Inheritance Tax Bills Aim to Lessen Burden on Small Businesses

Both the House and the Senate have now passed legislation addressing the inheritance tax. However, the bills take very different approaches in how they choose to deal with the egregious tax. The House bill (HB 1199) is simple and straightforward, slowly phasing the tax out over 10 years. The Senate bill (SB 293) is a little more complicated but makes a combination of meaningful improvements that offers more immediate relief for many.

These bills and their approaches are different but they are by no means incompatible. They could easily be combined to produce a ‘best of both’ bill – immediate relief, in the form of raised exemption thresholds and expanding the beneficiaries that are most favorably treated (as in the Senate bill) coupled with the permanence of a phase-out (as in the House bill). The easiest way to make this blend happen would be to replace the 50% rate reduction in SB 293 with a 50% credit, then proceed to phase the tax out over the following five years by increasing the credit an additional 10% each year thereafter. The hope is that would be a final product everyone can live with.

Bill # and Title: SB 293 – Inheritance Tax
Author: Sen. Jim Smith (R–Charlestown)
Summary: Reclassifies a spouse, widow or widower of a child of the transferor as a Class A transferee instead of a Class B transferee. Reclassifies a spouse, widow or widower of a stepchild of the transferor as a Class A transferee instead of a Class C transferee. Annually increases the inheritance tax exemption amounts through 2015. Reduces the inheritance tax rates by 50% beginning June 30, 2016.
Chamber Position: Support
Status: Passed the full Senate on Tuesday 50-0.

Update/Chamber Action: This bill addresses several negative aspects of Indiana’s inheritance tax. It updates who is included in the more favorably-treated category of inheritors (Class A beneficiaries) by redefining the group to encompass not just the children, but also the spouses of a child or stepchild. It also phases in significant increases in the ridiculously low threshold for the amounts that are excluded/exempted from the tax. And finally, starting in 2016, it cuts the rates in half. So the bill takes very meaningful steps to improve the tax, but it doesn’t go all the way and put Indiana on a course to completely rid our citizens of the onerous tax.

The Indiana Chamber, in its testimony at the hearing, acknowledged the very substantial steps that this bill provides in terms of lessening the detrimental impact of this tax and that it smartly addresses the standout problems. However, we took the opportunity to point out that while this bill provides more immediate relief than the House approach (see below), it falls short by not eliminating the tax altogether like the House version does via a scheduled (albeit slow) 10-year phase-out. We suggested that blending this bill’s more immediate improvements with the House bill’s ultimate elimination would represent the best amalgamation of policy choices. Our efforts during the second half of the session will be to promote the wisdom of combining the best provisions of the House and Senate bills as each is considered by the opposite chamber.

Bill # and Title:  HB 1199 – Inheritance Tax
Author: Rep. Eric Turner (R-Cicero)
Summary: Provides for a gradual, 10-year phase out of the inheritance tax, beginning July 1, 2013.
Chamber Position: Support
Status: Passed the full House 78-17.

Update/Chamber Action: The merits of doing away with this offensive tax are becoming more widely accepted as legislators consider its impact on small family businesses in their communities. This was evidenced by the bipartisan support it received as it easily passed out of the Ways and Means Committee. The Indiana Chamber is working hard to make sure everyone truly appreciates just how counter-productive the tax is, who is impacted, how they are impacted and why the state would be better off without it.

Occupation – Freedom and Capitalism

A couple of weeks ago, I found myself sitting at the corner of Freedom Street and Capitalism Boulevard, right in the middle of what seemed to be the Occupy Commerce movement. During the roughly 10 minutes of my sit-in, though, it was apparent that this movement was more than simply some people occupying a place, it was a way of life that involved the true spectrum of occupation as only occurs regularly in America.

Indeed, the setting was quintessentially Americana in the modern era – a large, new, sleek, upscale hotel and conference center, squarely at the hub of a city that has been reinvented in recent decades – Indianapolis. The scene was bustling with people of all colors and ethnicities. There were the young, the old, and the middle-aged, like me. Business people in big boy and big girl clothes heading to an annual awards dinner shared the grand hallways with couples vacationing, enjoying the fruits of their labor, and with high school students visiting the Midwestern metropolis for a religious-oriented convention.

Some of the participants in this movement moved quickly by our small (two-person) temporary sit-in. A few, however, slowed down to converse with my newly found friend, Jerry, and me. We spoke of the weather, the evening ahead, our families and, of course, business.

