the ones discussed above arise.
4. BSA Violations
Similar to the money laundering issues discussed above, the Bank Secrecy Act (BSA) creates challenges for financial institutions that may increase over the coming years. The BSA imposes substantial reporting and due diligence requirements on financial institutions to prevent abuse of the U.S. financial system. Among other requirements, each financial institution must: (i) develop and implement an effective anti-money laundering (AML) program; (ii) file and retain records of currency transaction reports (CTRs) to report cash transactions of $10,000 or more; (iii) file and retain records of suspicious activity reports (SARs) where the financial institution knows, suspects, or has reason to suspect, inter alia, that the money was from an illegal source or the transaction occurred in connection with a plan to violate federal law or evade reporting requirements; (iv) file and retain records of Reports of International Transportation of Currency or Monetary Instruments (CMIRs) to report the transportation of currency or monetary instruments exceeding $10,000 to or from the United States; and (v) adopt customer identification procedures and perform other due diligence measures. The BSA rules are administered by the Financial Crimes Enforcement Network (FinCEN), the Internal Revenue Service (IRS), and the federal banking agencies including the Federal Deposit Insurance Corporation, the Office of the Comptroller of Currency, and the National Credit Union Administration.
The penalties for violating BSA requirements can be severe. Potentially applicable penalties include:
Criminal Liability for Financial Institutions or Employees Who Willfully Violate BSA Reporting Requirements – A person, including a bank employee, who willfully violates the BSA reporting requirements may be subject to five years in prison and a fine of up to $250,000. The criminal penalties are increased to 10 years in prison and a fine of up to $500,000 where the person commits the BSA reporting violation in connection with another crime or engages in a pattern of illegal conduct.
Structuring Violations – A person who structures, attempts to structure, or assists in structuring any transaction with one or more domestic financial institutions to evade a BSA reporting requirement may be guilty of a crime. Structuring involves willfully breaking a payment into smaller amounts so that they fall under the reporting threshold. Structuring is punishable by up to five years in prison and a fine of up to $250,000. Like the reporting penalties, the criminal penalties for structuring are increased to up to 10 years in prison and a fine of up to $500,000 where the person commits structuring in connection with another crime or engages in a pattern of illegal conduct exceeding more than $100,000 in a 12-month period.
Civil Penalties – The secretary of the Treasury may impose a civil penalty of $500 for a negligent violation of the recordkeeping requirements in the BSA. The penalty can be increased by up to $50,000 where there is a pattern of negligent violations. Where a financial institution engages in certain international money-laundering violations, the secretary of Treasury may impose a penalty equal to the greater of two times the value of the transaction or $1,000,000.
Where a financial institution’s failure to satisfy the recordkeeping requirement is willful, the civil penalty is equal to the greater of the value of the transaction or $25,000, up to a maximum of $100,000. The penalty is applied for each day the violation continues on each branch or place of business. Therefore, the civil penalties can increase significantly. The civil penalty can apply in addition to any criminal penalties.
Egregious Violator – Where an individual willfully commits a BSA violation and the violation either facilitated money laundering or terrorist financing (i.e. the individual is an “egregious violator”), the individual is prohibited from serving on the board of directors of a U.S. financial institution for a period of 10 years commencing on the date of the conviction or judgment.
5. Internal Revenue Code Currency Violations
The Internal Revenue Service frequently uses information gathered under the BSA reporting requirements to determine if taxpayers are compliant with their U.S. tax reporting obligations. Large transfers of cash are not per se illegal; however, they may be an indicator of fraud for tax purposes. Therefore, the IRS has a strong interest in financial institutions filing timely and accurate CTRs. To this end, the Internal Revenue Code includes a parallel statute that addresses the failure to file or the filing of inaccurate CTRs. The following penalties may apply under 26 U.S.C. § 6050I:
Criminal Liability for Willful Failure to File a CTR – Any person who willfully fails to file a CTR is guilty of a felony punishable with up to five years in prison and a fine of up to $25,000 (or $100,000 in the case of a corporation).
