Earned Sick Time Act Compliance for Small Businesses

Earned Sick Time Act Compliance for Small Businesses

Michigan’s Earned Sick Time Act (ESTA) took effect for most employers on February 21, 2025. However, small businesses (10 or fewer employees) have until October 1, 2025, to comply. With that date approaching, small employers should act now to update policies and prepare for implementation.

Key Requirements for Small Businesses

  • Accrual: Employees earn 1 hour of sick time for every 30 hours worked.
  • Annual Use Cap: Employers must allow employees to use up to 40 hours of paid earned sick time each year.
  • Start Date: Employees begin accruing on October 1, 2025, or upon hire, whichever is later.
  • Waiting Period: Employers may impose up to a 120-day waiting period for new employees before sick time can be used.
  • Carryover: Employers using accrual must allow carryover of up to 40 hours into the next year. Employers who frontload are not required to allow carryover.

Permitted Uses

Employees may use earned sick time for:

  • Their own or a family member’s illness, medical care, or preventive treatment.
  • Needs related to domestic violence or sexual assault.
  • Child-related health or disability meetings at school or daycare.
  • Public health emergencies, including closures of schools or workplaces.

Compliance Checklist for Small Businesses

  • Review Policies: Ensure PTO or vacation policies meet or exceed ESTA requirements.
  • Choose a Method: Decide whether to use accrual or frontloading.
  • Update Employee Handbook: Add written policies that explain rights and procedures.
  • Provide Notice: Give employees a written notice of their rights and display the required state poster.
  • Recordkeeping: Track hours worked and sick time taken for at least three years.

Failure to comply may result in the filing of complaints with the Department of Labor and Economic Opportunity (there is no private cause of action), penalties up to $1,000 per violation, and possible civil damages. Retaliation against employees who exercise ESTA rights is prohibited.

Next Steps

Small businesses should update policies, train managers, and post required notices before October 1, 2025. Varnum’s labor and employment attorneys are available to help with compliance strategies and policy reviews.

Michigan House Passes 24% Wholesale Cannabis Excise Tax

Michigan House Passes 24% Wholesale Cannabis Excise Tax

On September 25, 2025, the Michigan House of Representatives passed the Comprehensive Road Funding Tax Act (HB 4951), imposing a new 24% excise tax at wholesale on adult-use cannabis transfers to retailers, including vertically integrated transfers valued at the “average wholesale price.” The tax would begin January 1, 2026, with revenues largely dedicated to local road funds. The bill is “tie-barred” to other measures and must also pass the Senate and secure the Governor’s signature to become law.

This alert explains the legislative path ahead and where cannabis businesses may want to advocate for changes, outlines potential avenues for legal challenges if enacted (state and federal), and provides policy arguments and state comparisons you may consider using in discussions with lawmakers and the Governor’s office. This alert also provides some insight into what licensees can expect as the cannabis business in Michigan shifts towards a revenue-generating endeavor for the State.

Legislative Status and Process

HB 4951 creates a 24% excise tax on the wholesale price of marijuana when a marijuana establishment sells or transfers to a retail licensee, retail licensee sells product it cultivated and processed for its own retail, or when a provisioning center sells or transfers to a retail licensee.

A tax is set on the “wholesale price,” which is further defined depending on how the transaction takes place. The Department of the Treasury (DOT) administers and may circulate rules regarding the excise tax, which, at a minimum, will require licensees to file additional periodic returns. After small allocations to a new Comprehensive Road Funding Fund, most revenue flows to the Neighborhood Road Fund for local roads and bridges.

The Senate is expected to vote on the bill on Tuesday, September 30, 2025. If the Senate amends or changes the bill in any way, it will be sent back to the House for concurrence. The Governor can sign or veto the bill; however, a veto is unlikely given the prior support for a 32% excise tax on cannabis, which is the amount of excise tax currently levied against wholesale tobacco products. The timing is tied to the broader budget framework, intended to avoid a shutdown, which increases pressure for quick passage. If passed into law, the excise tax would take effect on January 1, 2026, but the act “does not take effect unless” specified companion bills are also enacted – called the “tie-bar” rule.

