Equalized fringe benefit treatment SBANE'S sliding scale surtax exemption Interstate The paperwork flood this reason SBANE supports the proposal to increase the amount of additional first-year depreciation from $10,000 to $20,000. Recent taxation legislation has resulted in a major disparity between the fringe benefits afforded the employees of unincorporated businesses and electing small business corporations vis-a-vis the employees of large corporations. A ceiling of $2,500 has been placed on the amount that can be taken. Senate Bill 1615 proposes equalized treatment of fringe benefits and SBANE urges its enactment. SBANE does not favor Senator Bible's proposal for adjusting normal corporate tax rates so as to shift a larger portion of the burden to large companies. Instead, we again call for the enactment of our proposed sliding scale surtax exemption. Under the SBANE plan, there would be a basic $50,000. exemption from the present surtax for corporations with earnings of $50,000 or less. This exemption would gradually be reduced to the current level of $25,000. for companies having taxable incomes in excess of $100,000. SBANE's plan offers the advantage of providing meaningful tax reductions for smaller businesses without significantly increasing the tax of larger corporations. The Bible-Evins bill also contains a number of proposals that only conform the tax treatment of similar items between corporations, electing small business corporations, and partnerships. Of these, the most significant and worthy of support allows for the carryover of unused operating losses of electing small business corporations. This proposal has considerable merit. In the past, shareholders of these corporations have not been allowed to utilize operating losses in excess of basis. In subsequent periods when the shareholder had positive basis, the unused losses were not available for deduction. This contrary to the rules which apply to partnerships, where a current deduction is allowed for any unused operating loss not claimed in prior years due to insufficient basis. SBANE strongly supports enactment of the Interstate Taxation Act, designed to provide a uniform method of state taxation as a first step toward tax simplification. This legislation would have a decided, positive effect in encouraging interstate commerce, in that it would remove the single largest roadblock facing small businesses wishing to engage in such commerce. As things stand now, small businesses encounter a virtual jungle of uncertainty in determining if they are indeed subject to state tax, and if so, in computing the tax. A single example illustrates the almost incredible nature of the problem: due to varying methods for determining taxable property, it is not uncommon for the aggregate of the allocation factors for all the states in which a corporation does business to total more than 100%; accordingly, many corporations actually pay state taxes on more than their entire income or capital! The Interstate Taxation Act would help put a stop to situations such as this. In prior years this bill has passed the House, only to die in committee in the Senate. Our Association feels that it deserves to be reported out of committee and enacted into law. A related problem is the proliferation of federally required tax forms. We are all literally buried in piles of paper. Each attempt at simplification of paper flow seems to result in the addition of a simple new form to cure the ills. This form, although intended to help, is usually added to the already existing forms and actually increases paper work! In time the simplified form becomes more and more complex until someone comes along with a further simplification idea and the cycle resumes. Senator McIntyre of New Hampshire has been holding hearings on this serious burden. SBANE has participated in those hearings because we have seen 10 year Small business tax analyst Double taxation new businesses drowning in a flood of paper requirements that severely interferes with the drive toward becoming a healthy small business. We hope that members of Congress will recognize that the best approach to resolving this mounting problem is to examine the necessity, rather than the mere utility, of every Government form. The Administration's small business tax relief bill (S. 544) strikes us as being "too little, too late." However, we re-emphasize our strong support for its proposal to extend from 5 to 10 years the period during which a net operating loss can be carried forward by individuals and by small business corporations. The present 5-year limit is exceedingly unfair to certain small companies. As an example, we cite the plight of small technical products firms, formed in the mid 1960s. Typically, such enterprises experienced several years of losses while becoming established. Then they encountered the economic downturn of 1970-1971, which particularly affected sales of capital equipment. As conditions began to improve in late 1971 and early 1972, these companies began to realize profits, only to find that they no longer have a loss carryover deduction from their start-up years. Congress should recognize their plight and extend this needed relief. Although many believe that America's economy is dominated by large