The Fashion Innovation Alliance welcomes the release of significant tax legislation.

November 2, 2017

Washington, DC — House GOP leaders released their tax reform bill today, the Tax Cuts and Jobs Act, which includes provisions that would significantly impact fashion tech, beauty brands and retailers, ranging from big tech and luxury conglomerates to emerging entrepreneurs.

“Today’s release of this tax legislation by the House Republican leadership is an important step for moving tax reform forward in the coming months,” said Jorge Castro, tax policy advisor to the Fashion Innovation Alliance (FIA) and principal at Castro Strategies LLC, a tax consulting firm in Washington.

“As the tax bill moves through the legislative process in the House and Senate, FIA will continue to advocate for proposals that foster business growth and job creation. It is important for our tax system to incentivize emerging industries such as fashion tech. That is a goal FIA shares with policymakers,” stated Castro.

Innovations in fashion tech continue to revolutionize the future of numerous industries, including retail, health and fitness, and financial services. Given the fashion and tech industries’ global reach with today’s consumers, modernizing the U.S. tax code will be key to the growth of American companies and to U.S. global competitiveness.

Here are key provisions to watch for companies in fashion tech, beauty and retail:

Lower corporate tax rate: The bill decreases the U.S. corporate tax rate from 35% to 20%.

Why it’s important: Retailers—including tech companies and luxury conglomerate —will benefit from a lower corporate tax rate, which will foster domestic growth and also benefit employees and consumers. FIA will advocate for the 20% tax rate to be made permanent.

More competitive international tax system: The bill shifts from our current “worldwide” tax system and moves toward a “territorial” system, making domestic companies more competitive globally.

Why it’s important: Fashion and tech are global industries, connecting with customers around the world. Moving toward a territorial tax system would allow multinational corporations in fashion, beauty and tech to be taxed only in the country where the company’s profits occur.

Preserving the research and development tax credit: The bill retains the R&D credit, which encourages domestic innovation.

Why it’s important: Startups developing innovative tech applications involving smart textiles, artificial intelligence and machine learning often require significant research and development to test and bring their products to market. FIA will advocate for an expansion of the R&D tax credit to increase the ability of startups to take advantage of the credit. As more fashion and beauty brands establish technology incubators, expanding the R&D tax credit would lead to more investment for research and innovation.

100% full expensing for new investments: The bill allows businesses to write off the full cost of new equipment, spurring growth and improving operations.

Why it’s important: Companies that are capital-intensive, including startups that rely on design and advanced manufacturing equipment—will be able to immediately write off the cost of new investments. This will be particularly beneficial as designers and technologists work to get smart apparel from concept to market.

 Lower rate for pass-through businesses: The bill reduces the tax rate for pass-through entities to 25%, which will significantly benefit small businesses.

Why it’s important: Small businesses—including emerging designers and boutique beauty brands—would see more of their earnings. Fashion designers usually spend a minimum of $20,000 for a small collection— taking into account the cost of materials and production. Thus, the additional earnings could be used for emerging brands to invest back into their businesses.

 

The Fashion Innovation Alliance (FIA) was founded in 2016 to provide a platform and voice for leaders in fashion, beauty and technology committed to public policy, access, inclusion and innovation for fashion tech—including smart accessories/apparel, digital commerce, augmented/virtual reality retail applications, and now artificial intelligence. FIA has also served as a resource for emerging entrepreneurs—providing business support and educational services on fashion tech policy, social entrepreneurship, and tech inclusion.

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