NFIB

by Tom Underwood, NFIB/Kentucky state director

FRANKFORT, Ky. -- There has been a lot of talk recently about small business and the Alternative Minimum Tax. Possibly the best way to approach the topic is to break it down to its simplest elements. Fundamentally, this law requires small businesses to pay taxes even when they are losing money. Just like every other Kentuckian, small businesses are paying for gasoline at nearly three dollars a gallon, suffering huge increases in their natural gas bills and paying skyrocketing costs for health care and other types of insurance, all while competing with mega corporations and so-called "big box" retailers for their very livelihood. It's no wonder that so many Kentucky small businesses are close to the breaking point. 

The ultimate effect of the Alternative Minimum Tax is to discourage people from starting or staying in the businesses that they, and many times their whole families, have dreamed and labored to establish. Being an entrepreneur will always involve a great deal of personal and financial risk and sacrifice even without the prospect of having to pay taxes on a profit that might never materialize. The Alternative Minimum Tax discourages entrepreneurship because it asks would-be small-business owners to put their whole life on the line knowing that even if they don't turn a profit, they will still owe taxes to the Commonwealth of Kentucky.

Small-business owners have bombarded the Capitol with their opposition to this tax because they understand that it threatens to punish entrepreneurship and innovation, and because they realize that they will likely have only one opportunity to win any sort of relief on this front. Sadly, because of its insatiable appetite for tax dollars, if government is permitted to become accustomed to taking this revenue from small businesses, the chances of ever reversing or changing this law will only get slimmer as time passes.

Fortunately, lawmakers did hear the message that small-business owners have been sending. Although in the 2006 Legislative Session, the Senate and the House ultimately could not agree on how much relief to give them. The Senate offered a $1 million exemption on gross profits and a 6.25 percent corporate tax rate. The House offered a $3 million exemption and a 6.5 percent tax rate.

While opponents of the House plan have said that the $3 million exemption creates a "cliff" in tax policy, small-business owners know that many of them are already holding onto the edge of a cliff of their own, and the last thing they need is for state government to pry their fingers loose.

To be sure, this is a David and Goliath battle and it's time for the little guys to stand up and demand the respect that they deserve. If a large corporation announced that it was considering locating a new factory in Kentucky that would bring 9,000 jobs with it, state leaders would do back flips to accommodate that factory in every way possible. Yet, almost 9,000 small businesses start in Kentucky each year, and instead of a red carpet, they are handed a tax bill before they can even turn a profit. 

With all that small businesses bring to their customers, their communities and to this state, it is time attraction, expansion and retention of small businesses became a priority in Kentucky. Make no mistake, these business owners are not looking for a hand out. They just want the opportunity to sink or swim on their own merits without the added weight of state government tying a lead anchor to their feet. They are looking for a meaningful fix to a tax that threatens to drive them out of business altogether, or maybe just out of the State of Kentucky.

Since the official end of the legislative session, many small-business owners have been hoping that a special session of the legislature will be called to finish the work of repairing the Alternative Minimum Tax. While there has yet to be an official announcement about a special session, lawmakers must recognize that they still have an opportunity to do what's right by Kentucky's small-business owners. 

As the small-business community stands in solidarity to insist on the exemption that will spare the most companies from this oppressive tax, it's time that all of Kentucky took notice to what is really at stake. It's not just about money; it's about whether Kentucky values and supports entrepreneurship, innovation and free enterprise. For once, the state should step up and cut its courageous small-business owners the break they've too often been denied.