OPINION:
What’s great about having a very pro-business administration in Washington is that rules and regulations are being rolled back and taxes are coming down, but for many small businesses, the regulatory environment is no longer a federal question. It’s a ZIP code question.
Here are some examples.
Philadelphia changes its business tax
Philadelphia has removed a popular exemption from its business income and receipts tax, specifically targeted at small businesses, subjecting many LLCs and sole proprietors to much higher tax liabilities. In addition, the city is increasing its enforcement and filing scrutiny, creating administrative and bureaucratic headaches.
Nebraska proposes expanding sales tax to services
In Nebraska, even service providers may be subject to sales taxes, as lawmakers are considering legislation that will expand sales tax levies on businesses of all sizes in industries normally not subject to this kind of taxation. Small businesses will be particularly affected, potentially needing to raise prices.
Washington state will tax its highest earners
Speaking of Washington state, a new (and steep) “wealth” tax is advancing through its Legislature that would impose a 9.9% income tax rate on those earning more than $1 million annually. For many small-business owners, paper profits are normally reinvested (or spent). Expect less of this to happen, assuming the businesses stay in the state.
… And Washington state thinks about reducing a popular capital gains savings
Washington state is also setting its sights on qualified small-business stock (known as IRS Section 1202 to tax experts), which allows entrepreneurs to form certain types of corporations and be exempt from all capital gains taxes if they hold on to their stock for at least five years. The requirements were sweetened more by the federal One Big Beautiful Bill Act.
Oregon is fighting the One Big Beautiful Bill Act
A bill making its way through the Oregon Senate wants to “disconnect” the state from the One Big Beautiful Bill Act’s tax savings by reducing incentives for small businesses that take advantage of depreciation, auto-loan deductions and that darned qualified small-business stock provision for startups that some in Washington state seem to hate.
California’s AB-2635 discourages gas-powered small equipment
California has upgraded its “equipment emissions requirements” (part of its AB-2635 bill), which will affect small companies that make and use small-engine equipment (think lawn mowers, weed whackers, etc.).
New employee notices are required in California
California’s Workplace Know Your Rights Act (CA SB 294) now requires employers to provide current employees with written notices about their labor rights, including immigration, discrimination and protections regarding labor organizing.
Employers in California now have to include training records in personnel files
Employers in California are now required to maintain training records for each employee. This is in addition to existing state requirements whereby employers must maintain information such as performance reviews, written warnings, performance improvement plans, attendance records, grievances and/or investigation summaries. All this must be made available to the employee.
Connecticut gets tougher on fossil fuel companies
Connecticut small businesses aren’t required to fund a “climate adaptation program” (whatever that means), but fossil fuel companies in the state could be under proposed legislation. Who will bear the costs of these new requirements? Yeah, ultimately, it will be Connecticut’s small businesses.
New York City will soon be even tougher for the real estate industry
Most are well aware of New York City’s new mayor and his plan to stabilize rents in the city. With his support, city lawmakers are moving forward with their plans to ultimately control the cost of commercial and residential rents. In addition to rent controls, New York City is considering legislation that would guarantee lease renewals for qualifying small businesses.
A good thing? The argument is that it would be a bad thing for landlords, who would be discouraged from making repairs and upgrades (or who would start charging for the privilege). Interfering in the free market with government price controls never ends well, and it’s usually small-business owners who end up suffering.
More states are requiring pay transparency
As of early this year, 16 to 17 states, plus the District of Columbia, have active pay transparency laws that require employers to disclose salary ranges in job postings or upon request. Key states include California, Colorado, Connecticut, Illinois, Massachusetts, Minnesota, New York and Washington. Maine’s law takes effect this year.
On the one hand, this helps discourage pay discrimination. On the other hand, it limits an employer’s ability to negotiate compensation, which tends to be one of the largest line items on the books.
More states are changing worker classification rules and banning noncompetes
Several states have increased their rules around worker classifications, requiring employers to make more independent contractors employees, pay employer taxes and provide them with related employee benefits.
As if that weren’t enough, a growing number of states are requiring employers to limit or stop their use of noncompete agreements for many employees.
… And let’s not forget minimum wages
As of early this year, 34 states, the District of Columbia and several territories have minimum wages higher than the federal minimum of $7.25 per hour.
A pro-business administration in Washington may ease some pressure, but for many small businesses, the real policy battles are happening in statehouses and city councils. Those decisions may matter far more to your bottom line than anything passed in Washington.
• Gene Marks, CPA, runs The Marks Group PC, a financial and technology consulting firm near Philadelphia.
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