We had a chance to catch up to Rebecca Boenigk, CEO of Neutral Posture, about her testimony in front of Congress advocating for tax reform.
Please excuse any typos in this hasty transcript.
Matt Register: Hey guys, welcome back in the show, Texas Business Radio. Texasbusinessradio.com. I’m your host Matt Register. Jay Curry had to step out. I’m joined in the co-host chair with George Walden. We’re going to get to him in just a second. Taxes are something we all try to manage around it, it’s something that as a business owner we do our best to pay our share of taxes but not pay more than our share of taxes. Right? It’s not something that we’re a big, huge fan of but is a necessary part of doing business. And I tell you what, this Congress and this administration is actively looking to change the tax code, to adjust the tax code because there are some things about our tax code with small business that certainly need changing. George what do you think?
George Walden: Well, I agree with you. Small businesses today are penalize. And something needs to be changed, needs to be adjusted. And I loved the courage of this lady to say “Hey, something needs to be changed”.
Matt Register: Something needs to be changed. That’s exactly right. And I tell you what guys, not to insult your intelligence, you have several different flavors of corporation. What that does is you’re essentially trading layers of, of, of, you know, asset protection for tax rate. Right? And the, the biggest level of protection you get comes with, you know, separate taxes, personally versus corporately. A lot of small and mid-sized businesses are flow through entities. Which means that the business owner pays the tax personally. Now when you’re selling your company that’s fine. And that’s actually a benefit to you. But when you’re trying to grow your business, you’re trying to retain your earnings, you’re trying to reinvest back in your company. You’re actually paying an ordinary income rate of taxes on money that you’re going to reinvest and what it does is it slows down the ability for you to grow your company and it costs you more money to be able to grow your company. We have Rebecca Boenigk on the line, who is the CEO of Neutral Posture out of College Station, Texas. Who just testified in front of Congress and told them all about it. Rebecca welcome to the show.
Rebecca Boenigk: Thanks for having me.
Matt Register: So, tell me a little bit about what you just did. Because you went up to Washington D.C. and explained to them everything they’re doing wrong with the tax code. Right?
Rebecca Boenigk: Well, I gave him some good pointers on how the tax code has affected me and my company over the last 29 years. And it’s been, it’s just such a mess. Our tax code is so confusing. And for example my tax return is 79 pages long. How are you suppose to understand what’s on all 79 of those pages and sign your name to it? When you don’t really even know what all the accountants put in there.
Matt Register: Well, I promise you, you aren’t supposed to understand it. There’s an entire industry out there to be able to do that for you. But there are some things within your company, we’re going to talk about your company specifically here in just a second, that the current tax code hinders your ability to grow your business. Right?
Rebecca Boenigk: Yes, exactly.
Matt Register: So?
Rebecca Boenigk: One of the first problems that we had as we were really growing the business. We got a call from our accountant and he said “You have to pay eighty six thousand dollars tomorrow to the IRS for your income, income tax”. And we said “Well, we don’t have any money. How could we have made income?”. And he said “Well, all that inventory that you have is an asset. It doesn’t count as an expense. So, you made income on all of that. That all counts as income, instead of, as an asset”. And so for us it was very confusing. I mean my mom and I thought, well, we spend some money. So surely that expense reduce our income but that’s way, the way the tax system works. And so like today, we’re, as we’ve grown the company, obviously we retain more inventory. So right now we have about 3 million dollars worth of inventory that we’ve paid for already. But it doesn’t count as an expense for the company, it counts as an asset.
Matt Register: Yes, so you have the tax on it now, not when you sell that inventory. Right?
Rebecca Boenigk: Exactly. So we can’t count it as a deduction or an expense.
Matt Register: Well, I got it. And that’s not what, that’s probably not the intent behind the law. Something has to be done. So you flow up, flew up there at the invitation of Kevin Brady, the representative Kevin Brady. And tell me a little bit about what it is you talked about.
Rebecca Boenigk: Well, that’s one of the things. Simplification of the tax code in general is, is very important. Just so that, you know, people can understand. It’s not that we don’t want to pay taxes. We just want to understand what taxes we’re paying, what deductions we get and so forth. And then more importantly, reduction of the tax rate for flow through businesses. So, right now American businesses pay more taxes than any other country, any other first world country out there. And our corporate rate is 35 percent. But those small companies pay at the personal level, which in some cases can be between 44 and 48 percent. So you’re giving the government almost half of every dollar you earn because we’re being taxed at the individual rate. And so our recommendation was for C corp. to be given a 20 percent tax rate and the flow through companies to be given a 25 percent tax rate.
