SBLC Expresses Concerns Over Tax Bill’s Effect On Small Businesses
The Small Business Legislative Council (SBLC), representing more than 40 trade associations including PPAI, has sent a letter to members of Congress expressing the group’s concerns with the tax bill the House-Senate conference committee is working to reconcile.
The response was developed at a recent meeting of the SBLC, of which PPAI President and CEO Paul Bellantone, CAE, serves as a board director. In the letter, the SBLC encourages the conference committee to consider a number of points in the bill that, rather than providing simplification to the tax code, it sees as substituting one complex provision with another. It urged the conference committee to do the following:
- Provide a fair, straightforward and permanent deduction for pass-through entities and treat all pass-through entities alike. The vast majority of small businesses are pass-through entities. In the interest of tax simplification and small business growth, it is essential that new provisions to benefit pass-through entities (which are necessary to maintain a semblance of parity with C corporations) are easily understandable and applied. Moreover, it is fundamentally unfair (and counter to simplification) to set different rules for service businesses, as both the House and Senate bills do, particularly given that service businesses constitute a significant portion of America’s small businesses. Further, the new rate should also be equally accessible to those pass-through entities that are structured with trust shareholders. Finally, as a number of others have already raised, under the Senate bill there is a significant (and we expect unintended) issue with how individuals making between $500,000 and $600,000 would be taxed.
- Adopt the House’s provision to repeal the alternative minimum tax (AMT) or significantly increase the exemption amount. The AMT adds the ultimate level of complexity to the tax code. The Senate bill’s retention of the AMT with an increased individual threshold would leave many businesses and middle class families with the burden of having to expend time and money to calculate their taxes twice and the uncertainty of not knowing what system they will be subjected to. However, if it is determined that some threshold is needed over which AMT will apply, then we suggest the threshold be $1 million individual, $1.5 million joint.
- Adopt the House’s provision to allow businesses with up to $25 million in receipts to use the cash method of accounting. For many small businesses, the cash method of accounting is essential to the business’ growth and success because it more accurately reflects the actual financial situation of the business. Particularly for small businesses that often do not receive payment for their work until months or even years after it is performed, expanding the availability of cash accounting will stimulate growth and simplify the burden on small businesses of preparing their tax returns.
- Reject the House’s and Senate’s provision to fully or partially eliminate the deduction for state and local taxes. The SBLC urges Congress to fully retain the current deduction for state and local taxes, including property taxes, for both individuals and businesses. On the business side, to the extent that C corporations continue to be permitted to take this deduction, pass through entities should also be permitted the deduction.
Permanently repeal the estate and gift tax and maintain the step-up in basis. To ensure that family businesses can be successfully passed from one generation to the next the SBLC urges Congress to permanently repeal the estate and gift tax. To the extent that this is not possible, we would stress that an $11 million exemption limit is too low and advocate for an exemption of at least $50 million. In any respect, the step-up in basis, which is preserved in both the House and Senate bill, must be maintained to protect small businesses and the descendants of middle class deceased persons with appreciated assets. This is critical in that few small businesses are hit with the estate tax (though it can be devastating to those few) but millions and millions of Americans would be hit with a new tax if the step-up in basis were to be eliminated. This could be a major tax increase for almost all small-business owners.
- Adopt the House’s provision to allow an unlimited business interest deduction for businesses with annual gross receipts of $25 million or less. Many small businesses have average gross receipts in excess of $15 million, thus the $25 million is a more accurate cut-off for small businesses, though even this number is on the low side.
- Maintain the current mortgage interest deduction, including the deduction for home equity lines. While the House bill would reduce the interest deduction limit to $500,000, the Senate would leave the mortgage interest deduction intact but would temporarily suspend the deduction for interest on home equity indebtedness. For small business owners, many of whom use home equity lines of credit to start, grow or maintain their businesses, any changes to the existing home equity line interest deduction would be a significant blow and is likely to result in fewer new small-business startups and less expansions of the newer or smaller businesses.