U.S. Senator John Cornyn shared small business members’ stories on the Senate floor on October 5 that advocated for the immediate need for tax reform. He asked our NFIB/Texas members a few questions to better understand their needs including:
- How does the current tax code negatively impact your business, both in the short-term sense and in the long-term sense as it relates your ability to grow? Would you say that the tax code has grown more complex, and more difficult to understand, over time?
- How much of your time (and or expense) goes to having to comply with the tax code? How many compliance officers handle tax matters? How has this number (and this effort more generally) changed over time?
- What would it mean to your business to have a simpler tax code that was easier to comply with and more pro-growth in nature? What would you do with savings incurred from lower tax rates? In other words, if tax reform succeeds, and your business will pay less in corporate taxes moving forward, what projects or expansions would you look to accomplish in the near future?
As the voice of small business at the Capitol, NFIB relies on small business members to articulate the immediate and long-term needs for economic viability amidst a federal regulatory maze complete with complex tax compliance and associated fiscal burdens that are heavier than big business counterparts. This call to action by Senator Cornyn was met by six NFIB/Texas members eager to share their stories and resound the call for tax reform. Here are their responses to Senator Cornyn’s questions.
Greg Brown of W.W. Cannon, Inc. (Dallas)
- Steals capital. Tax code compliance must be handled by my CPA. I would not even try to understand it.
- Amount of time has increased as business has grown and tax compliance issues have grown. Full time book keeper spends 10-15%. Tax dollars taken have increased, amount of time generally has not.
- WW Cannon, Inc. (as any business that is not dying) is always attempting to grow. It always takes capital to grow. The less capital the less chance of growth and amount of time it takes. The more capital (along with know-how), the more chance of growth and shorter time it takes to reach objectives.
Andy Ellard of Manda Machine Co. (Dallas)
- As a small, family-owned machining business, we require expensive CNC (computer numeric controlled) equipment to stay competitive. When we want to purchase a new machine at a cost of $100,000 – $400,000, one of the first things we do is see how it will affect us tax wise. Can we expense it? Do we have to depreciate it? How will our income affect this decision? Up until 2 years ago, Congress would decide to allow section 179 expensing at the end of the year retroactive for the whole year. Now how does a small business plan with that kind of chaos?
- A simpler tax code would allow us to be more proactive about opportunities and less to worry about the tax implications. We would be able to hire more people and invest in more high-tech equipment.
Lisa Fullerton of A Novel Idea, LLC (San Antonio)
- The tax code has indeed grown more complex since I started my business in 2000. As a degreed accountant with 33 years of experience, I had to hire a degreed accountant to run the day-to-day aspects of the business, outsource our payroll, HR functions and the preparation of our tax return. I used to be qualified to handle these critical components for my small business before regulation and tax matters became too complex and punitive for non-compliance. Our business runs on a break even rate of 250% of revenue, which means hiring an accountant and outsourcing HR and tax issues now costs our business roughly $280,000.00 more PER YEAR, than it did in 2000. The current tax code negatively impacts my business because the effective “pass through” tax rate is roughly 33%. The remaining 66% of net income is going towards heath care costs that are increasing 56% THIS YEAR, increased wages and escalating operational expenses. Business growth and development must be funded on the small amount that remains left over.
- My business is in the retail industry. Reduced taxes would allow us to consider expansion and growth. New locations need staffing, so a more favorable tax code could lead to hiring more employees and stimulating our local economy.
- The retail industry is experiencing its worst decline in decades, with increased demand for online shopping and food delivery services. While foot traffic continues to decline, rents in all our venues continues to increase. We pay 130% more for our flagship stores rent than we did in 2000, while traffic has declined 27% in just the past 5 years. Simply put – without a reduction to the tax code, our business will not be profitable. Even though I’ve been in business for 17 years, an unprofitable business is unsustainable. The majority of small businesses are taxed at personal tax rates, which are higher than more corporations pay. It doesn’t seem fair that I pay higher tax rates than Exxon oil, and have more personal risk than a corporation.
Darryl Lyons of PAX Financial Group (San Antonio)
- The pass-through taxes on small business income is burdensome. I feel it is prudent to have a business emergency fund. However, I have to pay a high tax rate on money I retain in the business. This means that it takes me much longer to build a business emergency fund. This is burdensome for those who are being prudent and saving for a rainy day. Also, I had debt to pay down but each debt payment required me to make much higher income, pay taxes, and then pay down debt. This high tax resulted in me having a business debt longer than normal. It seems to me that if the small business income taxes were more reasonable, business owners would be able to make better decisions with their money.
- I have a full-time person on staff to help with book keeping. Over the past few years, I also have hired the services of a very competent accountant. However, I find most accountants are so overwhelmed with the tax code that the specialists left to serve business owners are charging a premium for their services. I respect paying for competency but my options are limited because complexity requires focus and more focused accountants cost more.
- I do not operate with a maximum target but a fair target profit. This means that if the taxes allow us to increase our business distribution that is fair (we consider fair around 15% or 20%) then we’ll distribute the extra cash flow to compensation for the risk we have taken. However, if it exceeds “fair” then we will first increase employee compensation, then add services for our existing customers, and then finally reduce customer cost. The reason reducing customer cost is last is because price ranges have perception and we need to be careful when being too low.
Mike Slaton of Slaton Financial Services (Dallas)
- Yes, the Tax Code has become more complex over time… The Changes proposed by President Trump would be beneficial to small business owners… the majority of small business owners are S-Corp, and the 25% maximum rate would be most beneficial and at them same time paying their fair share… It would also allow them to employ more employees and make more capital investments in equipment.
- Obamacare is a major addition to the Tax Code and is a major problem with compliance for small business owners… Obamacare needs to be REPEALED, it is detrimental to our economy and our healthcare system in the United States… We need to sell health insurance across state lines and enact tort reform (like we did in TX).. Small business is the major employer in the United States.
- For a S-Corp business who is very successful to pay a maximum rate of 39.6% vs. a potential of 25% maximum, that is nice savings that can be used to hire additional employees or invest in capital expenditures… the repeal of Obamacare would make it much easier to conduct business in America… Plus repealing things like the AMT tax and the additional Medicare tax would benefit small businesses.
Kurt Summers of Austin Generator Service (Austin)
- We sold one of our businesses last year (an Asset Sale) and not only paid a significant amount in taxes (top tax bracket) but the Accounting fees (CPA and others) were significant. These dollars would have been used to invest in our remaining business.
- We have 22 employees and have been in business for nearly 40 years. We rely on our CPA for tax preparation. I would hope a revised tax code could save us both in taxes and accounting fees.
- Honestly, a lower tax rate (personal or small business specific, we are a Sub S) could be the difference between a profit and loss. After debt repayment and cash reserves, extra profits realized through tax savings would enable us to grow more aggressively than we are now, which would mean more employees: more jobs!
As tax reform heats up, NFIB President and CEO Juanita Duggan pens an editorial on tax reform in the Wall Street Journal: “If the point of tax reform is to boost the economy, it must start with small business,” Duggan writes. “What gets lost in the [tax reform] conversation is that three-quarters of American small businesses pay taxes as individuals. Their top federal rate is 43.3%, which is substantially higher than the current top rate for large multinational firms. When state burdens are added, small businesses are sending close to half their income to the tax man.” Click here for more information on how you can help small business achieve tax reform.