In an effort to jump-start the US economy and create more jobs, both the House and Senate passed the Jumpstart Our Business Startups (JOBS) Act, and President Obama signed the act into law April 8, 2012. With bipartisan support, the bill is designed to make it easier for small businesses, start-ups, and entrepreneurs to raise capital by decreasing government oversight and federal regulations.
Now the intrigue begins. Many questions arise from this new legislation. What kind of impact will the JOBS Act have on small businesses, start-ups, and the economy in general? Will the JOBS Act open the door for new IPOs? Or will it provide more incentive for companies to stay private? What impact will the JOBS Act have on investors who rely on full disclosure when reviewing the filings of IPOs?
These open-ended questions have answers that vary depending on who you are asking – the opponents or proponents. Those in favor of the JOBS Act see it as an opportunity for growth; while those against it worry that loosened regulations may lead to investor fraud and abuse. Whether for or against the legislation, the JOBS Act will:
Create emerging growth companies. One provision of the JOBS Act essentially creates a new category of public companies. Businesses that have under $1 billion in annual revenue during its most recent fiscal year would qualify “emerging growth companies” (EGCs) and would not be required to comply with certain Securities and Exchange Commission (SEC) reporting regulations for up to five years; less than five years if the company reaches $1 billion in gross revenue, $700 million in public float, or issues more than $1 billion in non-convertible debt in the previous three years. Companies that complete or have completed an IPO after December 8, 2011, will be eligible to qualify as an EGC. Through this legislation, EGCs would be exempt for their first five years on the public market from the compliance burdens of Sarbanes-Oxley (SOX) Section 404(b), such as requiring an auditor’s attestation report on internal controls over financial reporting. The JOBS Act will also allow pre-IPO EGCs to confidentially submit a draft registration statement for SEC review. Other reporting requirements will be “phased in” over the initial five-year period. These relaxed regulations will allow smaller companies to go public sooner.
Allow equity-based “crowdfunding.” New businesses will be able to raise up to $1 million in equity capital from unaccredited investors. This provision facilitates the utilization of online trading portals, a mechanism used to solicit a large number of smaller investors. The Senate version of the JOBS Act created a number of restrictions aimed at protecting investors. Among those restrictions are limiting individual investments to (1) the greater of $2,000 or 5 percent of the investor’s annual income or net worth if either annual income or net worth is less than $100,000; and (2) 10 percent of the investor’s annual income or net worth, not to exceed $100,000, if annual income or net worth is greater than $100,000 and also requiring registration by intermediary platforms and issuers with the SEC. Federal law would preempt state regulations, meaning that issuers could raise funds from across the United States. The SEC will have 180 days after the bill’s enactment to publish rules for crowdfunding.
Remove prohibitions on general solicitation of Regulation D offerings. The JOBS Act allows for advertising of Regulation D 506 offerings, as long as advertisements are focused on accredited investors. Affluent individuals who provide capital for a business start-up, also known as “angels,” should especially note the McHenry Amendment, which clarifies that angel and incubator platforms that do not charge a fee connected to the purchase or sale of securities would be exempt from broker-dealer registration. This exemption from registration will be helpful for Internet platforms, such as AngelList or Gust and venture forums aimed at accredited investors, and also for some angel groups.
Increase the threshold for Regulation A “mini-public offerings.” Regulation A currently allows companies to go public and be exempted from SEC registration for offerings up to $5 million. The JOBS Act will increase the offering threshold for this little-used exemption to $50 million, perhaps making it a more useful option for angel-backed companies.
Raise the cap on private shareholders from 500 to 2,000. Many private companies are forced by regulations to file as a public company once they exceed 500 shareholders and $10 million in assets. The bill will increase the shareholder limit to 2,000 accredited investors or 500 unaccredited investors. The increased limit will give some flexibility to companies like Facebook in deciding whether to stay private or go public, and it could also benefit secondary market platforms that can offer a more robust market for the shares of private companies.
From the above analysis of the bill, it is clear how the JOBS Act will help small businesses, start-ups and entrepreneurs raise capital, but the question that remains is how will the bill create jobs? Here are a couple of thoughts: (1) the $1 billion ceiling on regulation will spur job growth since it will provide an incentive for companies to go public instead of selling, and (2) the cost savings for new IPOs will allow them to spend more money on growing their businesses and hiring personnel instead of regulatory compliance.
