An Annotation of the Legislative Language for the Local News Tax Credit in Build Back Better
The local news tax credit passed in the House version of Build Back Better has the potential to offer transformative funds to local publishers across the country. However, those transformative benefits can be obscured by the provision’s complicated legislative language. So, we’ve annotated the full provision, explaining each section, what it means and its intended function.
SEC. 138516. PAYROLL CREDIT FOR COMPENSATION OF LOCAL NEWS JOURNALISTS.
(a) IN GENERAL.—Subchapter D of chapter 21 is amended by adding at the end the following new section:
‘‘SEC. 3135. LOCAL NEWS JOURNALIST COMPENSATION CREDIT.
‘‘(a) IN GENERAL .—In the case of an eligible local news journalist employer, there shall be allowed as a credit against the taxes imposed by section 3111(b) for each cal- endar quarter an amount equal to the applicable percent- age of wages paid by such employer to local news journal- ists for such calendar quarter.
The value of the credit will be based on employment in the previous quarter (not the previous year).
‘‘(b) LIMITATIONS AND REFUNDABILITY . —
‘‘(1) NUMBER OF LOCAL NEWS JOURNALISTS TAKEN INTO ACCOUNT.—The number of local news journalists which may be taken into account under subsection (a) with respect to any eligible local news journalist employer for any calendar quarter shall not exceed 1,500.
News organizations will not be able to get more than 1,500 credits per company. This slightly shifts the size of the pie slices toward medium and smaller players. The bill does, however, allow for participation of big chains up to that point with a key proviso: it has to be used for local journalists (defined below).
‘‘(2) WAGES TAKEN INTO ACCOUNT.—The amount of wages paid with respect to any individual which may be taken into account under subsection
(a) during any calendar quarter by the eligible local news journalist employer shall not exceed $12,500.
The size of the credit is based on a percentage of the salary paid to the journalist — but only up to a point ($50,000 annual salary). That’s why the maximum that a news organization can get in the first year is $25,000 and $15,000 in years two through five of the legislation.
‘‘(3) CREDIT LIMITED TO EMPLOYMENT TAXES.—The credit allowed by subsection (a) with respect to any calendar quarter shall not exceed the taxes imposed by section 3111(b) on the wages paid with respect to the employment of all the employees of the eligible local news journalist employer for such calendar quarter.
‘‘(4) REFUNDABILITY OF EXCESS CREDIT.—If the amount of the credit under subsection (a) exceeds the limitation of paragraph (3) for any calendar quarter, such excess shall be treated as an overpayment that shall be refunded under sections 6402(a) and 6413(b).
This complicated sentence is one of the most important. It means this isn’t just a reduction in how much the organization pays in payroll taxes. The news organization will get an actual refund check of up to $25,000 per journalist. This is basically the mechanism through which policymakers do subsidies like this via the payroll tax system.
It is important that the benefit is tied to payroll taxes, not income taxes. Many news organizations are doing so poorly that they don’t pay income taxes. In addition, payroll taxes are also paid by nonprofit news organizations, so they can benefit from this too.
‘‘(c) ELIGIBLE LOCAL NEWS JOURNALIST EMPLOYER. —For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘eligible local news journalist employer’ means, with respect to any calendar quarter, any employer which—
‘‘(i) an eligible local news organization, or
‘‘(ii) a qualifying broadcast station,
Commercial local TV news shows, local news radio, and public TV and radio are eligible — as long as they have at least one full-time journalist covering the community.
‘‘(B) employs local news journalists.
To qualify, newsrooms must, at a minimum, employ local news journalists. Purely national publications — or entities that are local in name but just publish national content — are excluded.
‘‘(2) ELIGIBLE LOCAL NEWS ORGANIZATION.— The term ‘eligible local news organization’ means, with respect to any calendar quarter, any employer—
‘‘(A) which publishes one or more qualifying publications during the calendar quarter, ‘‘(B) which is not a disqualified organization, and
‘‘(C) which did not derive more than 50 percent of its gross receipts for such calendar quarter from disqualified organizations.