Advocacy Opportunities and Leverage

The legislature has created pressure to pass this bill based on a looming shutdown, so the window for political action is very narrow. If you are interested in advocating for changes to the bill, the time to act is now: request hearings, offer data on price elasticity, diversion, employment, and tax-yield curves. Target senate members on tax/appropriations committees and leadership working on the budget. During these conversations, consider emphasizing the following amendments:

  • Reduce rate (e.g., to 10–15% excise tax), or phase-in (e.g., 8% in 2026, stepping up only if the illicit market shrinks).
  • Carve-outs or credits for small, social equity, and in-state cultivators; hardship relief tied to wholesale price indices.
  • Sunset clause (e.g., two-year automatic sunset unless Legislature reauthorizes based on market-health metrics).
  • Revenue allocation for enforcement against the illicit market, lab testing subsidies, and energy/water efficiency to reduce costs.
  • Safe-harbor valuation for vertical transactions to avoid punitive “average wholesale price” assessments when markets are depressed.
  • Offset mechanisms to prevent the new wholesale tax from stacking punitively with the 10% Michigan Regulation and Taxation of Marihuana Act (MRTMA) retail excise tax and the 6% sales tax.

One data point to provide reference is how other states handle this issue, acknowledging their own failures as well. Michigan stands to become a state with one of the effective tax rates on cannabis (24% excise tax at wholesale, 10% excise at retail, 6% sales tax). This will inevitably lead to increased black-market activity, which is already rampant in other states, such as California and Washington. The chart below summarizes other states’ cannabis tax rates:

State
Excise Tax Rate
Impact on Industry/Market
California
15% excise + local taxes (often 30%+ total)
Persistent black market, legal market struggles, business closures, recent initiatives to cut back on excise tax
Colorado
15% excise + 15% sales
More stable market, but still price-sensitive
Oregon
17% excise + up to 3% local
Lower illicit market, robust legal sales
Washington
37% excise
High prices, illicit activity, but more mature market
Michigan (current)
10% excise + 6% sales
Competitive pricing, fastest growing legal market

A key point to emphasize is that “black market risk” directly impacts the health, safety, and welfare of all Michigan residents and was a primary reason for establishing a legal cannabis market under the Medical Marihuana Facilities Licensing Act (MMFLA) and MRTMA. Large tax hikes increase price differentials with illicit sellers, encouraging diversion and eroding product testing standards. California’s experience, with high combined regulatory burdens and excessive taxes, has arguably led to a persistent (and sometimes violent) illicit market – a cautionary tale.

What Can You Do Today?

  1. Activate your network. This will not only impact growers, but all licensees and those tied to the industry (i.e., landlords, suppliers, service providers, etc.) Encourage these individuals to contact their senators and the Governor’s office to express their discontent with the proposed excise tax. Emphasize job stability, small-business viability, black market competition, and the “revenue paradox” (i.e., over-taxation yields lower total collections).
  2. Engage your public coalition. Customers, local governments relying on stable legal markets, and advocacy groups.  If you are not a member of the Michigan Cannabis Industry Association (MICIA), it is encouraged to join immediately. To the extent you are part of other advocacy groups and can encourage other coalitions to contact the Senate and the Governor’s office, it would be prudent to do so. Your best chance for immediate relief is through a political solution, not a legal one.

Potential Legal Challenges if Enacted

The strongest near-term strategy is legislative. Some attorneys may encourage seeking immediate legal challenges, but those are likely to fail for two reasons:

  1. There has been no injury because the law has yet to go into effect; and
  2. There is no ‘irreparable harm’ present because the damage is overwhelmingly monetary in nature.

Rushing headlong into litigation without adequate due diligence may also lead to negative outcomes for future challenges. However, if the bill becomes law, several litigation theories may be considered, including:

Michigan Constitution — Uniformity Clause (Art. IX, § 3). This clause expressly governs ad valorem property taxation. Plaintiffs could analogize that a punitive, industry-specific excise tax with arbitrary intra-class valuation rules (e.g., “average wholesale price” for affiliates regardless of real prices) lacks a rational basis and functions as non-uniform taxation within a defined class. A Uniformity-based challenge is novel and uphill, but can be paired with equal protection/due process arguments, especially if evidence shows the rate is confiscatory or arbitrary in application.

