In a recent YouTube video, we discussed how the federal government calculates business size. Today’s video provides additional information on how to calculate the size of your business through annual receipts:
For more information, check out Volume 2 of the Koprince Law, LLC GovCon Handbooks Series, SBA Small Business Size and Affiliation Rules, or contact us here.
To calculate a company’s size under a receipts-based NAICS code, the SBA will add the company’s total income to its costs of goods sold, as those amounts are reported on its tax returns. In fact, the SBA’s regulations are clear that it must use these reported amounts to determine a company’s size status.
What happens, then, when a company’s taxes show “income” that might not really reflect money in the company’s accounts? The SBA’s Office of Hearings and Appeals recently considered this question, and affirmed a company’s ineligibility based on the income reported in its tax returns.
We opined that the Act became effective with the stroke of the President’s pen. Just a few days ago, however, the SBA disagreed—according to the SBA, the 5-year calculation period will not become effective until its regulations are revised.
The SBA has rejected several recommendations for major changes in how the SBA calculates small business size status.
In commentary published in the Federal Register last week, the SBA rejected (among other things) recommendations that it use average employee count to evaluate the sizes of construction firms and that other firms’ sizes be measured by profits or net worth instead of average annual receipts.
Under the SBA’s size regulations, when a size standard calls for a company’s size to be determined by its average annual receipts, the company’s ongoing fiscal year usually isn’t included.
In a recent size appeal decision, the SBA Office of Hearings and Appeals rejected an argument that the SBA’s evaluation of a company’s size should have included receipts from the company’s current fiscal year.