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Preston, Gates, Ellis, Rouvelas & Meeds, L.L.P.

Set Asides for Woman-Owned Small Businesses May Be Closer
The Small Business Administration published proposed rules on June 15, 2006, (71 Federal Register 34550) that would finally establish a small business set-aside program for woman-owned small businesses. The rules create contract set-aside programs for woman-owned small businesses (WOSBs) and economically disadvantaged woman-owned small businesses (EDWOSBs). Contracting agencies would be able to restrict competition to either EDWOSBs or WOSBs in those industry categories (yet to be named) where WOSBs are ""substantially"" underrepresented and the contract size is under $5 million for manufacturing and $3 million for all other types. The set-asides would be made under the traditional Rule of Two analysis.

Unlike the self-certification process for small business concerns, all WOSBs and EDWOSBs would be required to apply to SBA for initial certification with re-certification to occur every 3 years. In order to qualify, 51% of a WOSB must be owned and controlled by one or more women. An EDWOSB is a WOSB that is at least 51% owned and controlled by women with individual net worths of under $750,000.

The establishment of a formal set-aside program for WOSBs is intended to increase total awards to the 1994 statutory mandate of 5% of all prime contract awards. It will also increase attention on subcontract awards being made to WOSBs by large business concerns as part of their mandatory Small Business Subcontracting Plan. The recent efforts by the government to establish a data base of all required Small Business Subcontracting Plans and annual reporting (SF 294 and SF 295), see http://www.esrs.gov/, will make it easier for government agencies to compare prime contractor performance as a means of awarding large prime contracts.

Comments on the proposed rule are due July 17, 2006.

07-10-2006

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Kirkpatrick & Lockhart Preston Gates Ellis LLP

Washington Supreme Court Adopts Employer-Friendly Definition of Disability Under Washington's Anti-Discrimination Law
On July 6, 2006, the Washington Supreme Court issued a somewhat unexpected decision that narrows the prior expansive definition of disability under the Washington Law Against Discrimination (WLAD). Washington employers have grappled for years with the broad state law definition that had been interpreted to cover a variety of conditions, including temporary and relatively minor conditions, that would not be protected by the federal Americans with Disabilities Act (ADA). In McClarty v. Totem Electric, a 5-4 majority of the Court adopted the ADA’s more employer-friendly disability definition. This ruling should make it more difficult for employees to prove that they suffer from a condition that constitutes a disability that is protected by state disability law.

The WLAD recognizes two types of disability discrimination claims: ""disparate treatment"" and ""failure to accommodate."" A disparate treatment claim arises when an employer discharges, reassigns or harasses for a discriminatory reason. A failure to accommodate claim arises when an employer fails to appropriately accommodate an employee’s disability.

In a nutshell, the Opinion adopted the definition of disability set forth in the ADA to cover both types of disability discrimination under the WLAD. Now, ""a plaintiff bringing suit under the WLAD establishes that he has a disability if he has (1) a physical or mental impairment that substantially limits one or more of his major life activities, (2) a record of such impairment, or (3) is regarded as having such an impairment."" The Opinion noted that the U.S. Supreme Court has found that being ""substantially limited"" means that the individual is ""unable to perform a major life activity that the average person in the general population can perform."" ""Major life activities"" are ""those activities that are of central importance to daily life."" This will be the guiding standard for Washington employers under the new WLAD definition.

McClarty involved a disparate treatment claim brought by Ken McClarty, a worker whose duties included leveling trenches and laying plastic pipe during his three months of employment with Totem Electric. McClarty began experiencing wrist pain and was diagnosed with bilateral carpal tunnel syndrome. His doctor recommended work restrictions for an estimated six-month period. On the same day McClarty gave Totem this information, he received a written termination notice stating the reason for termination as ""reduction in work forces/lay-off.""

Nearly three years after his termination, McClarty filed a complaint against Totem and his union, alleging in part that he had been discriminated against based on his disability, in violation of the WLAD. The trial court granted summary judgment in favor of Totem, dismissing McClarty’s complaint in its entirety. McClarty appealed and the Court of Appeals reversed the grant of summary judgment on the disparate treatment claim. The Supreme Court reinstated the victory for Totem.

The Opinion explained that the legislature failed to define the term ""disability"" within the WLAD, which led to different definitions of the term ""disability"" being applied depending on the type of disability discrimination claim asserted. The Washington Human Rights Commission codified a definition in WAC 162-22-020 that essentially provided that a person was considered to be ""disabled"" by a sensory, mental, or physical condition if she is discriminated against because of the condition and the condition is abnormal.

The Opinion found this definition both flawed and unduly complicated, and noted a concern that the WAC definition could be interpreted to extend to conditions such as a receding hairline, which would ""trivialize the discrimination suffered by persons with disabilities."" The Supreme Court chose to use the ADA definition instead. This means that while employers still must avoid discrimination based on disability status and other protected classes under the WLAD, employees will have to meet a harder standard for disability claims.