Michigan’s constitutional and statutory process checks and balances. Depending on the outcome of the legislature, arguments regarding tie-bar compliance could be raised, i.e., if any tie-barred bills fail or are later invalidated, the act cannot take effect or could be vulnerable. Likewise, the bill could be challenged on the basis that it conflicts with the MRTMA; i.e., the MRTMA imposes a 10% retail excise tax, and HB 4951 adds a separate wholesale excise without directly amending the MRTMA. A challenge may also claim that the 24% wholesale tax frustrates MRTMA’s purposes (safe legal access, displacement of illicit market) and thus functions as an indirect amendment, which was never intended by the voters.

Challenging parties could also raise an equal protection and/or substantive due process arguments (under the U.S. and Michigan Constitutions) that the 24% rate and the “average wholesale price” rule for affiliates are arbitrary and punitive, not tied to regulatory costs or legitimate objectives, and will foreseeably extinguish many compliant operators, undermining the stated goals (roads) by shrinking the tax base. In effect, making arguments that this excise tax is unfair.

It is important to recognize that pursuing legal challenges to the proposed excise tax would be a significant undertaking. Litigation is often time-intensive, requiring substantial resources for legal fees, expert analysis, and the collection of evidence. The process would likely take years to reach a resolution, and outcomes are inherently uncertain, especially in areas where courts have historically given broad deference to legislative tax policy decisions. For most operators, legislative advocacy and coalition-building may offer a more practical and timely path to relief than relying solely on the courts.

Increased Regulatory, Law Enforcement Oversight, and Uncertainty

Before representing cannabis clients, Varnum worked significantly with clients falling under the Tobacco Products Tax Act (TPTA). The TPTA levies a 32% excise tax against wholesale tobacco and is primarily a tax enforcement statute, which includes felony punishment for individuals for minor violations. From our professional experience, this resulted in licensees – not just at the wholesale level, but also at the retail level – receiving significant scrutiny from the Michigan State Police and the Michigan DOT, with interactions that were much more adversarial and exclusively focused on tax compliance. This often resulted in significant audit pressure, search warrants, asset seizure and forfeiture, and criminal tax charges. See e.g., People v. Beydoun, 283 Mich. App. 314, 327 (2009) (“the TPTA is at its heart a revenue statute, designed to assure that tobacco taxes levied in support of Michigan schools are not evaded.”).

The TPTA is a significant departure from the MMFLA, MRTMA, and Rules, which primarily govern licensing, and rules aimed at cannabis integrity for human consumption. Likewise, enforcement in the cannabis industry is generally focused on the health, safety, and welfare aspects of the business and tracking in METRC, rather than revenue generation. Moreover, enforcement of the MMFLA and MRTMA is primarily carried out by regulatory agents of the Cannabis Regulatory Agency (CRA), who have specialized training on compliance. With the excise tax on cannabis closely aligning with the excise tax on tobacco, it is foreseeable that enforcement will shift toward law enforcement (i.e., the Michigan State Police) and away from regulatory enforcement. This will be challenging for cannabis companies and will open a new level of exposure to tax and criminal liability.

Conclusion

HB 4951 would alter Michigan cannabis economics by layering a 24% wholesale excise over existing taxes, with risk of accelerating illicit activity, destabilizing compliant operators, and potentially reducing net state revenues over time. If enacted, limited litigation avenues exist – particularly arguments grounded in uniformity principles, equal protection/due process, and statutory-process defects. The strongest path remains legislative modification: lower rates, phased adoption, targeted exemptions/credits, and reinvestment in enforcement and market health.

Varnum will be monitoring this issue closely and may provide additional updates on the state of the excise tax. Should you want to engage a Varnum lawyer for advice on this issue, please contact attorney William Thompson to discuss potential representation on this issue.

New Law Updates Tip and Overtime Deductions for Employees

New Law Updates Tip and Overtime Deductions for Employees

H.R. 1 (the Act), formally known as or nicknamed the “One Big Beautiful Bill Act”, was signed into law on July 4, 2025, and addresses the often-mischaracterized tax deduction for tips and overtime pay. Tips and overtime pay are not tax-exempt. Instead, the bill allows employees to claim deductions and creates new recordkeeping obligations for employers.

Tip Deduction

When does the tip tax deduction take effect, and for how long?

The deduction is available for tax years beginning on or after January 1, 2025, through December 31, 2028. 

Which workers qualify for the tip tax deduction?