A handful of the passers-by, some Catholic student conventioneers, actually took photos of my new friend, our host Vivian, and me. The kids were full of energy, taking in their surroundings, awkwardly moving through the setting of adults on their own journey to adulthood. What the students were capturing in their own photography was not celebrity or even one of the numerous and beautiful sites of downtown Indy. What the students were capturing with the latest of the digital medium, their cell phones/cameras/internet devices, was something as simple as two men, one woman and two chairs.

At first I found this youthful paparazzi to be odd, then humorous and then hopeful. Whether these polite young adults intended to eventually use the photos to mark and remember their days in the city or simply post their visual art and add funny, snarky comments to share with their friends, this movement caught their attention. Perhaps in a really small, but significant way, these youngsters were digitizing for posterity an element of their own aspirations that captured their attention.

Let me explain: What caught the attention of the teens was something pretty simple – a small business, its proprietor and two guys in suits, enjoying a brief respite and the luxury of a shoeshine. Watching these kids who were capturing and even participating in this scene was inspiring as I thought of the background stories around me.

As we sat comfortably at the shoeshine stand, Jerry, a well-known and well-respected leader of business and philanthropy engaged our fellow capitalist, Vivian, with conversation. While polite and friendly, Jerry’s assiduous enquiry was deeper than the usually forgettable small talk. He asked Vivian, or “V” as she prefers, about her business. How did she get started? How long had she been in business? At what times of day or week was business best? Did she have plans for expansion?

Listening to the banter of these two business people, the sole-proprietor entrepreneur and the CEO whose business claims the name of a skyscraper, was inspirational — he with gracious, yet penetrating business questions, she with fast, detailed, proud answers. His questions and exchanges reflected the respect he inspires in those who know him well and those who know only of him. Her answers were inspirational because they reflected countless stories that have preceded hers – stories founded on the principles of hard work, risk taking, and the desire to improve one’s own lot in life.

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Crowd-funding a Hot Topic for Government, Businesses

Legislation is going through the United States Congress to make it easier for small businesses in America to benefit from crowd-funding. The Wall Street Journal blog relays:

The U.S. House advanced legislation this week that would make it easier for smaller companies to raise money from investors.

House lawmakers, in overwhelming bipartisan votes, completed work Thursday on four bills as the measures drew interest in the Senate. President Barack Obama also signaled support for at least one of the bills.

Among other things, the House by a vote of 413-11 approved a bill to make it easier for companies to advertise private offerings with wealthy investors and voted 407-17 to allow startup companies to raise up to $10,000 from individuals over the Internet.

Supporters hope the bills, if signed into law, will help small firms grow in size and hire new workers.

Sen. Kirsten Gillibrand (D., N.Y.), who is weighing introducing capital formation legislation in the Senate, said there is widespread need for Congress to act. “Everywhere I spend time across the state I talk to small business owners and entrepreneurs that need access to capital to grow and create jobs,” Ms. Gillibrand said.

The advertising provision would end a Securities and Exchange Commission ban on “general solicitation” that effectively limits the ability of companies to reach out to potential new investors. “Under the current ban, if you have a good idea but you don’t have a prior relationship, it cuts off a whole section of investors,” said Rep. Kevin McCarthy (R., Calif.) said in an interview.

The Internet bill would allow startups to use “crowd-funding” methods to tap thousands of investors for very small amounts of shares without the firm having to register first with the SEC. Introduced by Rep. Patrick McHenry (R., N.C.), the bill would allow startups to raise up to $2 million through Internet solicitations and social networking and online sites designed for capital raising.

You’re Likely to Spend Money ‘Where Everybody Knows Your Name’

Who doesn’t get a little giddy (though discretely to keep your cool, of course) when greeted by name upon entering a restaurant or business? It makes you feel like a bit of a celebrity, right? Okay, maybe it’s just me.

But it seems that “Cheers,” or at least the theme song to the popular 80s show, got it right – you really are more likely to go to a place where you’re well known, or at least where somebody knows your name.

It turns out that research backs that up: 23% of consumers surveyed choose to shop at a locally-owned, independent small business where employees are friendly and greet customers by name, according to American Express OPEN Small Business Saturday Consumer Pulse. And 22% of those surveyed choose to shop at a small business because the people that work there know them and make recommendations of products and services they might like.

That makes sense. In this world of online shopping and social media, it’s nice to have that face-to-face connection. I’d also rather support someone with my hard-earned money that takes the time to learn my face and name. The friendly factor is also incredibly important: What’s that old adage about catching more flies with honey than vinegar?

