Roundtable Recap: Building Resilience

How New Tax Law, Tariffs Affect Construction Companies

By PHIL ALLMEN

October 9, 2025 - Michigan construction leaders have more clarity on tax implications from the federal “One Big Beautiful Bill” Act passed into law this summer. Industry executives met on September 17, 2025, at the Somerset Inn in Troy for the Construction Association of Michigan’s latest Breakfast Roundtable Series event “Building Resilience: Navigating Tariffs, Taxes, and Transformation in Construction.”

Moderated by John Gallo, Partner with UHY, a full-service business consulting practice, participants discussed some of the provisions in the most recent tax plan, which overall is expected to boost the bottom line for companies. Tariffs are impacting the cost of business, as well, but companies can take several steps to minimize their exposure to those tariffs.

One Big Beautiful Bill a Boon to Business

 The signature tax and spending plan signed into law by the Trump administration focused on supporting the business community, extending tax cuts and adding tax deductions intended to increase net revenues for business owners and investors.

“As a high-level overview, the (One Big Beautiful Bill) essentially makes permanent a lot of the provisions that were already in place as part of the Tax Cuts and Jobs Act that President Trump implemented during his first term,” explained Liyana Aryan, a Senior Tax Accountant with UHY.

One such provision that is staying as part of the OBBB is the reduced 21 percent income tax rate applicable to C corporations. In addition, flow through entities such as partnerships, S corporations, and sole proprietorships can continue to claim the 20 percent qualified business income (QBI) deduction on their personal return. This provision was originally introduced to equalize applicable income tax rates among C Corporations and flow through entities, and the QBI deduction was expected to sunset after 2025. However, it was made permanent as part of the OBBB. The QBI deduction will continue to apply to taxpayers whether they itemize or claim the standard deduction.

Not all construction-related work will be enhanced through the new law. “Green” building deductions are amended with those incentives ending much earlier than initially planned. Before OBBB, taxpayers had the ability to deduct the costs for implementing certain energy saving systems such as HVAC, interior lighting systems, building envelopes, etc., and these provisions were expected to sunset in late 2032. The OBBB accelerated the sunset of these provisions (to June 30, 2026). Projects started after that are no longer entitled to the green building deduction.

Expanding Research and Development for Construction

Roundtable participants focused on changes to research and development expenses in the tax act. For some construction companies, the R&D changes may create significant financial opportunities.

Traditionally, companies treated R&D expenses as capitalized assets and deducted over five years. The OBBB suspends amortization of the domestic research and experimental expenditures.

In addition, companies that change and update project specifications – value engineering or design assist – during the project itself may be able to deduct some of those expenses.

“If you’re doing design-build type of work, that typically can qualify you for R&D,” Gallo said. “Whenever I hear the term ‘retrofitting,’ that always piques my interest because you’re doing something unique. It’s the whole concept of doing something different. Doing something never done before and figuring out a new way of doing something is kind of encapsulating what R&D is,” said Gallo. “And that’s kind of how you have to think about it. (Some companies) don’t do the design-build. (They) just take the specs and build the building. If you take those specs and modify them or change them to get it to work, that would be an R&D item.”

Expensing those labor costs immediately without capitalizing and amortizing them is a huge benefit for companies, according to Gallo, particularly in recent years when companies had to capitalize those costs regardless of whether they were taking an R&D tax deduction.

Companies need to determine what R&D work would qualify under the OBBB, then quantify that process in a detailed R&D study to show that the deductions were proper. R&D deductions focus on the labor involved, but it’s the nature of the project activity that determines eligibility. “It’s not as black and white as you’d think. It’s more of an art than a science, to be honest with you,” Gallo said. “R&D has been around for many, many years. It’s just recently that they relaxed the definitions of what an R&D activity is -- before, it was really tough to qualify for an R&D activity.”

Kelvin Squires, owner of Center Line Electric and Chairman of the Construction Association of Michigan’s Board of Directors, said that he has benefited from the R&D changes. The detailed paperwork to secure those deductions is worth the effort, he added. “It’s intensive. You’ve got to build a package to make sure if the IRS comes back, you’re saying ‘hey, here is the research and developed design part we did this. And here’s why I qualify,’” Squires said. “It’s really tied to the labor. It’s not just a checklist.”