Employees working in occupations where tipping is customary may qualify, including tips paid in cash, by card, or under a tip-sharing arrangement. To claim the deduction, workers must provide their Social Security number on their tax return. Married workers must file jointly if eligible.

The Treasury Department recently published a preliminary list of occupations that regularly and customarily receive tips. The final list will be included in forthcoming regulations.

What is deductible under the tip tax deduction provisions?

Qualifying workers may deduct up to a maximum of $25,000 in tips received from customers. The maximum tip deduction is reduced by $100 for every $1,000 over $150,000 that the employee earns in modified adjusted gross income (or for every $1,000 over $300,000 in income for joint filers).

Qualifying tips are those given voluntarily by the customer. Tips negotiated in advance do not qualify. Tips earned in certain specified services, trades or businesses are excluded. Additionally, under the proposed rule, automatic service charges may not qualify for the deduction. “For instance, in the case of a restaurant that imposes an automatic 18% service charge for large parties and distributes that amount to waiters, bussers, and kitchen staff; if the charge is added with no option for the customer to disregard or modify it, the amounts distributed to the workers from it are not qualified tips.” See IRS guidance. Businesses involved in investing, trading, or dealing in securities, partnership interests, or commodities are also excluded.

How does the tip tax deduction impact employers?

Employers must provide a separate accounting of workers’ tips from their regular wages. These records must be provided to the IRS and reflected on employees’ W-2s or contractors’ 1099s. For 2025 only, employers may approximate cash tip accounting using any reasonable method allowed by the Treasury Department.

In addition, deductible tips are excluded from qualified business income for reporting purposes. Beauty service employers, including hair, nail, barbering, spa, and esthetics businesses, may now take advantage of the FICA tax tip credit for their tipped employees. Previously, only food and beverage employers were eligible.

Overtime Deduction

When does the overtime deduction take effect, and for how long?

The deduction is available for tax years beginning on or after January 1, 2025, through December 31, 2028. 

Which workers qualify for the overtime tax deduction?

Non-exempt workers covered by the federal Fair Labor Standards Act (FLSA) who must receive overtime pay for all hours worked beyond 40 in a week may qualify. Overtime must be paid at one and a half times the regular rate of pay.

Exempt employees under the FLSA, such as executives, administrators, and professionals, are not eligible. To claim the deduction, workers must provide their Social Security number. Married workers must file jointly to qualify.

What is deductible under the overtime deduction provisions?

Up to $12,500 of qualified overtime compensation is tax-deductible, or up to $25,000 for joint filers. As with the tip deduction, the maximum overtime deduction is reduced by $100 for every $1,000 over $150,000 that the employee earns in modified adjusted gross income (or for every $1,000 over $300,000 in income for joint filers).

How does the overtime deduction impact employers?

Employers must file separate accounting for qualified overtime pay apart from regular wages. This must be reflected on employees’ W-2s. Many employers will need to adjust payroll and record-keeping systems.

Next Steps

The IRS is expected to issue regulations and further guidance, which may add exclusions or new requirements. The IRS has released a draft W-2 reflecting some of these changes.

If you have questions about how these changes may impact your business or need assistance navigating the new deductions or other changes under the Act, contact your Varnum attorney or a member of our Labor & Employment Practice or Employee Benefits Practice Teams.

M&A Letters of Intent: Top Tips for Successful Deals

M&A Letters of Intent: Top Tips for Successful Deals

Striking a deal to buy or sell a business is exciting, and a letter of intent (LOI) is an important early step. Get it right and you position yourself for a successful transaction. Get it wrong and you risk misunderstandings or worse. Here are some best practice tips to get your transaction off to a strong start:

1. Personalize for a Friendlier Approach

A letter of intent can come off as dry and formal. As a buyer, you can differentiate yourself by making it more personal. Lead with what you admire about the business, including recent growth, a strong team, or a compelling product or service. Use clear, straightforward language that businesspeople will understand, including your description of the deal structure and tax treatment. Avoid excessive use of defined capitalized terms. If you are buying Acme, Inc. you can just call it Acme, there is no need to define it as (“Acme”). Additionally, break up long, complex sentences for readability.

2. Seller’s Big Opportunity

As a seller, your leverage is at its peak just before signing the LOI. The final price almost never goes up and sometimes goes down. If a deal term is important to you, now is the time to include it in the LOI. For example, if you want tight limits on the buyer’s ability to make a claim against you after closing, you can specify that upfront. Work with your advisors to identify and prioritize key terms for your specific deal.

