Runway Extension Act Update: SBA Says Three-Year Reporting Period Still Applies

In late 2018, Congress passed the Small Business Runway Extension Act, which had a single purpose: change the three-year average annual receipts calculation period (for determining small business eligibility) to a five-year calculation period.

Small businesses, for the most part, have been watching with bated breath for the SBA to comply with the Runway Extension Act. But as we’ve previously written, the SBA has thus far refused to do so (albeit under shifting rationale).

Now, the SBA has cemented its position against applying the Runway Extension Act—according to the SBA, “[b]usinesses must continue to report their annual receipts based on a 3-year average until the SBA amends its regulations.”

I’m not convinced the SBA has it right.

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Say What? SBA Says the Runway Extension Act Doesn’t Apply to SBA

The Small Business Runway Extension Act continues to be a hot topic of conversation among small businesses. For good reason: it revised the receipts calculation period for revenue-based size standards from three years to five.  

In late 2018, the SBA opined that the Runway Extension Act wasn’t applicable because the SBA had not yet updated its regulations. Following industry pushback, the SBA’s position seems to have evolved. During a panel discussion at this year’s National 8(a) Conference, the SBA said that the Runway Extension Act applies to every agency that might adopt its own size standards . . . just not the SBA itself.

This new justification is a bit of a head-scratcher. And I still don’t think the SBA has it right.

Let’s work through the SBA’s position together.

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SBA Opposed Five-Year Small Business Size Period

The Small Business Runway Extension Act, signed into law earlier this week, changes the small business size calculation under revenue-based NAICS codes from a three-year to five-year average.

The new law has sparked a great deal of discussion in the government contracting community, with some commentators pointing out that not all small businesses will benefit.  But how does the SBA–the agency tasked with implementing the new law–feel?

Well, according to commentary published earlier this year, the SBA thinks the five-year period is a bad idea.

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UPDATE: Bill to Change Size Measurement Term from Three to Five Years Becomes Law

You probably know this already—from what we can tell word is spreading like wildfire—but Monday (Dec. 17, 2018) the president signed the “Small Business Runway Extension Act of 2018” into law. 

This changes the period of time the U.S. Small Business Administration uses to measure a business’s size in revenue-based size standards from three years to five years. The law doesn’t say that there will be a period of implementation, so it’s reasonably safe to assume the effect is immediate. 

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Bill Changes Size Determination Measurement Period from Three Years to Five

With the stroke of a pen, Congress may have just paved the way for some soon-to-be large businesses to remain small for longer. 

Both the House of Representatives and the Senate have passed a bill that would amend the Small Business Act to change the period of measurement used to determine the size of a business from three years to five. The bill awaits the president’s signature to become law. 

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Tax Extensions Don’t Impact Small Business Size, SBA OHA Confirms

Contrary to common misconception, a contractor’s small business status under a receipts-based size standard ordinarily is based on the contractor’s last three completed fiscal years–not the last three completed fiscal years for which the contractor has filed a tax return.

In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that a contractor cannot change the relevant three-year period by delaying filing a tax return for the most recently completed fiscal year.

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SBA OHA: Small Business Size Not Measured By Profits

A firm’s small business size status for federal procurements is measured by the firm’s revenues, not by its profits.

As the SBA Office of Hearings and Appeals explained in a recent size determination, measuring small business status by reference to profits would allow some very large companies to qualify as “small.”

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