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Solution Providers Plan Huge Hiring Spree In Wake Of Historic GOP Tax Cut
For years, solution providers have complained about the country's antiquated tax system, arguing that it hampered their ability to reinvest in their businesses and add jobs.
Christmas came early for those solution providers on Wednesday, when Congress passed a long-awaited Republican bill that cuts the corporate tax from 35 percent to 21 percent. The Tax Cuts and Jobs Act represents the largest one-time reduction in U.S. history and slashes an estimated $1.46 trillion in overall tax collections by the government.
"This is a day that many, many businesses have been waiting for. I honestly thought I would never see this tax cut because the country is so divided with class warfare," said Terry Speigner, president and CEO of NGEN, a Lanham, Md., solution provider. "The country needs to look at this as an opportunity to look at both businesses and citizens as one."
Speigner is ready to hire an additional five to 10 people at his 30-person firm with the goal of doubling the size of his business to $16 million as a result of the tax cut. He also expects his business, an LLC with an S Corp selection, to see taxes fall from $400,000 to just under $200,000.
"That's $200,000 I am going to reinvest in my business," he said.
The GOP bill also creates a 20 percent business income tax reduction for smaller "pass-through" companies run as sole proprietorships, partnerships, LLCs and S-corporations – designations that apply to a majority of IT solution providers – until 2025. The provisions allow these businesses, which could be taxed at individual rates as high as 39.6 percent, to immediately write off new equipment costs and eliminate the corporate alternative minimum tax.
The House first passed the tax bill on Tuesday afternoon with a 227-203 vote. On Tuesday evening, the bill passed the Senate with a 51-48 vote. No Democrats voted for the bill and 12 House Republicans voted against it. On Wednesday, the House needed to re-vote due to some slight changes in the Senate version of the legislation. The President is expected to sign the bill into law before Christmas.
Many solution provider executives see the dramatic tax reduction as a game-changer that will allow them to direct savings toward staff expansion, growth initiatives and technology development.
Frank Vitagliano, CEO of Houston-based Computex Technology Solutions, No. 121 on the 2017 CRN Solution Provider 500, plans to use the tax savings to increase his company's headcount by about 20 percent next year, with a focus on hard-to-find security talent, managed services sales reps and solution architects focused on security and data center.
"This is a tremendous opportunity for the channel," said Vitagliano. "We can't wait to take advantage of it. We are in growth mode and moving quickly to add people in anticipation of this. This bill is going to have a very positive effect on companies like us that are in growth mode. We are very excited about it."
Computex has relied on a continuous recruitment offensive as a means of landing high-demand sales and technical talent. The company recently hired Michele Neuvar as vice president of human resources to lead the hiring charge.
As for the bill's overall effects on the IT industry, Vitagliano said he expects it to stimulate the economy and lead to a new wave of technology services job creation.
"From a technology industry standpoint I think we are going to see growth in jobs," he said. "When people are working, and they are happy they will spend more money. That's the intent behind this bill. I don't like the idea that it potentially increases the deficit. But I believe that if this works the way it is supposed that impact on the deficit will be mitigated and it will have a positive effect on businesses and the economy."
Kim Whittaker, president of Omaha, Neb.-based First National Technology Solutions, said FNTS would leverage the tax benefits to invest more in the company's headcount and resources, but added that technology initiatives would be another appealing avenue for growing its client base. She believes that the tax cuts will be favorable to most if not all businesses.
FNTS, which provides infrastructure and cloud services to enterprise and midmarket businesses, intends to move into hyper-converged infrastructure, which will help the solution provider deploy more emerging technologies around software-defined networking and storage. Security is also on the company's radar.
"We'll be leveraging more automation and integration of those systems to help our clients dot hose more independently and faster," Whittaker told CRN. "We're also making investments with next-gen security services that we can leverage within our data centers. But they can also extend out in the public clouds to provide a fully managed security offering for clients – because security is always top of mind."
Rockville, Md.-based managed services provider Dataprise, No. 354 on the CRN SP 500, said that a limited technology budget has hindered many customers that need to upgrade their IT infrastructure. With lower taxes, he sees those companies spending more with solution providers.
"Technology can be the catalyst for a lot of companies, if used correctly, to help with growth and to scale and beat their competitors," said Dataprise Senior Vice President of Technical Services Mick Shah.
Jeff Gombos, owner of ICXpress, a Shelton, Conn.-based MSP, said the tax cut opens the door for his company to hire more people and grow the business. "I think if (the tax rate wasn't cut), if would have the opposite effect," he said. "We would probably get rid of people. We don't necessarily need some of the people that we have. But if our taxes were low, we'd be able to keep the people."
A cut in taxes will allow channel partners to invest more in their businesses, hire and train more people, and add to the company's lab, said Pat Grillo, CEO of Atrion Communications Resources, a Branchburg, N.J.-based solution provider. As a small company with no investors, he said Atrion grows only by how much of its cash it can retain.
"Right now, being a small business and a 100-percent owner, I know how much I'm going to make each year," he said. "Everything over a certain amount, which puts me in a different tax bracket, I take out. If that changes, if I can leave more money in, I will. If I can leave more money in, I can hire more people; I can buy more stuff, do testing, whatever. It absolutely would be helpful."
Dominic Grillo, president of Atrion, agreed but added that he hopes the GOP bill supports small and medium-sized businesses as much as it would larger companies."That's the one thing we're keeping an eye on. Hopefully, it's equally beneficial to smaller companies," he said.
Simon Tutt, president, and EO of DP Solutions, a Columbia, Md.-based MSP, told CRN that he sees the cut as business as usual with no plan to add headcount. "Nothing that will change how I run the company," he said. "My hiring practices are purely based solely on the contracts that I sell and the customers I retain. It's not based on what happens with taxes."
At the same time, Tutt said he's always happy to see a cut in taxes. "But it's not going to change how I run the business, how I hire, how I grow it. I've got too many variables: unpaid leave, healthcare, every variable out there. Taxes are just another. They all even out."
For his part, Speigner, who says he crosses party lines to do whatever makes sense to "grow his business, employ more people and help the community," says the tax cut gives solution providers throughout the country much-needed cash to add services offerings.
"An overwhelming majority of companies are going to take this tax cut savings and reinvest it to grow," he said. "Growth is the lifeblood of companies. If a company is not growing, it is dying."
Steve Burke and Joe Kovar contributed to this report.