by James DeChene
Recently, the Internal Revenue Service proposed new estate tax regulations that would make transferring interests in family-owned businesses more onerous and costly than under current guidelines.
Proposed Estate Tax Changes
Under current law: Because of the estate and gift tax, many family owned, closely held business owners are challenged in how they can pass on their business interests to their heirs. If a business owner waits to transfer their business at death, the business interest is subject to the estate tax at full fair market value, less the exemption amount.
A popular technique is to gift small ownership pieces over time, such as 10% of a business in one year. That interest is a “minority interest.” The value for tax purposes is also discounted relative to fair market value because control remains with the older generation.
With multiple transfers over time, the entire business can be “gifted” at a minority interest discount. The total amount subject to tax is substantially less than if the entire interest were taxed at death at fair market value.
IRS Proposal: The Section 2704 regulations would eliminate the discount applied to these “minority” gift transfers for closely held, family owned businesses. This is causing a significant amount of concern for family-owned businesses throughout the country, and many are trying to plan around this consequence before the regulations become final.
This is one more example of a major regulatory change, like the recently proposed Treasury Section 385 regulations, that are being attempted at being finalized before the calendar year end and a new administration comes in. We will continue to monitor and provide further updates as they happen.
by James DeChene
This week, 21 states and over 50 business groups, including the U.S. Chamber of Commerce, the National Association of Manufacturers and the National Retail Federation, filed multiple lawsuits against the Department of Labor. All were seeking to overturn regulations that would change how millions of Americans are compensated for their labor by making them eligible to receive overtime pay.
Specifically, the salary threshold for exempt executive, administrative, and professional employees will increase to $47,476 per year (or $913/week), meaning that salaried employees earning less than this amount, regardless of job duties, must be compensated for overtime work.
Both lawsuits said the Department abused its authority by increasing the salary threshold so drastically, and failed to account for regional variations in the cost of living. In addition, the lawsuits claim the Department of Labor violated federal law by indexing the salary threshold to the 40th percentile of income, with automatic increases every three years.
It is currently unclear as to whether the lawsuits will force the Department of Labor to delay implementation of these pending regulations. However, the Eastern Texas District where the lawsuit was filed is known as a “rocket docket” court where cases move along quickly. The State Chamber of Commerce will keep you informed with updates as they happen.
by James DeChene
Congratulations are due to the winners of primary races in Delaware this past Tuesday. Special congratulations go to Chamber PAC supported candidates House Speaker Pete Schwartzkopf, House Majority Leader Valerie Longhurst, Representative Bryon Short, and Representative David Wilson.
Closer to election day, we will be getting you a list of general election candidates, along with a notice of who the Chamber PAC has supported.
Next year, as we’ve said before, is shaping up to be an active one from a legislative and regulatory perspective. It bears repeating that the issues important to your businesses—from employment law and health care provisions, to tax policy, to transportation and environmental regulations and all points in between, those you send to Dover will be making decisions that impact you and your employees directly. It is important to vote in November.
Of particular note, on Monday, September 19, DEFAC will be meeting to make their forecast on Delaware’s revenue for next year and for projections on what the FY18 budget may look like. This is an important belle weather of how Delaware’s economy is faring, and there have been signs that several key areas of funding may be in jeopardy. Monday will give us a glimpse of how big a fight over the budget we can expect next year, so stay tuned for more.
One other item to keep your eyes on is the upcoming change in overtime rules for employees. Following is a link to the most recent guidance on the issue if you haven’t been following it closely: https://www.dol.gov/whd/overtime/final2016/.
by James DeChene
Two stories mentioned in this week’s Legislative Report bear some additional coverage. The first, from the News Journal editorial “Hard Economic Lessons For Delaware” pinpoints what the State Chamber has been talking about for the last few years, specifically on what appears to be a lackluster recovery from the Great Recession. With metrics and rankings all over the map, the picture of how Delaware’s economy has fared over the last few years remains murky at best. What remains, regardless of economic rankings is that public education, and other quality of life issues such as public safety, remain areas where much work needs to be done regardless of how Delaware compares economically to other states across the country and within our region.