Given the four dissenting votes, including two harsh dissents, and the expected strong response from employee advocate groups, there may be future challenges to this new definition. The employment attorneys at Preston Gates will watch to see if there is any legislative activity to attempt to overrule McClarty’s adoption of the ADA’s definition by explicitly defining ""disability"" in an amendment to the WLAD. Barring any such change, however, the new definition should provide more certainty to employers and more consistency in interpretation between federal and state law.

07-10-2006

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Frost, Brown & Todd, L.L.C.

Ohio Attorney General Issues Proposed Charitable Transparency Rules
On June 29th, the Ohio Attorney General proposed a dramatic overhaul of the rules governing Ohio charities. To improve transparency of Ohio charities, the 46 page set of proposed rules incorporate aspects of the IRS Model Conflicts of Interest Policy, the IRS Intermediate Sanctions Rules and Sarbanes-Oxley.

07-10-2006

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Frost, Brown & Todd, L.L.C.

New Kentucky Tax Legislation Mitigates Negative Consequences of Kentucky's 2005 Tax Act
On June 28, 2006, the Kentucky General Assembly passed, and Governor Fletcher signed into law, new tax legislation (the “New Tax Bill”) for the stated purpose of providing relief for Kentucky’s small businesses.

Kentucky’s 2005 Tax Act brought major changes to Kentucky’s taxation of businesses and their owners. There were a number of provisions beneficial to business in the 2005 Tax Act, including the repeal of the corporate license tax and the tax on intangible property. However, the 2005 Tax Act also increased taxes for a number of businesses and their owners. For example, companies with low profits or which were operating at a loss formerly paid little or no income tax, but as a result of the 2005 Tax Act were required to pay tax based on their gross receipts or gross profits. Further, because of the entity level tax on pass-through entities and the nonrefundability of the credit passed through to owners for taxes paid at the entity level, owners of multiple pass-through entities were effectively unable to offset losses from one entity against income from another entity, and individual owners of a pass-through entity were in some cases unable to take advantage of personal deductions. Finally, Kentucky’s divergence from federal taxation, particularly with regards to the new tax on pass-through entities, greatly complicated Kentucky’s tax code, making compliance much more costly and burdensome.

The General Assembly attempted to mitigate these new tax burdens in the 2006 Regular Session. The House and Senate each passed different versions of corrective legislation, but the Conference Committee was unable to reach agreement regarding several differences in the House and Senate versions of the legislation. In particular, the House and Senate could not agree on the level of relief from the gross receipts/gross profits alternative minimum calculation (the “AMC”) and the timing for reducing the highest corporate income tax rate to 6%.

On June 21, 2006, Governor Fletcher signed a proclamation calling for a special session of the Kentucky General Assembly to provide tax relief for Kentucky’s small businesses and small business owners. On June 28, 2006, the General Assembly passed the New Tax Bill, and the Governor signed the bill into law. This Advisory highlights some of the most significant aspects of the new legislation.

AMC Relief Retroactive to January 1, 2006.

For taxable years beginning on or after January 1, 2006 (and before January 1, 2007), entities previously subject to the AMC (a) will be exempt from the AMC if the entity’s gross receipts or gross profits are $3 million or less, and (b) will pay a reduced amount of tax on either gross receipts or gross profits (whichever results in a lesser tax burden) over $3 million but less than $6 million. The provision should provide relief for relatively small Kentucky businesses with little or no taxable income, including start-up ventures and businesses with high sales volumes but low profit margins. The New Tax Bill also more clearly defines cost of goods sold, which is used in making the gross profits computation. Beginning in 2007, the AMC is repealed and replaced by the Limited Liability Entity Tax (the “LLET”) discussed later in this Tax Law Advisory.

Scheduled Reduction in Corporate Income Tax Rate.

The House and Senate’s previous plans contemplated delaying until 2009 the decrease in the corporate income tax rate to 6%. The New Tax Bill maintains the scheduled reduction of the corporate income tax rate to 6% in 2007.

Beginning January 1, 2007 – Return to Federal Conformity for Pass-Through Entities.

For taxable years beginning on or after January 1, 2007, the New Tax Bill restores flow-through tax treatment for pass-through entities such as limited liability companies, S corporations, limited partnerships, and registered limited liability partnerships, which were previously subject to Kentucky’s entity level tax. However, the return to federal conformity is not complete because of the imposition of the LLET.

Imposition of Limited Liability Entity Tax.

