Last Thursday I tuned into the International Franchise Association(IFA) webcast with SBA Administrator Linda McMahon, a member of the President’s Cabinet. The subject was how the tax reform bill will affect the franchise sector of small businesses. Although Administrator McMahon attempted to put the best spin on the bill to placate the franchise audience, it was not very successful.
Granted, the new tax bill is far from complete and having the necessary votes for passage. The most important issue of how franchisees and franchisors will benefit from the proposed 20-22% corporate tax (reduced from current 35%) when an estimated 80% of the franchise population are “pass-throughs” in terms of tax payment, and will pay taxes at their personal tax schedule rates was side-stepped.
Ms McMahon, probably reflecting the uncertainty of what will actually pass in the final bill, chose to concentrate on what is new at the SBA for franchising. The SBA Franchise Directory is set to launch in January, 2018; access Franchise@SBA.gov for further info.
The Franchise Directory is billed as the one place to go to see if a brand is eligible for SBA lending. In the past a similar directory was administered by FranData, so not so new. Questions from the franchise audience were aimed at trying to find out exactly how this would work, for example, with the updating of yearly franchise documents. And a question about the all-important ability to deduct interest charges for taxes from the SBA loan was not answered.
As of today, the House and Senate tax bills are different and must be reconciled to get to a final tax bill; not an easy task. In any case, in a Fox Business interview (Varney & Co) , Catherine Monson voiced an opinion that small businesses won’t benefit from either the House or Senate bill as they stand now. Ms Monson is the CEO of FastSigns, International and IFA Secretary. She cites the prevalence of many franchise participants using pass-through vehicles such as a S corp or LLC for taxes which get paid on personal income tax rates. Additionally, she mentions the small business inability to deduct state and local taxes like the C-Corps.
To say that the proposed tax bill elements are presently a mixed-bag for small business is an understatement. So, please stay tuned for updates on what the final tax bill will contain and how it will affect the financial future of small businesses.