This means that the newsroom cannot get more than half of its revenue from one of the organizations in section 5, i.e. political action committees, and other political advocacy groups.
‘‘(3) QUALIFYING BROADCAST STATION.—The term ‘qualifying broadcast station’ means, with re- spect to any calendar quarter, any employer—
‘‘(A) which owns or operates a broadcast station (as defined in section 3 of the Communications Act of 1934),
‘‘(B) which is not a disqualified organization,
‘‘(C) which did not derive more than 50 percent of its gross receipts for such calendar quarter from disqualified organizations, and
‘‘(D) which discloses its ownership to the public at such times and in such manner as identified by the Secretary.
This disclosure of ownership provision was put in to try to limit organizations that are funded by mysterious or dark-money sources.
‘‘(d) OTHER DEFINITIONS .—For purposes of this section—
‘‘(1) APPLICABLE PERCENTAGE.—The term ‘applicable percentage’ means—
‘‘(A) in the case of each of the first 4 calendar quarters to which this section applies, 50 percent, and
The benefit can be up to $25,000 in the first year i.e. 50% of $50,000 (or $12,500 per quarter).
‘‘(B) in the case of each calendar quarter thereafter, 30 percent.
After the first year, the size of the benefit drops to being up to $15,000 (30% of $50,000).
‘‘(2) LOCAL NEWS JOURNALIST.—
‘‘(A) IN GENERAL.—The term ‘local news journalist’ means, with respect to any eligible local news journalist employer for any calendar quarter, any full-time employee (as defined in section 4980H(c)(4)) who—
‘‘(i) provides qualified services for an average of not less than 30 hours per week for each week during which such employee is employed by the eligible local news journalist employer during the calendar quarter, and
The benefit is not available for contractors or freelancers. Some had argued it should be. But this approach makes it less subject to abuse and less expensive. It also encourages the hiring of full-time journalists.
‘‘(ii) resides within 50 miles of the local community with respect to the qualifying publication or qualifying broadcast station with respect to which the qualified services are provided.
This makes it more likely that a qualifying newsroom is truly a local news organization that is actually covering its community.
‘‘(B) QUALIFIED SERVICES.—For purposes of subparagraph (A)(ii), the term ‘qualified services’ means services—
‘‘(i) which consist of gathering, preparing, directing the recording of, producing, collecting, photographing, recording, writing, editing, reporting, presenting, or publishing original local community news for dissemination to the local community, and
The most recent version of the bill built off language in the federal shield law legislation, which is a respected and well-vetted approach (“gathering, preparing, collecting, photographing, recording, writing, editing, reporting, or publishing.”) When local TV and radio stations were added to the legislation, that prompted some broadcast journalism functions — “directing the recording of,” “producing” and “presenting” — to be added.
This language also means that a publication, or a local TV or radio station, cannot get a credit for people not, in fact, working on local news.
‘‘(ii) which are provided with respect to—
‘‘(3) QUALIFYING PUBLICATION.—The term ‘qualifying publication’ means, with respect to any calendar quarter, any print or digital publication—
‘‘(A) the primary purpose of which is to serve a local community by providing local news,
This excludes national publications that do occasional local stories. On the other hand, the “primary purpose” language may require further definition.
‘‘(i) is published during the calendar quarter, and
‘‘(ii) has been published during each of the 4 calendar quarters preceding such calendar quarter,
The publication needs to have existed for at least a year. On the other hand, that requirement is shorter than in the original legislation (two years). The hope is that reducing the wait period to one year would make it more likely that the benefit could help startups.
‘‘(C) which is covered by media liability insurance for such calendar quarter,
This was designed to help weed out those news organizations devoid of any journalistic standards, without having the government impose subjective rules about quality.
