Chamber Asks for Supreme Court Review

The National Chamber Litigation Center (NCLC), the Chamber's public policy law firm, asked the Supreme Court to review a federal tax regulation that puts subchapter S corporations at a competitive disadvantage in the government contracting arena.

Under current regulations, businesses other than subchapter S corporations-including sole proprietors, large corporations, and joint ventures-are reimbursed for paid state income taxes when completing a cost-plus-expenses government contract.

Subchapter S corporations don't enjoy the same reimbursement privileges because, the government argues, their state income taxes are paid by the shareholders, not the corporation itself. A subchapter S corporation is a business entity whose profits and losses are passed through to its individual shareholders, of which there can be no more than 100. An appeals court ruled in favor of the government's interpretation.

NCLC claims that the government's interpretation of these federal procurement regulations is too narrow and runs counter to their intent, which is to encourage small businesses to do business with the federal government. In addition, NCLC argues that the government's stance unfairly puts S corporations at a disadvantage in the contract bidding process.

"The Chamber is concerned about the government's attempts to penalize a specific category of federal government contractors, mainly small businesses," says Robin Conrad, senior vice president of NCLC.

In addition to seeking a legal ruling, the Chamber is planning to push for changes in the regulations to have them explicitly say that state income taxes paid by S corporations or their shareholders are reimbursable costs.