3. Clarity on Price and Deal Structure

Your LOI should answer the questions that matter most: 

  • What is being purchased? Is anything being excluded?
  • What is the price?
  • Does the cash stay with the business?
  • What happens to the debt and other liabilities?

Buyers often require that businesses have a normal level of working capital at closing (details to be worked out in the definitive agreement). If the deal contains any deferred purchase price or an earn-out, make those terms as clear as possible. 

4. Address Due Diligence

Your LOI can identify key focus areas for due diligence. Streamlining the diligence request list to focus on the target business can keep things moving. A concise, tailored list often works better than a 15-page, 200-item checklist that slows things down.

5. Exclusivity

As a buyer, once you invest time and resources in a deal, you will want exclusivity. This is an agreement that the seller won’t pursue other offers for a set period. Sellers on the other hand want flexibility if a deal stalls. Exclusivity periods typically range from 30 to 90 days, depending on the transaction.

6. Map Out Timelines

Sellers want to know how long it will take to reach closing. Buyers can differentiate themselves by moving things along with a brisk timeline. Including intermediate milestones such as due diligence delivery or completion of site visits can keep both sides aligned.

7. Non-Binding LOI and Avoiding the Accidental Deal

An LOI is a key step, but it is not the final binding deal. Both parties should state clearly that the LOI does not create a binding obligation to complete the deal. Courts have sometimes ruled that LOI’s, term sheets, or memorandum of understanding constituted binding agreements, especially when phrased as commitments. Avoid working with terms such as “shall purchase” or “will acquire,” which may imply obligation. Use softer terms like “propose” or “intent.”

Some terms should be binding on both parties, such as confidentiality, exclusivity, expense allocation, governing law, and the paragraph about it being nonbinding.  Your lawyer can provide language to make it clear what is non-binding. 

8. Terminating an LOI

A good LOI will state that either party can terminate negotiations at any time before signing a definitive agreement. It should clarify which provisions survive that termination, such as confidentiality.

With careful drafting, an LOI will do what it’s meant to do: lock down key terms and provide a clear roadmap to closing. Contact your Varnum attorney to prepare or review your LOI to ensure clarity and protection.

New H-1B Proclamation Imposes $100K Fee and Entry Restrictions

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The new presidential proclamation, which institutes a $100,000 fee and places restrictions on the entry of H-1B nonimmigrants into the United States, has created significant confusion. Section 1(b) of the proclamation instructs the Secretary of Homeland Security to restrict decisions on H-1B petitions for foreign workers “who are currently outside the United States”. However, subsequent pronouncements from relevant agencies and from the White House state that the restriction applies to any new H-1B petitions submitted after the deadline.

To clarify, here is what we currently understand to be outside the scope of the proclamation, according to U.S. Citizenship and Immigration Services (USCIS):

  • Any H-1B petitions submitted before Saturday, September 20, 2025.
  • Any previously issued H-1B visa or H-1B status.
  • The ability of H-1B visa holders (and those who are visa-exempt) to continue to travel to and from the United States.
  • H-1B “renewals”.

Both USCIS and U.S. Customs and Border Protection (CBP) have issued internal memos confirming the above. The U.S. Department of State (USDOS) has issued similar guidance, but it does not appear to be publicly available. H-1B visas that fall within these criteria are still being issued, and H-1B visa holders are still entering the U.S. by air, land, and sea.

Moving forward, we understand the following will apply:

  • All “new” H-1B petitions filed on or after Sunday, September 21, 2025, will require a one-time $100,000 payment.
  • Cap-exempt H-1B petitioners are not exempt from the $100,000 payment.
  • The new fee requirement will remain in place for one year.
  • Within 30 days from the next H-1B lottery (March 2026), the agencies will recommend whether to extend the $100,000 payment requirement.

Uncertainty remains because the proclamation and agency pronouncements use broad language and seem to avoid terms that are defined in the immigration regulations relative to USCIS H-1B processing. For example, it is unclear whether H-1B extension petitions for a change of employer, as opposed to extensions with a current employer, will be viewed as “renewals”.

