By Vanessa Cross
October 20, 2010
The U.S. House passed the Small Business Jobs and Credit Act of 2010, H.R. 5297, which aims to help small businesses with tax breaks and loans availability.
The Small Business Jobs and Credit Act of 2010 bill passed the U.S. Senate on September 14, 2010 and passed the U.S. House of Representative on September 23, 2010 by a vote of 237-187, primarily along party lines with the Democrats carrying the bill. It is anticipated that President Barack Obama will sign the new legislation into law on Monday.
"The entities that are going to put Americans back to work are not found on Wall Street," said Senator Mary L. Landrieu (D-LA), the Small Business committee chairwoman. "They're found on Main Street. They're not big businesses. They're small businesses."
What's in the New Small Business Law
Generally, the new small business legislation provides a number of tax breaks, increases certain Small Business Administration's (SBA) lending limits that impact small firms by raising caps from $2 million to $5 million, and waives certain SBA loans fees. The new legislation provides banks, with assets under $10 billion, with $30 billion in new capital to increase lending to small firms and allows an 100 percent advance rate.
"The small-business jobs bill passed today will help provide loans and cut taxes for millions of small-business owners without adding a dime to our nation's deficit," President Barack Obama said. "After months of partisan obstruction and needless delay, I'm grateful that Democrats and a few Republicans came together to support this common-sense plan to put Americans back to work."
Small Business Lending to U.S. Manufacturers
The U.S. manufacturing industry is generally hopeful about the small business bill. For dealers and manufacturers, the legislation will extend the life of the SBA's Dealer Floor Plan Program (SBA DFP) to 2013, a stimulus provision previously set to expire this month. Also, the increase in loan caps from $2 million to $5 million will help manufacturing firms that typically hold $5 million in inventory at a time.
“Under provisions of this legislation, New York stands to receive more than $54 million to leverage small-business lending," stated Gov. David Paterson.
"Congress has now provided a great deal of certainty with this program and we strongly encourage lenders to utilize this important program to get credit flowing again to responsible marine companies throughout the United States," said Thom Dammrich, president of the National Marine Manufacturers Association (NMMA) in a statement.
Small Business Legislation Nuts and Bolts - Photo by Francesco Marino
Tax Relief Provisions: General Business Credits and Alternative Minimum Tax
The new legislation provides more than $12 billion in tax relief provisions and creates eight new small business tax incentives aimed to encourage expanded business planning for investments in operations and hiring additional workers.
One of the small business tax relief provisions is the increase of the general one-year carry-back for general business credits to a five-year carry-back. Examples of business credits include the Employer Provided Child Care Credit and the Research and Development Tax Credit. The new legislation allows a five-year carry back for non-publicly traded small businesses with gross annual receipts for the last three years of less than $50 million.
Where a company has average gross receipts of $50 million or less for the last three years, another important change under the small business legislation is the end of the individual Alternative Minimum Tax (AMT) bar of general business credit for tax year 2010. Some small businesses are not able to take general business credits because of the AMT, which generally takes away general business credits from business owners subject to the individual AMT.
Small businesses should generally be glad about the tax write-offs in the legislation. For example, USA Today reporting on September 24, 2010 on the new legislation provides that “equipment purchases of up to $500,000 will be deductible for this year and in 2011.”
Mike Elmendorf, New York director of the National Federation of Independent Business, is a bit more pessimistic about the potential effect of the new legislative small business tax breaks. Elmendorf stated that the tax breaks "will help some small businesses," but that U.S. small firm's biggest problems are weak sales and uncertainty.
Partisan Split on the the New Small Business Legislation
Commentaries are still mixed on how helpful the new law will be to small businesses. Lloyd Chapman, the American Small Business League (ASBL) president's Huffington Post commentary on September 23, 2010 headline reads: "Jobs Bill May Be Harmful for America's 27 Million Small Businesses."
In Chapman's commentary, he takes great exception to what he describes as a loophole in the new legislation that may allow large companies to "fraudulently masquerade as small businesses without fear of prosecution." Among the ASBL's concerns is that the legislative language will allow for the diversion of federal small business contracts to big firms, noted by the organization as "owned by venture capitalist."
Additionally, during the bill's debate, Republicans criticized the funding as a repeat of the $700 billion Troubled Asset Relief Program (TARP) -- funding that was in part used to help big companies termed too-big-to-fail. Republicans also criticized the increased 1099 reporting provisions contained in the new legislation.
"It's a really, really big deal," said Scott Hauge, president of Small Business California, an advocacy group. Noting that small businesses in southern California account for more than half of all jobs in the state, Los Angeles Times writers Lisa Mascaro and Sharon Bernstein report that the Democrats' legislative victory on this bill will be central to the midterm elections.
"This is not a victory for the Democratic Party,” said Harry Reid (D-Nev), Senate majority leader and a supporter of the bill. “This is not a loss for the Republican Party. This is a win for the American people. This is going to help small business, which has always been the driver of jobs in our country."
General Disclaimer: This article is for informational purposes only and should not be used as a substitute for legal or tax advice.