Senator Hatch has removed a provision from the Senate’s tax plan that many believed would limit the ability of startups to compete.
Yesterday, Cotopaxi CEO Davis Smith published a piece on Silicon Slopes outlining how disastrous a provision in the Senate’s proposed tax plan would be for startups. He voiced concern about the proposal to tax stock options and RSU’s (restricted stock units) upon vesting, not liquidation.
Should this provision be put into law, it would destroy the ability of startups to compete. Startups would have to increase cash and bonus compensation, which they frankly don’t have. It would also be damaging to early employees, as they would lose out on the ability to own part of the startup they’re helping build. Early startup employees often go on to start their own companies with the money and skills they gained while working for previous startups. PayPal’s early employees have gone on to found companies like LinkedIn, Tesla, Yelp, YouTube, Square, SpaceX, Kiva, Yammer, and 500 Startups. This bill would very likely have the unintended consequence of negatively impacting innovation.
Many others in the Silicon Slopes community expressed similar concerns over the same issue. Luckily, Utah Senator Orrin Hatch is Chairman of the US Senate Finance Committee and a man who has been friendly to Silicon Slopes in the past.
Late last night, Hatch removed Section III(H)(1) from the Senate Tax Cuts And Jobs Act, ending the crisis for startups and tech companies worried about stock options and employee compensation. Kudos to all Silicon Slopes companies and individuals who made their voice heard on the matter, kudos to Senator Hatch for being willing to listen and adapt.