The proclamation also allows the Department of Homeland Security (DHS) to designate specific individuals, companies, and industries that are in the national interest and thus exempt from the $100,000 payment requirement. No mechanisms for seeking such designations have been disclosed. It is unclear whether exemptions will be automatic or if employers must submit requests similar to the National Interest Exception (NIE) letters used during the Covid-19 travel bans, or if the standard will be similar to the EB-2 National Interest Waivers. 

Some industries are already exerting political pressure. Bloomberg News reported today that a White House spokesperson stated, “The Proclamation allows for potential exemptions, which can include physicians and medical residents.” Still, “can” does not mean “will”. Academia and other industries may begin pushing for exemptions. Employers and foreign workers will need to monitor the situation closely.

Additional Resources:

If you would like assistance with immigration planning in these uncertain times, please reach out to any member of the Varnum Immigration Team.

Urgent H-1B Alert

Varnum’s Immigration Team is closely tracking developments. Read our latest advisory: New H-1B Proclamation Imposes $100K Fee and Entry Restrictions.

The White House issued a proclamation yesterday evening requiring a $100,000 fee for H-1B employees outside the U.S. seeking entry. It takes effect at 12:01 a.m. on Sunday, September 21.

Litigation is expected as early as this weekend, but travel will be impacted early next week. If you have H-1B employees outside the U.S., they should attempt to re-enter today (Saturday, September 20, 2025). If they cannot, there may be delays until an injunction is issued. H-1B employees currently in the U.S. are not impacted but should not leave the U.S. until further clarification is issued. There is a limited national-interest exception for certain employers, positions, or industries that we can review for travel this week.

Read the full proclamation here: Restriction On Entry of Certain Nonimmigrant Workers

Contact a member of the Varnum Immigration Team with any questions.

 

Estate Planning Strategies for Venture-Backed Startup Founders

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For startup founders backed by venture capital, estate planning aims to manage timing, liquidity, and potential tax exposure ahead of an anticipated exit. A founder’s largest asset is often company equity, but early-stage equity is highly illiquid, subject to transfer restrictions, and often limited by investor protective provisions.

Thoughtful estate planning converts those limitations into opportunities by protecting family wealth, preserving control, and minimizing tax drag. The strategies outlined in this advisory integrate personal and corporate objectives and are most effective when implemented well before a liquidity event is expected, valuations shift dramatically, or when entering into a transaction that may restrict ownership in ways incompatible with transfer tax planning.

Protecting and Positioning Business Equity with Irrevocable Trusts

Founders often hold restricted stock or stock options governed by investor rights agreements, right-of-first-refusal provisions, and drag-along clauses. Transferring such interests into a trust or other planning vehicle requires coordination with company counsel and major investors. Most stockholder agreements permit transfers “for estate planning purposes,” though notice and consent provisions vary. Once the legal mechanics align, founders often use:

  • Grantor Retained Annuity Trusts (GRATs): Transfer appreciating shares out of the founder’s taxable estate at a minimal gift-tax cost while allowing the founder to “annuitize” value back over time. If the founder survives the GRAT term, post-transfer appreciation passes to beneficiaries tax-free.
  • Intentionally Defective Grantor Trusts (IDGTs): Remove future appreciation from the estate entirely, often paired with a promissory note sale. The transfer freezes asset value for estate tax purposes.

Both strategies allow founders to make further tax-free gifts through income tax payments on trust assets. Each tax payment reduces the founder’s estate while preserving trust growth undiminished by income tax. Executing transfers during a low-valuation window, in the early stages or after a down round, maximizes future estate-tax savings. With proper planning and sufficient assets outside of the irrevocable trust, basis step-up can even be preserved.

Timing the 83(b) Election and QSBS Status

Soon after purchasing founder stock, founders must decide whether to file an 83(b) election within the 30-day statutory window for stock subject to vesting. Electing immediate taxation locks in current value but positions future appreciation for capital-gains treatment. If shares meet the five-year holding and active-business requirements for qualified small business stock (QSBS), each shareholder, including a trust, may exclude up to $10 million (or ten times basis) of gain at sale. Because QSBS exclusions can be “stacked” across multiple trusts, early transfers can multiply tax benefits.

Succession of Management and Control

In venture-backed companies, investors rely heavily on founder involvement. Where governance rights are central to the founder’s vision, common with dual-class structures, consider:

  • A voting proxy or special purpose entity to preserve board representation without forcing a trustee into daily operations.
  • A divided trusteeship, assigning corporate oversight to a trustee familiar with venture management.  
  • A directed trusteeship, allowing a trustee to follow another designated person’s direction on company matters.  

