• Access to Capital — Gaining access to capital is an obstacle for all small businesses. However, the U.S. must work to connect local start-ups with regional investors to boost local investments and make the capital gains tax exemption permanent for investors in qualified small businesses.
• Access to Modern Technology — U.S. small business must have access to cloud computing, mobile technologies and virtual global supply chains to invest more into their products, to collaborate on a global scale and to expand their presence to foreign markets.
• Access to Global Markets — The U.S. government must make existing programs, that help domestic small business enter foreign markets, easier to find and navigate.

According to the State Science & Technology Institute, "the report also looked at the importance of failure for start-up founders. Failure is a natural and important part of future successful firm development, the report notes. Start-up founders learn valuable lessons when their firms fail, and they often develop an expanded professional network that will benefit them over the long-term. The authors contend that learning from mistakes is the true driver of private sector innovation."

The 12-page report is titled: Restoring U.S. Competitiveness: Creating Jobs and Unleashing the Potential of Small Businesses through Technology and Innovation.

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.

Governor Mitch Daniels announced today that the state has reached an agreement with Indiana’s largest online retailer, Amazon.com, Inc., to begin collecting Indiana sales tax on internet purchases.

Indiana will become the fourth state to reach such an agreement with Amazon, but the governor said he will continue to push for federal action to fairly address the issue.

“The only complete answer to this problem is a federal solution that treats all retailers and all states the same. But for now, Amazon has helped us address the largest single piece of the shortfall, and we appreciate the company working with us to find a solution,” said Daniels.

According to the agreement between Amazon and the Department of Revenue (DOR), the company will voluntarily begin to collect and remit Indiana sales tax beginning January 1, 2014 or 90 days from the enactment of federal legislation, whichever is earlier. The state will not assess the company for sales tax for other periods.

Estimates of uncollected online sales taxes are about $75 million each year. Of that, the State Budget Agency and DOR estimate that revenue from sales tax remittal by Amazon would be approximately $20 million to $25 million per year.

States have been coming up with a variety of ploys — some conservative, others more radical — to get Internet retailers to collect the tax. Their efforts range from a handful of states claiming nexus via in-state affiliates that sell on the big-name websites to a 24-state compact to streamline sales tax systems. At the same time, states that levy sales taxes have come up with new allies in the fight to get the U.S. Congress to redress the collection issue and undo Quill. These allies include not just small mom-and-pop stores on Main Street but also giant retailers such as Target and Wal-Mart — retailers with robust Internet sites that do collect the sales tax because they have nexus in almost all states.

At every turn, Amazon has gone to great lengths to block state collection efforts. In states that claimed nexus because Amazon affiliates were located there, Amazon ended relationships with those businesses and, in turn, pursued litigation in the state. In states where it had facilities, it threatened to pull them out, thereby raising the specter of eliminating jobs. And where Amazon wanted to open facilities, it insisted on a free pass on tax collection. Amazon declined interview requests for this story.

Its pugnacious ways have paid off in some states, where the company was given the green light not to collect sales taxes for years — so long as it kept or built a facility in the state. But those ways have left bruised feelings, especially among legislators. In Tennessee, where legislators have been rethinking a deal Amazon struck last year to build distribution warehouses in return for not collecting the tax on goods shipped from those facilities, state Sen. Randy McNally likens Amazon lobbyists to take-your-lunch-money bullies. “They are making demands on the states that if a smaller business came in and tried to do, we’d laugh at ’em.”

This fall, however, there was what may be the biggest breakthrough on the Amazon tax front: California’s settlement with the company. After fighting legislation that would require out-of-state online retailers to collect sales taxes if they had affiliates, offices, workers or other ties to the state, the company ponied up millions of dollars to put the issue to taxpayers via a ballot referendum. It also cleansed its website of California-based affiliates. Then, the company suddenly backed down — in part because the damage to its reputation was growing. The online retailer struck a deal with the state that will require it to begin collecting sales taxes in California after a one-year grace period. In September, Gov. Jerry Brown signed the agreement into law.

The California deal suggests that Amazon may be changing its game plan. If that’s so, it would probably bring the rest of the Internet retailers into the fold as well. (Amazon recently made a similar deal with Tennessee.) Meanwhile, the states battle on, with legislators contending with the lobbying power of a giant — juggling the need for revenue versus promises to bring a few jobs to the state.

One of my recent favorites is the National Society of Accountants offering that "tax preparation fees are a strong value." I’m not arguing with the assertion (my days of trying to decipher to complicated tax rules and regulations ended years ago), but my first thought was: "Duh! What else would this group say?"

