Congress Passes New Receipts Calculation for Determining the Size of Small Businesses

December 12, 2018

By Emily J. Rouleau

On December 6, 2018, the Senate passed the Small Business Runway Extension Act (HR 6330), which amends the Small Business Act by changing the time period for determining a company’s size based on average annual receipts. Initially, the Small Business Act required a company’s compliance with the size standards to be prescribed on the basis of the company’s average annual receipts from the previous three years; the Small Business Runway Extension Act extends this time to the previous five years. The House passed the bill on September 25, 2018, and on December 11, 2018, it was presented to President Trump to be signed into law.

This change gives businesses a longer time period during which to qualify as a small business. The House Committee on Small Business, where the bill was initially referred, reported that the modification to the size formula was designed to “reduce the impact of rapid-growth years which result in spikes in revenue that may prematurely eject a small business out of their small size standard” and give entry-level small businesses more time to grow and develop their competitiveness and infrastructure. However, as discussed in further detail by my colleague, Megan Connor, the law assumes that businesses’ revenues generally grow year by year at a steady rate, which is not true for all companies. Consequently, some businesses will benefit from the change while others may no longer qualify as small.

Once signed into law by President Trump, the bill will become effective. It is unclear what effect the law will have on contractors whose small business size status will be impacted or how SBA will apply the law versus the language of its current regulations. SBA may potentially implement an interim rule to effectuate the law. However, since statutes technically “trump” regulations, legally the five-year lookback period is effective upon signature by the President. If signed into law before January 1, this may have profound consequences for contractors who will need to update their SAM registrations in the new year. Let us know if you have any questions about how the law will impact you.

Originally posted on December 7, 2018, this post was updated on December 12, 2018.

About the Author: Emily Rouleau is an associate with PilieroMazza. She may be reached at erouleau@pilieromazza.com.
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