Small-business Tax Cut Proposal

As the co-owners of a small-business in Highlands Ranch, my wife and I understand the hard work and excitement of entrepreneurship. We also understand that small-businesses are the engine that drives our economy.

For years Democrats and Republicans have debated the merits of cutting taxes to create jobs, but I want to propose a tax cut when we create jobs.

My proposal would benefit new and existing businesses, retailers and manufacturers, and would be tailored to fit the needs of urban and rural Colorado by reducing tax liabilities when businesses create new, good-paying jobs in our state.

A more detailed look at this proposal is below, but I want to highlight the key points:

  • New and existing retail businesses would see a reduction in their sales tax liability when they create new jobs and could receive up to $11,600 in tax incentives
    • Retail businesses in rural Colorado would be able to meet the program requirements with part-time jobs
       
  • Manufacturing businesses would receive a 10% discount on their total income tax liability and a payroll tax credit for every job created
     
  • Only businesses with fewer than 25 employees and owned and operated within Colorado would be eligible
     
  • The program would serve as a short-term economic development package for 2-3 years and would not be automatically continued

If you’re someone who likes to get into the weeds and see how we can help small-business owners thrive in Colorado we’ve provided more details below. The summary is divided by retail and manufacturing business types along with eligibility criteria for the program.
 

Retail (e.g. coffee shop, nail salon, restaurant)

In short, existing retail businesses would receive tax incentives for direct job creation. Rural Colorado businesses would be able to meet the threshold for eligibility with part-time jobs, which recognizes that the need to scale jobs in rural Colorado is significantly different from the Front Range.

Existing businesses could receive up to $11,600 in tax incentives for creating new jobs in our state.

To encourage new retail small-businesses to open in Colorado, they would be exempt from sales tax on their first $100,000 in sales; because the state sales tax rate is 2.9% that would provide up to a $2,900 tax incentive per business. Because new small-businesses have inherently created a job just by opening up shop, their tax incentive would not be tied to additional jobs created.

Businesses would still be obligated to pay the local and special district portions of their sales tax.

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(FTE = Full Time Equivalent, i.e. 1 FTE is equal to one  full-time job)
 

Manufacturing (e.g. craft brewery, solar panel manufacturer, aerospace engineer)

Many of the most innovative businesses in Colorado do not pay sales tax on their products but add to the diverse economy we enjoy in our state. Companies that produce new products, like a distillery, agricultural equipment manufacturer, or medical device startup, are the key to what makes our Colorado economy innovative and healthy.

My proposal will reduce the income and unemployment insurance taxes paid by manufacturing businesses in Colorado. Existing manufacturing businesses will receive a 10% reduction in their total tax liability to Colorado when they create at least 5 new full-time jobs. New and prospective manufacturing businesses will receive the same 10% discount when they create at least 3 new full-time jobs.

Both new and existing manufacturing businesses will receive a $200 unemployment insurance payment credit per new employee up to five employees, or $1,000 maximum per business.
 

Eligibility

To qualify, businesses would have to meet certain eligibility criteria including:

  • Less than 25 full-time employees (or equivalent) for existing businesses
     
  • An LLC or Corporation registered in the State of Colorado or the sole proprietorship of a Colorado resident
     
  • If an LLC or Corporation, must be at least 50% owned by a resident of Colorado
     
  • If a franchisee of a national franchise, franchisee must be 75% owned by Colorado residents
     
  • Must not be a multi-level marketing business model, i.e. a business in which the primary goal is to obtain an ever-increasing number of subordinate sales agents
     

Can we afford this?

It’s true that Colorado’s budget is not rich on disposable cash, we have severe funding shortages for public education and infrastructure in particular. I believe a small-business tax cut should be coupled with a major reform of TABOR that would allow Colorado to invest in our students, teachers, roads, health care, and our economic development.

I also would stress that this tax cut would exist for only 2-3 years and then be discontinued. It should serve as a short-term economic stimulus, not be a permanent subsidy.

Perhaps most importantly though, part of this program will pay for itself in new revenues generated by better paying jobs and increased economic activity. Put another way: creating jobs has the secondary effect of increasing our sales tax revenue, allowing people to purchase new homes and paying new property tax to the state, and widening the pool of income tax payers…. all without raising tax rates.

Will it cost us nothing? Of course not, but it’s an investment in our future that will pay dividends for years to come.
 

Before we go...

We can invest in the small-businesses that drive our economy and show that Colorado is the place to be an entrepreneur, a small-business owner, and a responsible member of the business community.

I believe strongly that diversifying Colorado’s economy by helping our neighborhood businesses is the way to best serve our state. Instead of subsidizing the businesses that won’t notice the relief, I want to reward the hard work of our locals by showing them they’re not forgotten.

Please send feedback directly to me at Barrett@RotheColorado.com, we want to improve this proposal as we move forward and hear new ideas and recommendations.
 

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Barrett Rothe