Startup leaders are asking Congress to preserve a tax law involving equity

Over 100 startups from around the country signed a letter Wednesday to Congress members Nancy Pelosi, Kevin McCarthy, Charles Schumer and Mitch McConnell asking the lawmakers to keep a startup-friendly tax rule in mind.

The letter, which features a few DC policy agencies, details the importance of Qualified Small Business Stock (QSBS). It works like this: Qualified small businesses are C corporations valued at under $50 million, and individuals who acquired stock in the original issue (so, not on the trade market) and own it for at least five years can gain some tax benefits. This can include things like 0% capital gains tax over a certain profit margin and excluding sales gains from federal tax.

In earlier versions of the Build Back Better act, QSBS was taken down a few pegs, limiting some of the benefits for startup leaders and employees. The provisions were eventually changed, and BBB is stalled for the moment, but startup leaders are taking a beat to encourage the stability of the QSBS. According to the petition signers, these benefits can encourage startup development, recruit talent in the early stages and provides incentives for investors.

“The current tax treatment of QSBS is critical for promoting growth in the startup ecosystem and contributes to the spread of investment across the country,” the letter reads. “Investment in startups has shifted to more and more places outside of large tech hubs like Silicon Valley and New York over the past decade, and QSBS helps drive this trend.”

Nathan Lindfors, policy manager at DC policy nonprofit Engine, told Technical.ly that he believes QSBS is important to startups and founders as they continue to build.

“Last fall, when changes to QSBS were included as a ‘pay-for’ in the Build Back Better legislative package, we started hearing concerns from startups about how the change would impact them,” Lindfors said. “While that legislative effort is not moving forward at the moment, it is important that Congress hears from the startup community about the importance of QSBS.”

Do you think QSBS is helpful for founders? Let us know at dc@technical.ly.