‘‘(D) which discloses its ownership to the public at such times and in such manner as identified by the Secretary, and
This, too, was designed to address fly-by-night websites with foreign or undisclosed funding sources. It doesn’t say some ownership types are excluded; just that the news organizations must be transparent about who owns them.
‘‘(E) which receives services from not more than 1,500 persons during such calendar quarter.
This is a confusing way of saying that individual publications that have more than 1,500 employees are not eligible. So the New York Times is out; but a chain of local newspapers can qualify for each of their newsrooms that have fewer than 1,500 employees.
‘‘(4) LOCAL COMMUNITY.—The term ‘local community’ means, with respect to any qualifying broadcast station or qualifying publication, a geographically contiguous area that does not exceed the boundaries of—
‘‘(A) in the case of a qualifying broadcast station, the area for which the qualifying broadcast station is licensed to serve by the Federal Communications Commission under section 307 of the Communications Act of 1934, and
For TV and radio broadcasters, the term local community is defined as being the audience that’s delineated in the broadcaster’s FCC license.
‘‘(B) in the case of a qualifying publication—
‘‘(i) the metropolitan or micropolitan statistical area, as defined by the Office of Management and Budget, in which the qualifying publication is primarily distributed,
‘‘(ii) if such qualifying publication is not primarily distributed in a metropolitan or micropolitan statistical area, political subdivision of the State in which such qualifying publication is primarily distributed, or
‘‘(iii) if such qualifying publication is not primarily distributed in a metropolitan or micropolitan statistical area or a political subdivision of a State, the State in which such qualifying publication is primarily distributed.
This is all a complicated way of saying that a “local community” — the thing being covered — can be a local area (i.e. a town or city) or a region within a state or a whole state.
For purposes of subparagraph (B), in the case of a qualifying publication which is a digital publication, such qualifying publication shall be considered to be primarily distributed in the area where such publication is primarily consumed.
Understanding that digital publications are not “distributed” in the same way, the congressional drafters added an extra definition related to where the information is “consumed.”
1.6 ‘‘(5) DISQUALIFIED ORGANIZATION.—The term ‘disqualified organization’ means—
‘‘(A) any organization described in section 501(c)(4) and exempt from tax under section 501(a),
This refers to “ social welfare organizations, ” which are allowed to engage in more political activities than 501c3 organizations.
‘‘(B) any organization described in section 527, and
These are political organizations, including political action committees.
‘‘(C) any organization that is owned or controlled (directly or indirectly) by one or more organizations described in subparagraph (A) or (B).
‘‘(6) GROSS RECEIPTS.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph (B), the term ‘gross receipts’ has the meaning given such term as used in section 448(c).
‘‘(B) TAX-EXEMPT ORGANIZATIONS.—In the case of an organization which is described in section 501(c) and exempt from tax under section 501(a), any reference in this section to gross receipts shall be treated as a reference to gross receipts within the meaning of section 6033.
This clarifies that non-profit organizations are indeed eligible.
‘‘(7) OTHER TERMS.—Any term used in this section which is also used in this chapter shall have the same meaning as when used in such chapter.
‘‘(e) AGGREGATION RULE .—All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (m) or (o) of section 414, shall be treated as one employer for purposes of this section.
This clarifies that newspaper groups with one owner are eligible even if the overall number of employees in the company is more than 1,500, as long as the individual local news organization has fewer than 1,500 employees.
‘‘(f) CERTAIN RULES TO APPLY.—
‘‘(1) IN GENERAL.—For purposes of this section—
‘‘(A) except as provided in paragraph (2), rules similar to the rules of section 51(i)(1) shall apply, and
‘‘(B) rules similar to the rules of section 280C(a) shall apply.
‘‘(2) EXCEPTION.—Paragraph (1)(A) shall not apply with respect to any local news journalist of an eligible local news journalist employer which employs fewer than 15 local news journalists during the calendar quarter.
Section 5(1)(a) and (b) would seem to exclude some mom-and-pop organizations that might employ members of the family. This “exception” declares that small news organizations should not be knocked out by that rule. This change was designed to protect small family-run publications, even publications with only a single employee, or no employees under the tax code (a self-employed publisher).