For taxable years beginning on or after January 1, 2007, the New Tax Bill imposes the LLET on every corporation and limited liability pass-through entity (e.g., limited liability companies, S corporations, and limited partnerships) doing business in Kentucky. The LLET replaces and is similar to the AMC. The LLET is imposed on the entity’s Kentucky gross receipts or Kentucky gross profits, and there is a minimum of $175 in LLET due from all corporations and limited liability pass-through entities. The LLET has the same exemptions and reductions for the gross receipts and gross profits of small business as the AMC exemptions and reductions previously described (i.e., a $3 million exemption and reduced amount of tax for gross receipts/gross profits over $3 million but less than $6 million). Certain types of entities are exempt from the LLET. Exempt entities include financial institutions, savings and loan associations, banks for cooperatives, production credit associations, insurance companies, charitable and non-profit organizations, public service corporations, open-end registered investment companies, fluidized bed and alcohol production facilities, REITS, RICS, REMICS, personal service corporations under IRC 269A(b)(1), cooperatives, homeowners associations, political organizations, and publicly traded partnerships.

There is a credit against income tax for the amount of LLET paid by the corporation or the limited liability pass-through entity. In the case of limited liability pass-through entities, this credit flows through to the owners of such entities. However, the credit is nonrefundable, cannot be carried forward, and can be applied only to income tax assessed on income from the limited liability pass-through entity.

There are several potential problems for owners of limited liability pass-through entities associated with the use of the credit. The credit cannot be used to offset the owner’s Kentucky income tax on income unrelated to the limited liability pass-through entity that paid the tax. For a fairly profitable limited liability pass-through entity, an individual owner’s income tax liability related to income from the entity will be greater than the amount of the credit that the owner receives, and so the owner generally will fully utilize the credit on his or her Kentucky tax return. This will not be the case where the limited liability pass-through entity is unprofitable. The entity will pay the LLET, and the owner will not be able to take advantage of the credit because there will be insufficient income from the entity against which to use the credit.

Furthermore, because the LLET is imposed on the limited liability pass-through entity itself, non-resident individuals might not receive a credit on their home state returns for the amount of LLET paid to Kentucky. In certain circumstances, these two issues could discourage investment in new business ventures in Kentucky.

Mandatory Withholding by Limited Liability Pass-Through Entities.

All pass-through entities doing business in Kentucky (other than publicly traded partnerships) will be required to withhold Kentucky income tax on the distributive share of each nonresident individual owner and each corporate owner that is doing business in Kentucky only through its ownership interest in the pass-through entity. If the pass-through entity demonstrates to the Department of Revenue that a nonresident owner has filed an appropriate tax return for the prior year with the Department, then the pass-through entity is not required to withhold on such owner’s distributive share for the current year. However, if the owner does not file returns and pay all taxes due in a timely manner, the exemption is revoked, and the Department may require the pass-through entity to pay the Department the amount that should have been withheld from such owner. The pass-through entity is entitled to recover the payment made to the Department from the owner on whose behalf such payment was made.

Qualified Investment Partnerships.

The exemption from Kentucky income tax for the investment income of a qualified investment partnership allocated to nonresident individuals remains unchanged, except that the New Tax Bill expands the types of entities that may now be treated as qualified investment partnerships to include all pass-through entities, including limited liability companies and S corporations.

This Advisory focuses on the most important provisions in the New Tax Bill impacting businesses and their owners. Please note that the New Tax Bill includes other changes to Kentucky’s tax code.

07-10-2006

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Ruden McClosky Smith Schuster & Russell, PA

12 RUDEN McCLOSKY ATTORNEYS NAMED LEGAL ELITE
Ruden McClosky is pleased to announce that 12 of the Firm's attorneys in Florida have been named 2006 Legal Elite by Florida Tend Magazine.

07-10-2006

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McGuireWoods LLP

Scott Glickson named in Crain's A.M. Leading Lawyers Column
Crain's A.M.: People in the News named Scott Glickson (Chicago) in its Leading Lawyers column in its June 22 online edition.

07-10-2006

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Holland & Hart, L.L.P.

Holland & Hart Welcomes Davina C. Maes To The Denver Office
Holland & Hart is pleased to announce that Davina C. Maes has joined the firm as an associate in the Denver office.

Ms. Maes is a member of the firm's Business Department. Prior to joining Holland & Hart, Ms. Maes worked in-house as a member of the legal department for Watson Wyatt & Company in Arlington, Virginia. There, Ms. Maes drafted and negotiated master consulting agreements, software license agreements, third-party vendor contracts, and joint venture agreements. She also advised business group executives on legal issues including commercial transactions, employment, corporate governance, intellectual property, licensing, and compliance and regulatory matters.

Ms. Maes received her J.D. (2004) from the American University Washington College of Law and her B.A. (1996) in political science from the University of New Mexico. During law school, Ms. Maes served as Note and Comment Editor of the American University Law Review. She also worked as a student attorney in the Civil Practice Clinic where she tried a contested adoption case in the Superior Court of the District of Colombia.

07-10-2006

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