The research also found that 73% of consumers choose to shop local to support businesses in their community because they don’t want those businesses to go away.

Some other interesting survey results include:

  • A majority of consumers (87%) share their favorable opinions of businesses with others; 85% use word of mouth, 24% use social media and 13% use review sites. Only 69% share unfavorable opinions.
  • Men actually spend more than women at the one small business they shop at the most ($110 versus $95).
  • Resources to find locally-owned independent stores or restaurants vary by region: Consumers in the south and west are more likely to use deal sites such as Groupon and Living Social; consumers in the northeast are more likely to use web sites of traditional media outlets; north central states use social media sites like Facebook and Twitter.

So what do you think? Are you more likely to support your local businesses and restaurants in general or because you feel a bit important when you walk in and are greeted by name?

Small Business Week: Enjoy a Full Day of Learning and Awards

A group of local small business associations and corporate sponsors are helping to make June 24 a full day of benefits for Hoosier entrepreneurs and small businesses. See the full flyer here, and paid reservations are due June 14:

New Directions for Small Business is the Indianapolis area day of events marking 2011
Indiana Small Business Week from June 19 – 25, 2011. New Directions for Small Business
provides entrepreneurs with new techniques to expand their businesses and to start new ones. It is an opportunity to talk with other business owners and with business counselors about current challenges and how to increase sales. Active small business lenders will be available to meet one-to-one to discuss your borrowing needs. At lunch, the U.S. Small Business Administration (SBA) will present its Small Business Week awards for Indiana.

Business Counseling and Conversations Opens at 8:00 am – available all day

  • Teams of business consultants and former business owners with expertise ranging from manufacturing to franchises and service businesses will be available for private meetings to help you find a new direction for your company or business idea. Feel free to bring your business plan along with your issues and ideas to start the conversation.
  • Talk with exporting professionals who can help you take your products to global markets. Start with Canada; advance to China.
  • Do you need working capital? What about a new building or advanced equipment? Ready to launch a new company? Meet with financial institutions that are lending right now to Indiana small businesses.

Carter Discusses Small Businesses with SBDC

Indiana Chamber VP of Small Business & Economic Development Cam Carter discusses issues pressing Indiana small businesses in a recent interview with the Indiana Small Business Development Center. He talks about the Chamber’s key achievements and the status of current policies.

Nominations/Applications Being Accepted for Business Awards

The IEDC and SBDC are now accepting nominations for the popular Indiana Companies to Watch program. Once again, BizVoice magazine will include information about the winners and will be presented the night of the awards dinner:

Nominations and applications for the third annual Indiana Companies to Watch awards program, highlighting some of the state’s top privately held companies opens today.

Presented by the Indiana Economic Development Corporation, its Small Business Development Center network (SBDC), Purdue University and the Edward Lowe Foundation, Indiana Companies to Watch recognizes privately held Indiana businesses that employ between six and 150 full-time employees and have between $750,000 to $100 million in annual revenue or working capital.

"This program spotlights Indiana companies in various industries who have demonstrated growth and the intent to keep growing," said Jeff Heinzmann, IEDC’s state SBDC director. "We are also succeeding in bringing these entrepreneurs together as a community to learn how to grow from each other."

Anyone may nominate an eligible business or apply for the awards by completing the online application form at www.Indiana.companiestowatch.org. A panel of judges will review the applications and select the top companies to receive the awards based on past growth, projected success, innovation, technology application and community involvement. Nominations will be accepted through March 29.

"Premier Capital Corporation is honored to again participate in an awards program that recognizes growing Indiana companies," said David W. Amick, executive director of Premier Capital Corporation, the program’s flagship sponsor.  "As a provider of growth capital to Indiana businesses for the past 25 years, the Indiana Companies to Watch program is a great opportunity to recognize Indiana success stories, many of whom are Premier Capital clients."

Winners of the awards will be recognized Aug. 26 during an awards dinner at the Indiana Roof Ballroom in Indianapolis.

"The Indiana Companies to Watch awards program honors some of our state’s greatest assets – successful entrepreneurs who are creating companies and jobs for Hoosiers," said Alan H. Rebar, executive director of Purdue’s Discovery Park. "It is important that we recognize these future economic leaders and give them a strong support base for their continued success."

Companies to Watch was developed by the Cassopolis, Mich. – based Edward Lowe Foundation.  The foundation hosts similar programs in Michigan, Arizona, Colorado and Mississippi.