I don’t have an immediate answer, but there must be a way to share the information without the Mr. Obvious approach. Again, no problem with the premise; just not sure how effective it will be for the group. Anyway, here’s a few of the numbers they provided:

A biennial survey of nearly 8,000 tax preparers conducted by the National Society of Accountants (NSA) showed the average tax preparation fee for an itemized Form 1040 with Schedule A and a state tax return is only $233. Rates for non-itemized returns are also low – the average cost to prepare a Form 1040 and state return without itemized deductions is only $128.
 
Both average fees are nearly the same as they were two years ago ($229 and $129 respectively), showing that tax preparers and accountants understand the financial challenges that Americans face.
 
"This is one of the best values out there for any type of professional service," says NSA Executive Vice President John Ams, "especially when you consider the complexity of the tax code. If a professional finds even one additional deduction or tax credit, it will probably more than cover the fee."
 
The survey also reported the average fees for preparing other Internal Revenue Service (IRS) tax forms, including:

• $236 for a Form 1040 Schedule C (profit or loss from business)
• $524 for a Form 1065 (partnership)
• $695 for a Form 1120 (corporation)
• $660 for a Form 1120S (S corporation)
• $396 for a Form 1041 (fiduciary)
• $566 for a Form 990 (tax exempt)
• $61 for a Form 940 (Federal unemployment)
 

• "What bothers me is there is no sense of urgency."
• "The federal government is so large, so bureaucratic, so over-reaching. It’s the blanket that is suffocating the economy right now."
• "The government is in the way, and we can’t get it out of the way fast enough."

Stutzman described the competing philosophies of government creating jobs by spending money with the preferred approach for him (and many others) of providing the climate to allow the private sector to be the job creator. He also noted the regulatory hurdles, with more than 3,200 rules passed by "unelected bureaucrats" in 2010 and that number already above 4,000 for this year.

On a more positive note, Stutzman did cite recent legislation that increases the tax credit for hiring veterans and a farm bill proposal (in which he teamed with Indiana Sen. Richard Lugar) that delivers a potential $40 billion in savings over 10 years while still protecting those in the agriculture industry.

Like others, Stutzman hopes for some progress out of the "super committee" dealing with debt and deficit recommendations. He notes that tax reform and simplication is generating interest, but will still be difficult to pass in the partisan environment in Washington.

Check out more about Stutzman and his work. The next Policy Call for Chamber members will be Friday, December 9, with the topic being right-to-work.

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.

Indiana Chamber Communications VP Tom Schuman explains why streamlining the tax code and reforming entitlement spending will create a simpler and fairer system for American workers and businesses. The U.S. Congress’ Super Committee should work to make this happen.

• Alice Morical, Hoover Hull, LLP
• Anita Sherman, Greenwalt CPA, Managing Partner
• Gail Gesell, Small Business Administration, Indiana District Director
• Mary Jo Kennelly, First Financial Bank
• Chris Stump, Business Accelerator, CFO Services
• Larry O’Connor (moderator), Business Accelerator, Executive Director

 
TO REGISTER:
Space is limited. Please RSVP to rsvp@bankatfirst.com or 317.237.1581.
 
WHEN:
Wednesday, October 26, 2011
11:30 a.m. to 1:30 p.m. (lunch provided)
 
WHERE:
Indianapolis Museum of Art, Deer Zink Events Pavilion
4000 Michigan Road, Indianapolis, IN 46208-3326

And when the dollar amount is more than $600 million in five years, we’re talking about more than a few mistakes. The Washington Post has the story; here’s a recap.

Inspector General Patrick E. McFarland, who previously reported on the improper payments in 2005 and 2008, urged the Office of Personnel Management to more closely track such mistakes.

“It is time to stop, once and for all, this waste of taxpayer money,” he wrote in the report.

Improper payments to dead retirees increased 70 percent in the past five years, far higher than the 19 percent climb in overall annuity payments, the report said.

The payments are on the rise because OPM is doing a poor job of tracking potential cheats, McFarland said. In one case, a deceased annuitant’s son continued receiving federal benefits until 2008 — 37 years after his father’s death. OPM learned about the improper payments — which exceeded $515,000 — only after the son died. The agency never recovered the money.

Last October, an investigation by the office of Sen. Tom Coburn (R-Okla.) concluded that the government had paid nearly $1 billion to at least 250,000 dead people since 2000. That same month, a watchdog group reported that the Obama administration’s economic stimulus program had made 89,000 payments of $250 each to dead or incarcerated people.