By Cliff Ennico
Here are more legislative reforms the new Congress should consider to promote entrepreneurship and business development in America:
Allow Tax Credits for Job-Changing Education. One of the stranger dichotomies in tax law has to do with your ability to deduct continuing education classes. Under current law, you can deduct classes that improve your ability to practice your profession or perform your job, but classes designed to help you change jobs or switch careers are not deductible . . . at all.
In a world where millions of Baby Boom geezers have been left out to dry by the job market, having been trained in skills that are no longer necessary or marketable because of technological advances, this dichotomy no longer makes sense, and should be abolished. Continuing education at all stages of life – regardless of its purpose – should always be deductible.
If a sixty year old wants to learn computer coding in order to stay relevant in his industry, paying thousands of dollars out of his own pocket to a “coding academy”, why the Devil should he not be able to deduct that expense?
Better yet – make the cost of such classes a credit, reducing the student’s taxes dollar for dollar.
Create a Simplified Sales Tax System for Interstate Sales. Our system of sales taxes in America harks back to the days when virtually all sales were local. You went to a store, bought something, and paid cash at the register. There were no “mail order” companies, and certainly no online merchants.
Under current law, interstate sales – where the buyer and seller live in different states – are not subject to sales taxes. Anywhere. The buyer is supposed to pay a “use tax” on items bought for personal consumption from out of state vendors, but guess what? Nobody pays it, and the states don’t enforce it.
Since virtually all Internet sales are interstate or international, this means that states lose billions of dollars in sales tax revenue, and “brick and mortar” merchants are placed at an unfair advantage (because they have to pay taxes on all sales made at their registers, without exception).
A lot of people are unhappy about that, and frankly, Internet sales should be subject to some sort of tax, so that states are not compelled to make up for lost sales tax revenue by raising people’s property or income taxes.
Unfortunately, Congress’ proposed solutions to this problem to date (such as the recently-failed Marketplace Fairness Act) would have required vendors to collect sales taxes based on the rules in effect where their buyers are located. While many large Internet merchants (such as Amazon.com) probably could survive in such a sales tax environment, asking hundreds of thousands of Mom-and-Pop Internet vendors to keep track of the more than 7,500 sales tax jurisdictions in the United States alone would put them out of business, and stifle the fast-growing peer-to-peer e-commerce marketplace that has made eBay, etsy.com and Amazon possible.
A much better solution, and much fairer to small businesses, would be to require Internet vendors to pay sales taxes on their transactions based on the sales tax rates, exemptions and other rules that apply where the VENDOR is located. That way small businesses would have to keep track of only one set of rules, and answer to only one regulator – one they are already (hopefully) familiar with.
Such a rule would also force state and local governments to compete for Internet merchant business by offering lower tax rates, more generous exemptions, and so forth.
Allow Early-Stage Companies to Raise Capital on the Internet. It is simply too difficult for startup companies to raise capital in the United States. Most founding entrepreneurs do not have personal relationships with the wealthy individuals and professional “accredited” investors who are currently the only people allowed to invest legally in startups. It is time to allow these companies to raise capital – legally – from strangers through Internet crowdfunding.
In October 2013 the U.S. Securities and Exchange Commission (SEC) proposed regulations – as required under the federal Jumpstart Our Business Startups (J.O.B.S.) Act of 2012 – that would allow startup companies to offer their stock, bonds and other securities to investors through crowdfunding websites (such as IndieGoGo.com and seedinvest.com) that register as “portals” with the SEC. Comments on the proposed regulations were extremely light, but as this column is being written (January 2015) the SEC has not taken action to approve the final regulations.
The SEC should make it a top priority for 2015 to finalize these regulations and make “equity crowdfunding” a reality in the United States. It will take at least a year for crowdfunding websites to register as “portals” and set up their operations, and for startup entrepreneurs to become familiar with the crowdfunding process and produce disclosure documents that comply with the new regulations. Each month that passes dooms many startup companies to cash-flow collapse and ignominious failure. Let’s get this done.
Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.