In late 2005, the nation was still in shock over the terrible devastation wrought by Hurricanes Katrina, Rita and Wilma. As with so many other businesses, private clubs damaged by the hurricanes were forced to cease operations and start the long process of rebuilding.
With Gulf Coast states desperately seeking help, Congress decided to act. H.R. 4440, the Gulf Opportunity Zone Act of 2005 (the GO Zone Act), created tax breaks for businesses located in states designated federal disaster areas. The bill allowed business owners to deduct clean-up and demolition costs as well as additional expenses and carry over more losses to subsequent years, and they proved to be essential for businesses to survive.
When the Gulf Opportunity Zone Act was signed into law on Dec. 21, 2005, many business owners were able to pay for the restoration of their companies and lower their tax bill when they finally opened their doors again. Unfortunately, the private club industry was not given that same opportunity.
During the debate on H.R. 4440, a few Republican members of Congress felt that the business of golf should not qualify for these tax breaks. Thus, the bill included the following language:
“(p) Tax Benefits Not Available With Respect To Certain Property – (1) … the term ‘qualified Gulf Opportunity Zone property’ shall not include any property … used in connection with any private or commercial golf course, [or] country club ….”
The National Club Association fought to remove this exclusion from the final bill, but those members who wanted to keep golf out of the mix could not be convinced. The legislation passed and golf and country clubs located in Gulf Coast states received no tax breaks.
On the one hand, the effect of this legislation was not as bad as it could have been because most NCA clubs are 501(c)(7) tax-exempt corporations and they could not have used these tax breaks anyway. On the other hand, this exclusion was discriminatory and served to damage the entire golf industry in those states. NCA vowed to keep this from ever happening again. Well, fast forward three years, and it was déjà vu all over again.
In mid-July of this year, Sen. Charles Grassley (R-Iowa) introduced a bill to assist individuals and businesses recovering from the terrible storms, floods and tornadoes that occurred throughout 10 Midwestern states. The Midwestern Disaster Tax Relief Act (MDTR Act), S. 3322, was modeled after the GO Zone Act and provided the same kind of tax breaks for businesses damaged by these new storms, including the exclusions found in the GO Zone Act.
At the same time Grassley was creating the MDTR Act, Sen. Max Baucus (D-Mont.) was fashioning his own natural disaster tax relief bill. His bill covered the entire United States, but most importantly, it did not exclude golf or country clubs from receiving the tax breaks.
At that point, NCA and many of our golf industry allies began an extensive lobbying effort to make members of Congress aware of golf’s exclusion from Grassley’s bill. Not only did we take this message to members of the Senate and the House, but we spent considerable time discussing the matter directly with Grassley and his staff as well as Baucus and his staff. During 23 days in August, NCA and our industry allies held a total of 17 meetings pushing staff and members to remove this exclusion.
After each of these meetings, we came away with a firm belief that the golf exclusion would be removed. Furthermore, as a member of the majority party, it seemed that the Baucus bill would move quicker than one offered by a member of the minority party.
As the chairman and ranking Republican member of the Senate Finance Committee, these two senators work closely to craft tax policy for the country. So, when Baucus introduced his natural disaster bill, he immediately discussed it with Grassley and they reached an agreement. The agreement renamed the bill the “Heartland and Hurricane Ike Disaster Relief Act,” and it added Texas to the other 10 states. The effective dates for the Grassley bill were then established as May 1, 2008 until Aug. 1, 2008. After Aug. 1, Baucus’ natural disaster relief bill would cover any disasters.
With Grassley’s bill moving forward, his staff then decided that Baucus’ bill should be consistent regarding the exclusion. Thus, golf was prohibited from receiving the tax breaks found in the Baucus countrywide natural disaster relief package.
With the 110th Congress preparing to adjourn for the year, it began to look like only a few more bills would actually be voted on before members left town.
To ensure their natural disaster bills got a vote, Grassley and Baucus included them as amendments to a tax bill that covered the alternative minimum tax (AMT) and that renewed expiring tax cuts. On Sept. 23, this huge tax bill passed the Senate 93-2. However, the House of Representatives did not like this bill at all.
In our discussions with House staff, it was clear that the leadership of the House had significant reservations with the bill because none of the tax cuts was paid for by corresponding tax increases or a reduction in spending. House Speaker Nancy Pelosi (D-Calif.) made it clear that she would not allow the bill to pass without changes. And, when the Senate bill passed, the House took up the measure and immediately added new taxes. These new taxes represented the break our industry needed.
Any change to the Senate’s version of the bill would require it to be returned to that chamber for review and a new vote. And, a bill with many new taxes would never pass the Senate. As such, the changes to the Senate bill effectively killed the Grassley and Baucus natural disaster tax relief measures that excluded golf.
After all the discussions, all the persuading and all the pressuring, the golf industry could claim victory. A damaging bill died, and our industry was seen in a positive light on Capitol Hill. Then, like in a bad horror movie, the natural disaster relief language rose from the dead.
When the $700 billion financial rescue bill died in the House and the Dow Jones Industrial dropped more than 700 points, many members of Congress immediately had voter’s remorse. But, the vote was over in the House—no mulligan allowed. So, the Senate took the next step to save the deal.
Senate leaders, like Baucus, added measures to the bill that sweetened the pot for wavering Members. Unfortunately, the biggest pot sweetener was the tax bill that included the natural disaster relief language.
Had the House passed the initial rescue measure, the Senate would not have had to add anything to the bill. The $700 billion legislation would have moved from the House to the Senate, passed the Senate and Congress would have adjourned for the year. Instead, the House caused the rescue package to be reworked and the natural disaster language was resurrected.
With so many members of the House now interested in changing their votes, the fact that the tax bill still did not provide an offset for the renewed tax cuts was no longer an issue for Pelosi. The fact that the election was drawing closer and that the economy really needed rescuing was all she needed to get the votes for the bill.
After the bill passed the Senate 74-25, the House did the same. With that, a natural disaster measure that could never have survived on its own became law—truly a disaster for the golf industry.
Ultimately, the entire golf industry was overtaken by the magnitude of the moment. Nothing we said or did could have stopped this legislation from passing once it was attached to the rescue bill. For the private club industry, we are marginally affected—protected by our tax-exempt status.
If there had been no economic crisis, things would have been vastly different for our industry. But things are not different, and our industry was unnecessarily damaged by this legislation—something NCA and our industry allies may have a hard time forgetting for many years to come.