After an intense burst of lobbying, lawmakers dropped a plan to tax startup stock options.
Silicon Valley is celebrating that its precious stock options are safe from new taxes — for now.
After hundreds of startups, investors and engineers collectively panicked — and petitioned anyone in the U.S. Senate who would listen — lawmakers dropped from a fast-moving tax reform package a proposal to tax options issued by private companies as soon as they vest.
In the eyes of investor Ron Conway, one of the idea’s fiercest opponents, such a change to federal law threatened to damage startups’ ability to compensate their earliest employees, who probably wouldn’t be able to pay the tax because they never received any actual income from their stock options or grants in the first place.
Those fears led Conway and hundreds of others — including Y Combinator’s Sam Altman and companies like Airbnb, Lyft and Uber — to band together in a letter Monday calling on the Senate to follow the lead of House lawmakers and remove the provision entirely. The National Venture Capital Association and other industry lobbying groups similarly pressed the issue on Capitol Hill.
And by late Monday, they had prevailed.
By the time the Senate Finance Committee released a modified version of the so-called Tax Cuts and Jobs Act, the stock option tax had been deleted. And in its place, Senate lawmakers included a new provision that would actually provide aid to startup employees who are forced to exercise their stock options. Under the provision, those employees could defer paying any taxes they incur in the event they don’t have a liquid market to sell those options.
“The entrepreneurial ecosystem can breathe a sigh of relief,” said Bobby Franklin, the president and CEO of NVCA, in a statement.