‘‘(g) CERTAIN GOVERNMENTAL EMPLOYERS.—
‘‘(1) IN GENERAL.—This credit shall not apply to the Government of the United States, the government of any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing.
‘‘(2) EXCEPTION.—Paragraph (1) shall not apply to any public broadcasting entity (as defined in section 397(11) of the Communications Act of 1934 (47 U.S.C. 397(11))).
Normally, a government-run publication would not be eligible. But some public TV or radio stations are owned by the state’s university system or, in some cases, by the state itself. This language clarifies that those public TV and radio stations could still participate.
‘‘(h) ELECTION TO HAVE SECTION NOT APPLY.—
This section shall not apply with respect to any eligible local news journalist employer for any calendar quarter if such employer elects (at such time and in such manner as the Secretary may prescribe) not to have this section apply.
If you don’t want the benefit, you don’t have to take it.
‘‘(i) SPECIAL RULES.—
‘‘(1) EMPLOYEE NOT TAKEN INTO ACCOUNT MORE THAN ONCE.—An employee shall not be included for purposes of this section for any period with respect to any employer if such employer is allowed a credit under section 51 with respect to such employee for such period.
‘‘(2) DENIAL OF DOUBLE BENEFIT.—Any wages taken into account in determining the credit allowed under this section shall not be taken into account for purposes of determining the credit allowed under section 41, 45A, 45P, 45S, or 1396.
‘‘(3) THIRD-PARTY PAYORS.—Any credit allowed under this section shall be treated as a credit
described in section 3511(d)(2) of such Code.
‘‘(j) TREATMENT OF DEPOSITS.—
The Secretary shall waive any penalty under section 6656 for any failure to make a deposit of any taxes imposed under section 3111(b) if the Secretary determines that such failure was due to the reasonable anticipation of the credit allowed under this section.
‘‘(k) EXTENSION OF LIMITATION ON ASSESSMENT.—
Notwithstanding section 6501, the limitation on the time period for the assessment of any amount attributable to a credit claimed under this section shall not expire before the date that is 5 years after the later of—
‘‘(1) the date on which the original return which includes the calendar quarter with respect to which such credit is determined is filed, or
‘‘(2) the date on which such return is treated as filed under section 6501(b)(2).
This benefit is temporary, existing for five years from passage of the law.
‘‘(l) REGULATIONS AND GUIDANCE.—
The Secretary shall issue such forms, instructions, regulations, and guidance as are necessary—
‘‘(1) with respect to the application of the credit under subsection (a) to third-party payors (including professional employer organizations, certified professional employer organizations, or agents under section 3504), including regulations or guidance allowing such payors to submit documentation necessary to substantiate the eligible employer status of employers that use such payors, and
‘‘(2) to prevent the avoidance of the purposes of the limitations under this section. Any forms, instructions, regulations, or other guidance described in paragraph
(1) shall require the customer to be responsible for the accounting of the credit and for any liability for improperly claimed credits and shall require the certified professional employer organization or other third-party payor to accurately report such tax credits based on the information provided by the customer.
The agency that will run this program, and clarify how it works, is the U.S. Department of the Treasury.
This section shall only apply to wages paid in calendar quarters beginning after the date of the enactment of this section and beginning before the date that is 5 years after the first day of the first calendar quarter to which this section applies.’’.
REFUNDS.—Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting ‘‘3135,’’ after ‘‘3134,’’.
(c) CLERICAL AMENDMENT.—
The table of sections for subchapter D of chapter 21 is amended by adding at the end the following:
‘‘Sec. 3135. Local news journalist compensation credit.’’.
(d) EFFECTIVE DATE.—
The amendments made by this section shall apply to calendar quarters beginning after the date of the enactment of this Act.
If this passes before the end of 2021, then local news organizations can get benefits based on their payroll in the first quarter of 2022.