SMALL BUSINESS: NFIB Testimony before the Pa. House Finance Committee

Date: January 01, 2015

Testimony of Neal Lesher, Legislative Director NFIB/Pennsylvania

Before the House Finance Committee, March, 31, 2015

The National Federation of
Independent Business is Pennsylvania’s leading small business organization
representing 15,000 small- and independent businesses in the Commonwealth and
roughly 350,000 nationwide. NFIB members represent virtually every sector in
Pennsylvania’s economy. A typical NFIB member employs five or fewer workers and
generates gross sales of $400,000 per year.

Joining me today is Warren
Hudak, president of Hudak and Company, a Central Pennsylvania-based
small-business accounting firm specializing in payroll services, bookkeeping,
sales tax services and advanced tax transaction analysis. Warren chairs the
NFIB’s tax advisory council and also serves on the business advisory council of
the Council on State Taxation (COST).

Small employers make up an
enormous segment of Pennsylvania’s business community, employing about half of
all private sector employees. About 80 percent of businesses in Pennsylvania
are organized as sole proprietors, partnerships, sub-chapter-S corporations or
Limited Liability Companies (LLCs). Businesses organized in this fashion report
their business income and pay business taxes through their personal returns.

In the past, our organization
has come before this committee with recommendations to simplify the tax code
and compliance process; make state tax rules consistent with federal law; and
reduce the corporate and personal tax rates to spur economic activity and
generate additional state tax revenue.

Tax policy continues to be a
top priority for small businesses because of the complexity of the system
between the federal and state tax codes.

The cost of tax paperwork, for
example, is the most expensive burden that government imposes on small-business
owners — as much as $74 per hour in tax preparation and compliance costs. For
every dollar in state sales tax that a small-business owner collects and remits
— it costs 13 cents in bookkeeping and compliance.

This is mainly because many
larger companies employ the staff necessary to navigate through tax laws, a
luxury that most small businesses do not have. Small businesses want to
innovate, hire, and thrive. To do this, they need a climate of certainty about
the rules within which they operate.

Tax policy should also be
competitive with other states, conform to Federal standards when possible, and
remove barriers to growth and investment. That is why NFIB members have worked with members of the House and
Senate to develop the Small Business Tax Fairness package. These bills would
remove unfair tax obstacles facing small businesses, and allow them to compete
and grow.

This package

HB 700 –
Like-kind exchanges.
legislation, introduced by Rep. Bloom, would allow for tax-deferral when
property is exchanged for similar property. This rule is currently allowed
under Federal tax law and in all 49 other states.

HB 701 –
Net operating loss.
legislation, introduced by Rep. Grove, would allow small businesses to take a
net loss from other sources of income. For example: If an owner sells some
personal items to help the business make payroll, the owner could take the business
loss against the tax bill created by selling personal items.

HB 702 –
Increased expense deductions
. Section 179 of the IRS tax code allows businesses to deduct
the full price of qualifying equipment purchased during the tax year. For the
last four years, the deduction limit has been $500,000. Under Pennsylvania law,
while the allowable deduction for C-corporations is tied to the federal limit,
businesses filing under the Personal Income Tax are limited to $25,000. This
legislation, introduced by Rep. Dunbar, would increase the limit under the PIT
to $100,000 per taxable year and increase the phase-out of this deduction from
the current $200,000 to the federal amount of $2,000,000.

On behalf of
the small-business men and women of the NFIB, thank you for allowing us to
appear before the committee. We would be happy to answer questions.

                                                                    # # #

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