Getting Real About Who’s a Small Business

I’ve said for years there’s a problem. The issue of the Bush tax cuts just points this out in spades.

I saw Keith Olbermann’s Countdown program, “Small in Name Only” on MSNBC on September 22, 2010, about the “kooky” (their word not mine) definition of small business. It isn’t weird, it’s just flexible as the Small Business Act intended it to be. Maybe it needs work. I certainly think so.

This is what the SBA (Small Business Administration) says on the FAQs page of their website. You can check me out on this.

“Size standards define the maximum size that a firm, including all of its affiliates, may be to participate in federal government programs that are reserved for small businesses. The Small Business Act states that in determining what constitutes a small business, the definition will vary from industry to industry to reflect industry differences accurately.”

It then goes on to say to read the Small Business Size Act. If you follow the link, you get this:

“The SBA defines a business concern as one that is organized for profit; has a place of business in the U.S.; operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor; is independently owned and operated; and is not dominant in its field on a national basis. The business may be a sole proprietorship, partnership, corporation, or any other legal form.”

There’s part of my problem. The Countdown show maintains that when it comes to  taxes,  a small business designation is only for “pass through” entities (sole proprietorship, partnership, S corp) and then points out how ridiculous this is. But that statement about legal entity status does not pass the SBA test. Or, at least part of it.

The SBA goes on further to say:

“These size standards apply to SBA’s financial assistance and to its other programs, as well as to Federal government procurement programs when there is a benefit available to qualifying as a small business concern.  Also, the Small Business Act states that unless specifically authorized by statute, no Federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern, unless such proposed size standard meets certain criteria and is approved by the Administrator of SBA.”

The expert that Olbermann brought in to comment really didn’t give a full picture of how federal agencies, including the IRS, are supposed to define “small business”. So why was there no slide of it to give viewers that definition?

Why was no one at the IRS not asked to comment? Better theatre I guess.

Why didn’t the IRS want to comment? Have they screwed up in their definition of “small”? Probably not. Smart tax attorneys found a way to take advantage of that definition.  Other small business owners and I used to joke that if you had a business that was the smallest in your NAICS code, the government defined you as a small business. That would make Chrysler a small business.

Not the only time either that “small” has big consequences. It’s been proposed that venture firms that own part of “small business” be eligible for the really one and only government grant, the SBIR (Small Business Innovation Research Grant). Now, that is really weird and in my view and others it’s also totally unfair!

In other words, just because you say you are “small” does not by government standards say you are. Of course, these definitions refer to programs for small businesses including procurement and loan guarantee assistance. Shouldn’t a federal definition be the same across all areas of government including taxes? I always thought so or how can anyone keep up with being an on again off again small business.

Where is the IRS on all this? Nowhere to be seen. Odd. For years, the IRS director just around tax time would go on record saying that the regulators would be on the lookout for small businesses because we were all out to cheat the government. Maybe these men and women were thinking of the businesses like Bechtel and Price Waterhouse Coopers that were labeled by Olbermann as  “small businesses”. By whose definition? Be specific. Where are they getting their definition? Let’s see it!

I am not saying I am for reducing taxes for the wealthiest. I am saying check your facts before you get out the tar and feathers. I’ve been a moderator (for KUT radio’s nationally syndicated show “The Next 200 Years”)  and there are rules even for commentators.

If you would like to read more about the size standards and judge for yourself about who the heck people are talking about, here are some useful links.

• Size Standards Methodology
• Small Business Size Regulations
• Table of Size Standards
• Summary of Size Standards by Industry
• Guide to Size Standards
• Size Protests, Size Determinations, and Appeals
• Revision of Size Standards
• Use of Size Standards for Government Procurement
• Businesses Determined Other Than Small

And, if you don’t think that’s confusing enough, the states have their own definitions by statute. In Texas, a small business is defined in Vernon’s Civil Statutes as under 100 employees. That said, if you look just at the latest statistics on the number of firms in the Austin Metropolitan Statistical Area, there are 35,129 firms under 500 employees. About 880 of them have from 100-499 employees. That’s 2.51 % of that total; pretty close to the 3% people are yelling about. And, this percentage holds true in most MSAs where I can find numbers. (These particular numbers are provided by the nonpartisan LMCI division at the Texas Workforce Commission.)

Some of those 880 are probably making a lot than $250,000 in order to support the overhead of that number of employees. And, unlike the commentator would lead one to believe, I’ll bet they are not all Republicans. I could be wrong on that and I can’t exactly check. But, it would seem reasonable given the bigger small business owners I have met are not from just one party. (Some of their spouses have even served as Democrats in the legislature and elsewhere.)

What good can come out this mess? Maybe, the powers that be will get real and come up with a definition that actually and accurately defines who we small businesses really are. How about media people being a help to solve the problem instead of exploiting it. Yes, there are some who don’t quality for the term. Then change the tax laws and stop stomping on small business as a whole.

Finally, you never even talked to one of us to see our take on this issue of definition and taxes. Call me, Mr. Olbermann. I’ll talk to you about what it’s like to be a very small business owner who pays taxes, meets payroll, and provides for health insurance for staff for over 20 years.