Criminal Liability for Willfully Filing a False CTR – Any person who willfully files a false CTR is guilty of a felony publishable with up to three years in prison or a fine of up to $100,000 (or $500,000 in the case of a corporation).
Criminal Liability for Structuring – The Internal Revenue Code includes its own criminal provision for structuring violations. A person who structures or assists in structuring may be publishable with the same penalties that apply to a person who fails to file or files an incorrect CTR.
Criminal Liability for Willfully Aiding or Assisting in Preparing a False CTR – Any person who aids, assists, counsels, or advises in the preparation of a false CTR is guilty of a felony punishable with up to three years in prison or a fine of up to $100,000 (or $500,000 in the case of a corporation).
Civil Penalty – The civil penalty for failure to file or filing an incorrect CTR is equal to the greater of $25,000 or the amount of cash received in the transaction, up to a maximum of $100,000.
6. Forfeiture Actions
In addition to civil and criminal penalties, the government can use civil and criminal forfeiture statutes to seize the property related to terrorism or money-laundering violations. This includes proceeds of the criminal activity, funds used to facilitate the criminal activity, and in some circumstances, legitimate funds that have been knowingly commingled with illegal funds. Where the illegal funds are being held abroad, the government may be able to seize assets held in correspondent accounts that foreign financial institutions maintain in the United States as a substitute.
7. Loss of Bank Charter or Removal from Banking Activities
In addition to the civil and criminal penalties that can apply, federal banking agencies have the authority to revoke bank charters and prohibit bank employees from engaging in further banking activities. Equally concerning are the various state banking regulators that can also revoke a financial institution’s charter for violations of federal laws. Because of the regulated nature of financial institutions, the ramifications of any of the violations mentioned above, even if not particularly egregious, have the potential to cause irreparable harm to the institution.
Conclusion
The government has numerous tools to penalize financial institutions or their employees for knowingly and unknowingly assisting customers with supporting or financing terrorism. As the strategies that terrorists use to access the U.S. financial systems continue to evolve, financial institutions may wish to consult with their advisors on the best way to prevent violations.
Florida Legislature Will Need Extra Time to Negotiate Budget & Tax Relief
Today, the President of the Florida Senate announced that tax relief has stalled the budget negotiations for the 2025 Regular Session. This means the Florida legislature will likely have to return in a Special Session to resolve tax and budget bills before the start of the state fiscal year on July 1, 2025.
The Senate announced they had offered a tax relief package of nearly $3B in the first year and $1.3B in future years. That relief would include a temporary elimination of certain motor vehicle fees, a permanent sales tax exemption on clothing under $75, a 1% reduction of the business rent tax (to 1%), and the historic sales tax holidays. See Senate Bill 7034.
The House’s current legislation would result in a $5B tax reduction in the first year and a $5.48B recurring reduction thereafter. Cornerstones of House Bill 7033 are a permanent 0.75% reduction of all sales tax rates and a redirection of tourist development tax (bed taxes) to offset local property taxes. The House bill will be considered on the floor of the full House tomorrow morning.
Harvard’s Tax-Exempt Status Dispute with the Trump Administration: Implications for Nonprofits
On April 16, 2025, President Donald Trump signaled a desire for Harvard University (Harvard or the University) to lose its tax-exempt status after the University refused several demands in the Trump Administration’s letter to Harvard, dated April 11, 2025, including reforms to governance and leadership, hiring and admission processes, student programs with records of antisemitism or bias and student discipline, as well as a discontinuation of DEI programs. Harvard’s refusal resulted in the Department of Education freezing $2.2 billion in grants and $60 million in contracts to Harvard. The Trump administration plans to freeze another $1 billion in federal funding for Harvard’s health research.