national and multi-national industrial companies, the fact is that without the small businessman our economy would not provide the average American with the life style we all so eagerly strive for. We are all well aware of the ability of big business to make its position known to government. By contrast, it is extremely difficult for the smaller businessman to have his thoughts and desires heard. We believe that the small businessman can be given an effective voice in the councils of government by establishing the position of Small Business Tax Analyst in the Treasury Department. The main function of such an official would be to review tax legislation and problems from the viewpoint of small business, and to articulate that point of view in the day-to-day workings of the Treasury. We emphatically endorse this feature of the Bible-Evins bill. SBANE proposes the adoption of legislation which would enable a small business to elect to be treated as a regulated small business corporation, which would be defined as any domestic corporation (other than a personal holding company) whose stock was owned at least 90% by individuals, with net assets of $1,000,000. or less determined as of the end of the prior year. An electing regulated small, business corporation would be exempt from taxation of its income so long as at least 90% of its taxable income was distributed to its shareholders during the current year or before the filing date of its Federal income tax return. The taxable income of a regulated small business corporation would be computed in the normal manner except for the elimination of the dividends received deduction for nonaffiliated corporations. SBANE urges the adoption of this legislation to negate the stifling effects of double taxation on small businesses. This classification of corporations would further the congressional intent demonstrated in the enactment of the Subchapter S election. There are many small business corporations which do not qualify for Subchapter S status or whose stockholders do not need or cannot avail themselves of the loss deductions because of their small original investment in the corporation. By electing to be treated as a regulated small business corporation, the stockholders would be taxed on the taxable income of the corporation after deduction of net operating loss carryovers. Since this proposal reduces the present incentive to maximize corporate compensa The DISC program tion and other related deductions, we believe it would provide the further advantage of reducing controversies with the Internal Revenue Service. We cannot leave the subject of taxation without expressing our appreciation to Congress for its wisdom in enacting the export tax deferral program. By means of Domestic International Sales Corporations, many small companies can now gain entry to foreign markets that would otherwise have remained closed to them. APPENDIXES APPENDIX A Hon. WILLIAM L. HUNGATE, U.S. DEPARTMENT OF LABOR, Chairman, Subcommittee on Environmental Problems Affecting Small Business, Select Committee on Small Business, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: Attached are the following materials to be supplied for the record as requested by the House Small Business Subcommittee during the course of the hearings on the Williams-Steiger Act: Package relating to the National Association of Home Builders. Revisions to the standards. Resources expended on communicating with the public. Statement on the standard for wooden crude oil storage tanks. Materials on farm equipment dealers requirements. Regarding your request for information on the standard for electroplating, the Office of Standards is working on this and will draft a response directly to you as soon as possible. If I can be of any further assistance, please let me know. Attachments. FREDERICK L. WEBBER, Jr., Special Assistant for Legislative Affairs. OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION, Mr. JOHN A. STASTNY, U.S. DEPARTMENT OF LABOR, Washington, D.C., December 27, 1971. President, National Association of Home Builders, DEAR JOHN: This is in response to your letters of December 14 and 15. I believe our meeting of December 13 was a step in the right direction. We endorse the safety and health education program you plan for your membership. We also endorse the cooperative program you have started with the American National Standards Institute to clarify job safety and health standards as they apply to your industry. When, as, and if you become aware of "harrassment" of light residential construction employers by compliance officers, it would be appreciated if you would bring the matter to my attention. I understand that you are studying the present construction safety and health standards to determine those which, in your judgment, are inappropriate and inapplicable. OSHA and the Construction Safety Advisory Committee will study your comments in this regard. In connection with your invitation to speak on the construction safety program at 2:30 p.m., Monday, January 24, in Houston, Texas, I accept with pleasure. I would appreciate further information with regard to the meeting. With thanks for your interest in job safety and health, I am, Cordially, GEORGE C. GUENTHER, Assistant Secretary of Labor. |