The recent approval by the Senate of the Small Business Jobs Act has been broadly welcomed, although organisations representing small businesses in the United States have taken issue with various aspects of the legislation.

Key provisions of the Act include: exempting capital gains on investments made by small businesses from tax, expanding Section 179 expensing to cover real property, and permitting businesses to expense up to USD500,000 in capital investments, as well as extending bonus depreciation, permitting taxpayers to immediately write off 50% of the cost of new equipment. Additionally, general business credit carry backs are extended to five years under the Act, general business credits can be credited against AMT, and the permitted write-off of start-up expenses is increased to USD10,000 (from USD5,000) with a USD60,000 phase-out threshold in place.

The legislation also aims to increase small business access to capital, and provides USD1.5 billion in grants to support USD15 billion in new small business lending through existing state programs.

A version of the Act was passed by the House of Representatives in June 2010, but stalled in the Senate shortly before the summer recess when Democrats failed to gain enough support for the bill to be put up for a vote. The legislation (in the form passed by the Senate) must now go back to the House before being signed into law by President Obama.

Responding to the passage of the law in the upper house, the National Small Business Association (NSBA) stated that:

"NSBA applauds the Senate’s approval of the Small Business Jobs Bill, and urges the House to promptly take-up the Senate-approved language. Though the Senate failed to pass language fully repealing the new and expanded 1099 reporting requirement, lawmakers would be remiss if they failed to revisit repeal efforts in the near future."

The 1099 reporting currently requires businesses to report to the Internal Revenue Service purchases of goods and services made from unincorporated providers, above a USD600 threshold. As part of the healthcare reforms passed earlier this year, from 2012, this will be expanded to include purchases from incorporated providers as well, greatly increasing the paperwork burden for small businesses (although theoretically increasing the tax take, as it is thought that the providers in question will then be less likely to under-report their income for tax purposes).

An amendment proposed by Senator Mike Johanns (R-NE) would have repealed the reporting requirement, while a parallel proposal by Senator Bill Nelson (D-FL) would have exempted businesses with fewer than 25 employees from the reporting requirement, and increased the reporting threshold from USD600 to USD5,000. However, neither proposal secured the support necessary to be included in the Small Business Jobs Act.

The NSBA stated that the Small Business Jobs Act contained "several positive steps forward".

" It would stimulate lending to small businesses via small- and mid-sized community banks, and through the extension of the highly-successful SBA stimulus lending programs. Additionally, the bill provides some meaningful tax breaks, including an extension of the bonus depreciation and expanded Section 179 expensing. Particularly helpful, the bill would allow self-employed individuals to fully deduct the cost of their health insurance from their self-employment taxes for 2010—a key NSBA priority for many years", the Association explained.

On the 1099 reporting issue, the NSBA was disappointed but pragmatic, observing that:

"While on the one hand a temporary set-back, the absence of 1099 repeal language ought to effectively clear the path forward of any roadblocks to House passage of the Small Business Jobs bill. NSBA is hopeful that Congress sees the 1099 provision for what it is, a growth killer, and promptly passes stand-alone legislation to fully repeal the language."

The American Small Business League, meanwhile, expressed dismay that the legislation had failed to put in place measures to prevent large businesses from misrepresenting themselves as small businesses in order to fraudulently secure federal small business contracts.

The League argued that:

"Neither the Obama Administration's Jobs Bill nor the recommendations released on Wednesday by President Obama's Small Business Task force contain any language that will stop the federal government from giving billions of dollars a month in small business contracts to Fortune 1000 firms."

And went on to explain that:

"Section 16(d) of the Small Business Act prescribes a penalty of up to ten years in prison for firms that misrepresent themselves as small businesses to illegally receive federal small business contracts."

"As opposed to offering legislation and policy that will end the diversion of federal small business contracts to corporate giants, language in the "jobs bill" could actually protect large businesses that misrepresent themselves to illegally receive federal small business contracts."

"Section 1341, paragraph 4 of H.R. 5297, Small Business Jobs Act, creates a legal loophole that could allow fraudulent firms to avoid prosecution and penalties by claiming they received federal small business contracts through, "unintentional errors, technical malfunctions, and other similar situations"."

The ASBL went on to outline plans to challenge the language in section 1341 in the courts.