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n December, Congress passed the first major piece of typically lower than corporate rates. But given the signif-
tax reform legislation in a generation, the Tax Cuts icant cut to corporate tax rates, many pass-through com-
and Jobs Act (TCJA). With its drastic cuts to cor- panies could experience higher individual tax rates (under
porate and business tax rates and expanded deductions, the new law, the highest individual tax rate is set at 37 per-
key provisions within the law will dramatically impact ski cent). To reconcile this, Congress is now allowing pass-
resorts and industry suppliers. The capital-intensive ski through entities to deduct 20 percent of their qualified
industry is now in the best position in decades to leverage business income (QBI) from their personal income taxes,
some of the generous components of the TCJA to smartly whether or not they itemize. (The rules for calculating QBI
invest in new chairlifts, snowmaking, groomers, lodges, are terribly complicated, but this 20 percent deduction is
and—importantly—our employees. very welcome news!)
Many of key changes under the TCJA have been widely This effectively results in a 20 percent tax cut for pass-
covered in the media: lowering individual tax brackets from through entities, which include most of the smaller and
39.6 percent to 37 percent, doubling the standard deductions mid-sized ski areas in the US. The full 20 percent deduc-
for individuals and married couples, and capping mortgage tion, though, is limited to individual filers who make more
deductions, to name a few. The most consequential changes than $207,000 per year, or $415,000 for married cou-
under the law—dropping the corporate tax rate from 35 per- ples, but phases out for higher incomes. Notably, many
cent to 21 percent—raise significant questions about how pass-through entities may try to shield some of their wages
businesses will use tax savings, earned as part of their pass-
whether in the form of div- through entity by recharacteriz-
idends to shareholders, add- The capital-intensive ing their wages as business profits
ing employees, higher wages ski industry is now in to maximize the benefit of this
and/or bonuses, or investing in the best position in deduction. Be sure to check with
the business. your CPA, though, because the
Given the impact of these decades to smartly IRS is likely to create hurdles
provisions to various parts of invest in new chairlifts, to prevent owners and partners
the ski industry, NSAA is cher- snowmaking, groomers, from changing their wages (which
ry-picking key ones to high- lodges—and would taxed as high as 37 percent
light. Because these provisions importantly—our under individual tax rates), into
are new, the IRS has yet to for- employees. business income (which is taxed at
malize detailed guidance for the lower business tax rates).
many of these key changes. Furthermore, smaller fami-
That said, always check with ly-owned ski areas will also bene-
your outside CPA on whether these new changes directly fit from big changes to the estate tax. While the estate tax
apply to your business model and corporate status, and how was not repealed, the new tax bill doubles the exemption
to best leverage them. amount for estate and gift taxes. However, this change is
temporary and expires in 2025. The exemption is indexed
HOW BUSINESSES BENEFIT for inflation, so it looks like an individual can shelter $11.2
million in assets from these taxes, and married couples who
Big Winners: Smaller Ski Areas do proper estate planning can double that exemption. So,
While larger, publicly traded or conglomerate ski resort a couple could exclude $22.4 million from estate taxes for
companies will certainly enjoy the steep cut in corporate 2018. These changes will make it easier to pass on a fam-
tax rates from 35 percent to 21 percent, smaller ski areas ily-owned ski area to children or grandchildren, without
have plenty to cheer about under the new law. being taxed on the value of the ski area.
For many of the smaller and mid-sized ski areas that
operate as pass-through entities—including partnerships, Interest Deductions
S corporations, LLCs, sole proprietorships—owners and Another way that smaller ski areas benefit under the TCJA
shareholders of these entities are taxed on earnings based is their ability to take advantage of the interest deduction.
on individual, not corporate, tax rates. Effectively, com- Under the old tax law, businesses were allowed to deduct all
pany earnings, losses, and deductions pass through to the interest paid on debt as a deductible business expense. This
individual’s personal tax rates, which, in the past, were was a critical tax deduction, especially for capital-intensive

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