Harvard University sued the Trump administration on Monday, April 21, 2025, for infringing on the University’s free speech rights under the First Amendment. Additionally, Harvard argues that the administration’s actions against the University were arbitrary and capricious and outside the scope of its authority. Harvard contends that the federal government cannot impose unrelated conditions for higher-education institutions to access federal funding. The fate of Harvard’s federal funding and tax-exempt status may now set a precedent that could impact other nonprofit organizations.
While most nonprofit organizations focus on their missions, even a mission-driven organization can lose its 501(c)(3) status if it violates the Illegality Doctrine.1 In Bob Jones University v. United States (1983), the Supreme Court affirmed that a tax-exempt organization must operate in a manner consistent with public policy and federal law.2 The Court upheld the IRS’s decision to revoke tax-exempt status based on racially discriminatory practices — even though the institution claimed a religious purpose.3 If a tax-exempt organization engages in illegal activity or operates against public policy, it risks revocation — even if the charitable purpose itself is lawful.
Can the President Direct the IRS To Revoke Harvard’s Tax-Exempt Status?
On April 15, 2025, President Trump posted on Truth Social: “Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting ‘Sickness? Remember, Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!”
Generally, Section 7217 of the Internal Revenue Code of 1986 (the Code) prohibits the President, and other executive branch employees, from either directly or indirectly requesting that the IRS investigate or audit specific targets. The IRS has declined to comment to date on whether they are considering review or revocation of Harvard’s tax-exempt status. Additionally, a White House spokesman stated, “Any forthcoming actions by the I.R.S. are conducted independently of the President, and investigations into any institution’s violations of their tax status were initiated prior to the President’s TRUTH.” However, if the IRS revokes Harvard’s status, Harvard will almost certainly appeal.
What Rev. Rule 80-278 Says – and Why It Still Matters
With calls to revoke Harvard’s tax-exempt status making headlines again, nonprofit organizations must revisit Rev. Rul. 80-278, one of the IRS’s clearest positions on when 501(c)(3) status can be revoked. In Rev. Rul. 80-278, the IRS held that an organization systematically violating civil rights laws was not entitled to tax-exempt status even if its stated mission was charitable.4 Charitable purpose is not enough if the conduct is illegal or contrary to “clearly defined and established” public policy.5
Harvard’s legal position was made clear by a spokesperson for the University, who stated that “there is no legal basis for revoking the University’s exemption.” However, the burden of proof would be on Harvard to prove that its activities are not illegal or against public policy, and that it is otherwise entitled to tax exemption. Ultimately, if Harvard exhausts all administrative remedies with the IRS, then it could potentially file for a declaratory judgement remedy under Section 7428 of the Code. Historically, there is no IRS precedent that directly applies to protected speech by students or faculty.
What Should Your Nonprofit Do?
In light of the ongoing dispute with Harvard, and the potential for time and cost associated with defending tax-exempt status, nonprofit organizations should diligently review their internal governing documents, ongoing federal and state grants and contracts, and other materials to ensure compliance with federal and state laws related to tax-exempt status.
Suggested Actions
Audit Advocacy and Activities. Make sure your lobbying, programming and public-facing content align with your exempt purpose and IRS standards.
Review Governance & Oversight. Ensure your board understands its fiduciary role in legal compliance — not just mission direction.
Compile Basic Organizational Information for Potential Audits. Begin compiling materials that commonly would come up in an audit or investigation, such as tax returns, relevant agreements and grant or scholarship program materials.
Develop a Rapid-Response Framework. Have a plan for if (or when) your tax status, operations or speech get questioned by regulators, donors or the media.
[1] Rev. Rul. 80-278, 1980-2 C.B. 175 (1980).
[2] Bob Jones Univ. v. United States, 461 U.S. 574, 103 S. Ct. 2017, 76 L. Ed. 2d 157 (1983).
[3] Id. at 602-604.
[4] Rev. Rul. 80-278, 1980-2 C.B. 175 (1980).
[5] Id.