The other story comes from the Wall Street Journal outlining how factories are struggling to find workers. This is a story that rings true here in Delaware. For local manufacturers, a third of their collective workforce could retire within the next few years, leaving a major vacuum in employment. Add to that the profound difficulty manufacturers are having in finding suitable replacements, not just for engineering or management positions, but, most problematically, for entry level workers not requiring an advanced degree. Working together with the Delaware Manufactures Association, DelTech and the Governor’s office, we have started a successful program to help prepare high school students for these jobs. But and the range and scope of the education issues Delaware faces has become stark.
This is becoming a constant, and repeated, refrain, from the State Chamber of Commerce and our members—Delaware’s education system requires a revamp if we want to have a workforce competitive to those around us– regionally, nationally and internationally. We are currently the 5th highest spend per student for the end result of 33% of Delaware 8th graders are proficient in math and English, with 60% of high school graduates who enroll at DelTech requiring remedial classes.
These results do nothing to push Delaware forward, and will soon have even more of an impact on Delaware’s economic rankings when businesses choose not to come to Delaware because they don’t have access to a strong and vibrant (and educated) workforce. The News Journal has it right that education reform is a key component in securing Delaware’s future.
A message from the DSCC Chairman of the Board, Chip Rossi
Click here to read this message in the September/October issue of Delaware Business magazine!
The most important role of any chamber of commerce is to help its members succeed. Earlier this year, we asked all of you what you wanted from your state chamber of commerce. While most of your responses aligned to topics that we are working on today, we learned a few things that are helping us better serve you in the future.
You told us that the most important area of support is the role that we play advocating for legislation on key issues. Whether discussing the commercial impacts of the Coastal Zone Act or encouraging legislation that provides greater access to capital for small business owners, we strive to be a consistent voice at the legislative table. These discussions, and others like it, ensure that the interests of our members are represented in the legislative debates that affect how Delaware does business.
You also asked us to continue to work with the state to find new ways to drive sustainable revenue growth in Delaware. The budget shortfall continues to widen as the Delaware Economic and Financial Advisory Council (DEFAC) reduces revenue projections faster than the state assembly can identify ways to reduce spending. This is an opportunity for us, as business advocates, to continue to encourage state and local leaders to tackle the difficult decisions that need to be made today to continue to attract and retain businesses across the state.
Finally, you told us that you appreciate and enjoy the networking and learning opportunities that we offer. To build on that, this year we hosted multiple meetings with key elected officials to discuss legislation affecting small businesses and ideas for improving the Delaware economic climate. In addition, we created the inaugural John H. Taylor Jr. Education Leadership award that was presented to Jack Varsalona, president of Wilmington University, during our 2016 Superstars in Education ceremony in May.
It is important to remember that this work takes time. We may not see the results we want from every legislative session or key vote, but we remain committed to working on the things that will help our state – and our members – thrive and grow. On behalf of the board and the staff, thank you for the opportunity to continue to work on the issues that you have told us are important to you.
by James DeChene
There are many competitive Delaware primaries in most of the races this year and it is unclear (as of now) who will win. Up and down the state, and in both parties, on September 13th the outcomes will shape the narrative for the November general election and beyond. In January there will be a new member of Congress, a new Governor and Lt. Governor, an inducted 149th General Assembly and many important county and local positions will be filled such as County Executive and City of Wilmington Mayor.
A reminder email will be sent to Chamber members highlighting which races have primaries and inwhich races the Chamber’s PAC has contributed to a candidate. Remember—it is important for the business community to vote and be actively involved in the legislative and regulatory process. Laws and regulations are created and promulgated that have direct impact on your business and how it operates. This election season is the time for your voice to be heard by those who are asking for your vote to represent you in Washington, Dover, your county and in your town—make sure you take the time to make an informed decision on who you want to be your voice.
James DeChene is the Chamber's Senior Vice President of Government Affairs.