Matt Register: Well, and that makes a lot of sense. Because what that money frees up is money for you to buy inventory, money for you to hire more people, money for you to reinvest in new equipment and things that you need inside your business. Talk to me a little bit about your business. Neutral Posture is a chair, office furniture type manufacturing company. Talk to me about Neutral Posture.
Rebecca Boenigk: Okay. My mom and I started the business 29 years ago. Started building chairs in my garage. And my father is the original inventor of our chairs. He’s a ergonomist that taught at Texas A&M for 30 years. And we just started the company as a, you know, small business. Just thought we could have a part time job. And over the years really have grown the company. Made another acquisition in 1998 to expand our seating line to be more than just high end task chairs and to have, you know, conference room chairs, side chairs, things like that.
Matt Register: Sure.
Rebecca Boenigk: And then in 19, in 2014 we bought a division of one of the big companies in our industry. And so now we manufacture, cubicles, open plan, all the storage, everything that you need to do the whole office.
Matt Register: No. Hey, God bless America, right? I mean it was a need in the market, you guys found it. You have continued to build out your product lines to be able to do it. How many, roughly how many employees do you guys have?
Rebecca Boenigk: We have 80 in Texas and then we have 60 representatives across the country including Canada and Puerto Rico.
Matt Register: Wow. Hey good for you. This is wonderful. Now walk me through a little bit, how you ended up getting invited to go speak in front of Congress. Cause you ended up writing an op-ed about it. I mean you feel passionately about this. Wrote an op-ed about it. Right?
Rebecca Boenigk: I do. I am part of an organization called Women Impacting Public Policy and we represent about 10 million women business owners on the hill. And so, I am the chairman of the tax committee for Women Impacting Public Policy. And with that group we’ve been fighting for a better tax plan for many, many years. And so with their help I wrote the op-ed that was published in The Fort Worth Star-Telegram in March. And Kevin Brady’s organization reached out to me and we actually, I was going to go testify earlier on but everything with health care kind of pushed the tax plan to the back burner for a little while.
Matt Register: Sure.
Rebecca Boenigk: But now it’s very, very hot and moving very quickly and they are looking at having, hoping to have the plan passed by Labor Day.
Matt Register: Well, that would be absolutely remarkable. And I tell you what, I think that if they unleash the power of small and mid-sized business in the United States, they’re going to be blown away with what ends up happening. Because, you know, it always comes down with government to the basic premise, what is the purpose of taxation? Is the purpose to generate revenue to fund the government or is it for wealth redistribution. And if it’s really just to fund the government, I think this is going to go more than anything else they could possibly do in getting revenue in for the government. Right?
Rebecca Boenigk: I agree. And one of the experts on the panel was for the Democrat side. And she kept talking about the fact that this was not going to help small business, it was only going to help the uber wealthy. And the rest of us that were sitting there were just shaking our heads over the fact that this definitely is going to help us. It’s proven time and time again, that if you have lower taxes, you can grow the economy in a much bigger way.
Matt Register: Nope, no doubt about that. Rebecca, what is the easiest way for somebody to find out more about Neutral Posture?
Rebecca Boenigk: Neutralposture.com. And if they want to email me, they can e-mail me at CEO@neutralposture.com.
Matt Register: Neutralposture.com. Guys, don’t even try to take notes if you’re driving. We’re going to have every link to everybody we’re talking to today right there on Texasbusinessradio.com. Rebecca Boenigk, CEO of Neutral Posture out of College Station. And congressional testify-e, I guess, recently about tax policy. I want to thank you very much for joining us.
Rebecca Boenigk: Thank you for having me. I really appreciate you all taking the time to talk about businesses and taxes.
Matt Register: Hey, no problem at all. Taxes may not be the most exciting thing in the world to some listeners. Our listeners love it because they’re the ones paying them. Right? That’s…
Rebecca Boenigk: Exactly.
Matt Register: Well hey, thank you very much. And we’re out of time. Guys we got to go take a break and pay a couple of bills ourselves. So we can pay some taxes but we’ll be back right after this. Don’t go anywhere, you don’t really have time to go anywhere. We’re going to be back quicker than that and we’re just getting warmed up. We’ve got a whole lot more for you here on Texas business radio. We’ll be back.
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In addition to hosting "Texas Business Radio," Matt is an investment banker and serial entrepreneur from Montgomery, Texas. He is the owner of RREA Media and Register Real Estate Advisors and a Managing Director and Principal at Corporate Finance Associates. He has a BS from the United States Military Academy at West Point and an MBA from Rice University in Houston. You can read more about Matt HERE.