Despite the apparent benefits of the bill, the legislation still has its detractors. Critics fear that the JOBS Act will lead to massive fraud due to a lack of regulation and oversight. Investors will not see the “full picture” when making their investments. For example, the online coupon company, Groupon (that who went public in 2011 and had over $1 billion in revenue at the time), was faced with major SEC scrutiny over its accounting methods during its IPO. The company suffered a significant market capitalization reduction when going public due to reported questionable accounting methods and the loss of investor confidence. Had the JOBS Act been in effect prior to its IPO, Groupon could have gone public before it reached the $1 billion mark and not dealt with the intense scrutiny that resulted in its reduction in market capitalization. Conversely, the investing public would not have been aware of the apparent “red flags” had the reporting regulations been relaxed.
To address these concerns, the Senate attached an amendment to the bill, requiring the business to warn investors that there are risks when it comes to investments. The amended bill requires that a business “takes reasonable measures to reduce the risk of fraud with respect to such transactions” and gives the investor its company address and website, which must be kept up-to-date. The JOBs Act also requires the SEC to implement various actions on a tight time line from as little as 90 days after enactment of certain aspects of the law, while up to 270 days for other portions.
The President and Congress are hoping the JOBS Act will generate as much economic growth as it did bipartisan support. It originally passed the House by a vote of 390 to 23, and then passed the Senate 73 to 26. However, only time will tell.
This holiday season, online shoppers will find more states are looking to make sure gift givers also give their state its fair share – in terms of sales tax for online purchases, according to CCH, a Wolters Kluwer business and a global provider of tax, accounting and audit information, software, and services. Last year, online shoppers spent more than $1 billion just on Cyber Monday, and online shopping this holiday season is expected to continue to grow at a double-digit rate.
“Whether people shop online or in stores, states expect them to pay sales tax on their purchases,” said Daniel Schibley, JD, CCH senior state tax analyst. “However, few online shoppers comply, unless the tax is collected by the merchant.”
Under existing laws, retailers are required to collect sales taxes for purchases made in states in which they have a physical presence, or nexus. As more sales head online, it is projected that states are losing billions of dollars annually in sales tax revenue they once collected from local retailers, and they are increasingly looking for ways to shore up their tax base.
Two ways to do this, according to CCH, are to require more online retailers to collect sales tax through broader nexus rules and to require consumers to pay the required use tax portion of sales tax. Sales tax has two parts – the sales portion paid by the retailer and the use portion paid by the consumer. Under existing rules, individuals are required to pay use tax in states with a sales tax if the retailer does not collect the tax.
State Sales Tax Collection Approaches
Overall, 45 states currently have a sales tax. This includes every state with the exception of Alaska, Delaware, Montana, New Hampshire and Oregon. The District of Columbia also imposes a sales tax.
Several states also are more aggressively enacting rules to help ensure more retailers and consumers pay sales tax, as outlined below. For a chart of state sales tax activities, click here.
Eleven states have enacted broader nexus rules that require online retailers to collect sales and use tax even if the retailer does not have a physical presence in the state but does solicit sales through online links or pays commissions to an in-state business (known as click-through nexus); or if the retailer has an affiliation with a company doing business in the state (known as affiliate-nexus laws). These states include: Arkansas, California, Colorado, Connecticut, Illinois, New York, North Carolina, Rhode Island, South Dakota, Texas and Vermont. The California, Texas and Vermont provisions are not yet in force, however. Four other states have legislation for these rules pending: Massachusetts, Michigan, Pennsylvania and Tennessee.
“Each of these laws increase the likelihood that if you live in these states, some online retailers will be charging you sales taxes when you make online purchases,” said Schibley.
Additionally, Colorado law requires retailers selling into the state but not collecting sales tax to send the state an annual reporting notification statement of everyone in the state it shipped to and the value of those purchases so that it can pursue collection of use taxes. However, a federal court in Denver has put enforcement of this law on hold for now.
Several states also require online retailers to provide explicit notifications on their websites letting consumers know about their obligation to pay their state sales tax. States with these website notification rules include Colorado, Oklahoma, South Dakota and Vermont.
States collecting sales tax also have information on their websites about how to pay uncollected use tax. Many states provide a line item on their income tax return where consumers can report the amount of use tax they owe.
Just a week after this year’s Veterans Day, President Obama signed new legislation providing a tax credit to employers who hire military veterans. The VOW to Hire Heroes Act is a small piece of a much larger jobs bill that has stalled in Congress.