"Since its inception in 2008, Companies to Watch in Indiana has clearly demonstrated that second-stage companies power the state’s economy," said Penny Lewandowski, director of entrepreneurship at the Edward Lowe Foundation. "At the time they were selected, 2008 and 2009 honorees employed more than 5,771 workers. Representing regions statewide, these companies are impressive for their industry diversity, as well as their compelling stories of entrepreneurial leadership and tremendous potential for developing the latest and greatest innovations."

Substance over Size in This Award Program

How do you define a small business? The federal government has varying definitions, the most common being 100 or 500 employees, based on the program or agency. Others will attach different numbers, depending on their industry or motivation. At the Indiana Chamber, 250 or fewer is the magic number for nominees for the annual Small Business of the Year award.

But it’s not the employee count that is critical. It’s what those workers and the management of the organization do that makes a difference. It’s company performance, committment to those employees and community involvement that are among the factors judged.

The two most recent winners are highly successful AIT Laboratories (which has zoomed out of the small business category with its continued growth and expansion) and POLARIS Laboratories (both recognized on the inaugural Indiana Companies to Watch list and their chief executives part of a BizVoice roundtable conversation in the current issue on entrepreneurs and leadership).  

There are many outstanding small business stories out there. Nominate your organization, recommend it to someone else — just get involved. The details are on this nomination form. The deadline to apply is September 30. The award will be presented November 10 at the Indiana Convention Center as part of the Chamber’s annual membership meeting awards luncheon.

Stimulus Funds Available for Indiana Small Businesses

Whether you supported the stimulus or not, it’s important to know that some small businesses in Indiana may now be eligible to receive funds. Here’s the info:

On Monday, Congressman Baron Hill announced that many Southern Indiana small businesses may be eligible for interest-free loans under a new program created by the American Recovery and Reinvestment Act (ARRA). The “America’s Recovery Capital” (ARC) program, which goes into effect today, allows small firms to take out loans of $35,000 to pay down existing business debts. Borrowers pay no interest on the ARC loans and repayment does not begin for one year.

“Our small businesses are the backbone of our local economy and they deserve our support during this difficult period,” Hill said. “One of the best ways we can help small businesses is to provide access to capital, which is why this new loan program is so important. The ARC program gives small business owners extra breathing room so they can pay operating expenses, make payroll, retain employees, and continue their work as job creators in our economic recovery.”

To qualify for the ARC loans, small firms must demonstrate they are experiencing immediate financial hardship due to the economic downturn, but are otherwise deemed by the Small Business Administration (SBA) to be viable. The loans will be made by commercial lenders and can be used for payments of principal and interest for existing, qualifying small business debts like credit card obligations, mortgages, lines of credit, and balances due to suppliers, vendors, and utilities.

To apply for ARC loans, businesses should visit their local SBA-approved small business lenders. The loans will be available through Sept. 30, 2010, or until appropriated funding runs out. Additional information about the ARC loan program is available at https://www.sba.gov/recovery/arcloanprogram/index.html.

In addition to the ARC loan program, the ARRA contained other measures aimed at helping small firms access credit. For instance, the new law increases the percentage of a loan that the SBA can guarantee, makes SBA-backed loans more affordable and provides tools to unfreeze the small business credit markets, helping small companies access capital at affordable rates.

Hat tip to Inside INdiana Business.

Big or Small, UI Tax Hike is Bad News

When the Indiana General Assembly passed legislation to increase unemployment insurance (UI) taxes by more than $700 million over the next two years, Senate Republican leadership claimed it was an effort to protect small businesses from paying the way for larger companies.

Too bad the size of a company has nothing to do with its UI taxes. The determining factor is a company’s unemployment history.

The current tax rates range from 1.1% to 5.6%. In 2009, the average company paying the 1.1% minimum has 17.3 employees. The average company paying the 5.6% maximum has 15.8 employees.
 
Yes, some companies at the current 1.1% rate will see a reduction in unemployment taxes from the current $77 per employee. In 2011, that reduction will be a miniscule $2 per employee.
 
More significantly, some employers will go from the lowest rates to the highest. There will be companies paying 1.1% on a $7,000 wage base ($77 per employee) in 2009 that will pay 9.5% on a $9,500 wage base ($902.50 per employee) in 2010. That is an unconscionable 950% tax increase.
 
Calculate your company’s tax increase here. Big or small, it is the last thing needed at this time. It’s bad enough that it has been enacted; trying to pass it off as a benefit for small business is ridiculous.