Tariff Impact Can Change without Much Notice

Companies continue to face challenges with tariffs. As the United States negotiates trade agreements, import rates vary by country of origin—and even within the same country, those rates are not always consistent and can change quickly.

Charles Clevenger, a Principal with UHY Consulting, said the there are three keys to successfully managing the current tariff situation. The first is to stay abreast of the changes and ensure compliance to avoid fines and penalties. Second is to maintain accurate financial. The third is to minimize your company’s exposure through a series of mitigating strategies.

Existing tariffs include both commodity-focused and country-specific. Section 232 tariffs on raw materials like aluminum and steel have been expanded to include copper, and for the most part increased from 25% to 50%. While many countries are included under the new tariffs, imports from certain countries such as China and Vietnam have been hit harder than most.

For importers, country of origin becomes a more important factor as businesses look for alternative sources or trade partners. International companies may set up additional operations in countries that have more favorable trade regulations with the U.S. However, domestic companies must navigate the regulations of the product’s country of origin.

Chinese companies are developing businesses in places like Malaysia and the United Arab Emirates. “What they're basically saying to their U.S. customers is: if you will import from my company in Malaysia, you can be at this tariff level as opposed to the Chinese tariff level,” Clevenger explained. “You know the old saying about don't look at gift horse in the mouth. We want to look in the mouth of this gift horse.” Companies that rely on third-country routing must ensure products meet country‑of‑origin standards, since any noncompliance will ultimately be the responsibility of the U.S. importer. “That will not come back on your Chinese supplier -- that will come back on you,” he added.

Adding to the challenge is a complex Harmonized Tariff code system, where certain materials may fall under multiple classifications. Companies should identify the code that is accurate and provides the lowest tariff.

Having a competent customs broker is important. Noncompliance can result in large fines and a capable customs broker can help you avoid such mistakes.

A Cautiously Optimistic Economic Forecast

The CAM Roundtable closed with a forward-looking perspective. John Moore, Professor in the Finance and Economics Department at Walsh College, noted that despite uncertainty around tariffs, the long-term economic outlook remains positive. He emphasized that the U.S. economy has shown steady growth regardless of which party controls Congress or the Presidency. “It doesn’t matter what party is in control,” he said. “I’m going to argue here that the economy is actually quite resilient to all the crazy. The national economy is having a pretty steady growth rate.”

Charting areas like national real gross domestic product, corporate earnings, and consumer price index, there has been growth for the past 15 years, outside variances at the height of the COVID-19 pandemic. Those are all positive signs, although other areas like declining labor utilization rates or personal savings to disposable incomes are areas to monitor, as well.

Like the Industrial Revolution drastically changed the world from an agrarian society, Moore said we are in an Information Revolution that will continue to transform our working environment as people and companies determine the impact of artificial intelligence on business operations. While he is confident AI will become central to daily business operations, Moore noted that the timing and form of its impact remain uncertain.

“Here's the rule of thumb from an economist and economic history perspective: new technology is always overhyped,” Moore said. “We're still figuring it out. It’s still in a two-steps-forward, one-step-back (phase). There are certain things that AI has limitations on.”

Exactly how AI will reshape construction is certainly unclear, but its influence will likely mirror the transformations in other industries. Using remote work as an example, it was relatively uncommon prior to the pandemic. For companies that continue to offer it today, traditional office models are no longer suitable. “If you're going to build a new office building, say, five years from now, it will look radically different,” Moore said. “It's going to take up less square feet -- they're rotating people in and out, they're going to want to have larger conference areas, and they're going to want to have amenities.”

Similarly, shopping habits have evolved. Delivery services such as Amazon and Shipt enable consumers to avoid leaving home entirely, shifting demand from traditional brick-and-mortar stores toward facilities like warehouses.

Moore said the country has experienced a great deal of political rhetoric and varying approaches to governance over the past two decades. Yet, American businesses and consumers seem largely unaffected by these shifts. He noted that the current positive trend appears likely to continue, adding that the biggest threats to the economy are unpredictable policies or changes in corporate and consumer confidence.

“My advice, for what it's worth, is stay calm. Run your businesses responsibly,” he said, adding that despite any uncertainty through the next several years, it should benefit businesses overall. “The one thing I will say about Donald Trump – like him or not – his background is business. He will always promote policy to keep business going, and he understands that probably better than any other president we've ever had. It may have some residual side effects down the road, but it is what it is.”

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