According to White House data, approximately 240,000 veterans of the wars in Iraq and Afghanistan remain unemployed, while a total of 850,000 veterans overall are out of work. To compound the problem, the Obama administration reports that 1 million other service members are expected to return to civilian life by 2016. “No veteran who fought for our nation should have to fight for a job when they come home,” said the president.
The new law allows a company to claim a tax credit of up to $2,400 if it hires veterans who have been looking for work for at least one month. The maximum credit is increased to $5,600 for hiring veterans who have been searching for work at least six months. And employers may be granted a $9,600 tax credit for hiring out-of-work veterans with service-related disabilities. The new legislation also provides job training to help returning vets return to work.
Under prior law, qualified veterans are included as one of the target groups eligible for the Work Opportunity Tax Credit (WOTC). The WOTC is currently scheduled to expire after December 31, 2011.
A Department of Defense official said that the agency will expand its programs to help returning veterans.”Combat is incredibly tough business, and we are finding that the human toll on a 10-year veteran, the physical and mental toll, it is incredible,” said Philip Burdette, principal director of the Office of Wounded Warrior Care and Transition Policy. “As we end the war in Iraq and wind down in Afghanistan, we are absolutely planning for returning service members.”
Finally, in a separate provision, the new legislation repeals the three percent withholding requirement for payments made by federal, state, and local governments to contractors for goods and services. The withholding requirement, which was established by a 2006 law, was scheduled to take effect in 2013.
QuickBooks Online, a cloud-based accounting solution for small businesses, has experienced 40 percent growth over the past year; it now has 280,000 users. More and more small business owners are reaping the benefits of anytime, anywhere access to their accounting records. Further, cloud-based solutions, such as QuickBooks Online, eliminate the need to install periodic software patches and updates because new features are added automatically.
While QuickBooks Online makes things easier for day-to-day users, it can make the accountants’ tasks harder because commands get buried within the software. In response to this, Intuit has introduced a new product: QuickBooks Online Accountant (QBOA). This add-on to QuickBooks Online is aimed squarely at helping accountants serve their clients more efficiently.
Figure 1: A single sign in grants access to multiple clients.
A simple sign in to QBOA gives the accountant access to all of his or her clients’ accounting records (see Figure 1). This dashboard allows accountants to maintain contact information for all of their online clients in one place.
Figure 2: The Accountant tab adds features and aggregates frequently used tools.
A new “Accountant” tab (see Figure 2) appears within a client’s books and enables access to several time-saving features. “This provides one place for all of an accountant’s tools and reports as well as a snapshot reconciliation of all accounts,” said Samir Khosla, director of product management for Intuit Accounting Professionals Division. “Plus, updates appear automatically, so the product always has the latest features.” (Keep in mind that only the accountant has access to the Accountant tab; it will not appear to end users when they sign in to QuickBooks Online.)
The Accountant tab assembles the most frequently used accountant tools on a single screen – the “Accountant Center.” Features include:
The ability to reclassify transactions in batch, which allows the accountant to change the general ledger account and/or class for multiple transactions all at one time.
A simple way to find deleted or voided transactions.
The ability to write off multiple invoices in batch.
A reconciliation snapshot that makes it easy to monitor bank and credit card accounts. QBOA also lists problems that can affect reconciliations, such as changed transactions and auto adjustments (see Figure 3). Khosla said, “This is one of my favorite features, as the accountant is notified if a client takes a shortcut during reconciliation.”
Figure 3: Reconciliation issues are brought to the accountant’s attention.
QBOA also offers some reporting enhancements:
Accountants can mark journal entries as “Adjusting Journal Entries” and then generate an adjusted trial balance report, also known as a working trial balance.
Comparison reports allow one-click access to this year/last year profit and loss and balance sheet reports. While such reports can be created in QuickBooks Online, they must be built by hand.
Accountants are invited to try QBOA free of charge during Intuit’s pilot phase. To access QBOA, go to http://accountant.intuit.com/qboa. According to Khosla, “the focus has been on time-savings, and eventually [QBOA] will be a subscription-based product.” Pricing will be announced after the pilot phase.
Intuit also is offering practitioners up to 6 free CPE credits through a virtual conference on cloud-based accounting and tax solutions. The conference will be presented November 15-16, 2011, from 10:00 a.m. to 5:00 p.m. central standard time.