Founder Liquidity, Insurance, and Cash for Taxes

Even founders expecting a lucrative exit may remain “wealthy on paper” for years. If a founder dies before liquidity, there may not be enough other liquid assets to pay any estate taxes, which are due within nine months, with a six-month extension available. A well-funded life insurance trust can cover taxes and without selling shares at a discount or forcing a rushed secondary sale. Larger estates may consider layered coverage, reducing premiums over time while maintaining protection until exit.

Powers of Attorney for Assets Outside of Trusts

Because founders often travel and maintain demanding schedules, durable powers of attorney can be critical for assets outside trusts. Naming an agent familiar with venture finance, such as the impact of exercising options during blackout windows, prevents errors that could harm personal or corporate interests.

Estate Planning is Part of Business Planning

Estate planning for venture-backed founders is an extension of the strategic thinking that drives a company’s success. Addressing transfer restrictions, tax efficiency, and continuity of control early, ideally before valuations surge or exit plans solidify, helps protect both beneficiaries and the equity founders have built.

To discuss how these strategies can benefit your estate with venture-backed assets, contact a member of Varnum’s Business and Corporate Practice Team or Estate Planning Practice Team.

Key Impacts of Florida Repealing Sales Tax on Commercial Leases

Florida Repeals Sales Tax on Commercial Leases Effective Oct. 2025

Signed into law on June 30, 2025, House Bill 7031 eliminates the sales tax on commercial leases in Florida. Effective October 1, 2025, Florida will no longer be the only state in the country that imposes such a tax on commercial leases, a change expected to save commercial tenants billions of dollars annually. While the repeal is a welcome change for businesses, landlords and tenants should prepare to ensure a smooth and efficient transition.

Historical Background

Florida enacted Chapter 212.031, Florida Statutes, in 1969, imposing a 4% sales tax on rent charged under a commercial real estate lease. The rate fluctuated over the years, at times reaching 6%. Since 2016, the Florida legislature has focused on lowering the tax rate, reducing it to as low as 2% in July 2024. HB 7031 completes this process, permanently eliminating the tax on commercial leases.

What Does HB 7031 Do?

House Bill 7031 repeals both the state-level tax, currently at 2%, and optional local surtaxes, typically 1% – 1.5%, saving commercial tenants across Florida an estimated $2.5 billion annually. The repeal applies to office, retail, and industrial leases. Supporters expect the change to lower tenant costs, simplify compliance for landlords, and strengthen Florida’s business climate.

Importantly, the bill only affects rent due after October 1, 2025. Rent due on or before September 30, 2025, remains taxable, even if the payment is made after the October 1 deadline. However, prepaid rent for amounts due on or after October 1, 2025, will fall under the scope of the bill, and the sales tax should not be incorporated into the payment.

What Remains Taxable?

The repeal applies only to commercial leases governed by Chapter 212.031. Other property-related rentals remain subject to sales tax under Chapter 212.03, including:

  • Short-term residential rentals (less than 6 months)
  • Parking space rentals
  • Self-storage rentals
  • Boat slips and docking facilities
  • Aircraft hangar leases

Landlords should confirm their lease does not fall under one of these categories before eliminating sales tax charges.

Key Considerations for Landlords and Tenants

Landlords and tenants should review current leases to determine the portion of rent subject to sales tax and ensure no tax is charged or paid after October 1, 2025. Lease templates and existing agreements should be updated to remove references to the commercial lease tax, unless relating to one of those leases that remain subject to tax. Landlords may want to issue notices to tenants to prevent confusion during the transition. Landlords and Tenants should also monitor their annual reconciliations for 2025 additional rent to confirm that sales tax is not applied to periods on or after October 1, 2025.  Landlords should also confirm which parts of their portfolio, if any, remain subject to tax.

Final Considerations

The repeal of the tax provides commercial tenants with significant annual savings on their leases. Landlords and tenants should take action now to maximize benefits and ensure a smooth transition.

For more information about Florida’s commercial sales tax repeal, contact a member of Varnum’s Real Estate Practice Team.

2025 summer associate Nolan Thomas contributed to this advisory. Nolan is currently a law student at the University of Miami.