Files two amendments to ease tax reporting burden on small business
Washington, DC - Idaho Senator Mike Crapo says small business owners will face unnecessary and unneeded burdens under tax reporting provisions inserted in a housing reform bill before the Senate. Crapo attempted to correct this problem with two amendments earlier today, but his effort was shot down by the Senate Majority.
The amendments would have delayed, or stopped, new and costly tax reporting requirements that were inserted as a way to offset costs in the measure, the Foreclosure Prevention Act (HR 3221). Crapo, a member of both the Senate Finance and Banking Committees, said the new tax reporting system created in the bill is too extreme and doesn't provide enough time to implement. The Senate moved to advance the overall housing bill to a final vote this week.
"This unprecedented level of reporting to the federal government will likely impose substantial implementation costs that will be passed on to many compliant small business taxpayers, who may in turn pass those costs along to the consumer," Crapo said. "Small business owners will also have to ensure that their records conform with the additional information reported by the merchant card processor. This is an unneeded compliance step, which will add to the already high cost of tax compliance for small business owners, who currently spend on average over $74 per hour to meet tax paperwork and compliance burdens."
Crapo said it would be best to eliminate the tax reporting proposal from the overall bill until the costs to businesses for compliance can be further studied. Attached is his statement from the Senate floor:
Like many of my colleagues, I am frustrated that we have not been allowed to call up germane amendments for the past few days. This is a substantial piece of legislation and Senators should have had the opportunity to have up and down votes. I have filed four amendments and I would like to talk briefly about two of them that deal with the merchant card reporting requirement.
In an effort to find revenue offsets, I am concerned that Congress is rushing to adopt a flawed merchant card reporting proposal that establishes a new tax compliance burden on small business and does not provide enough time to develop and implement this new system. Little is really known about the true costs of this proposal and the Finance Committee hasn't had an opportunity to have the IRS demonstrate in a hearing that the information collected could be used in a meaningful way to drive tax compliance.
The merchant card reporting proposal would require that the institution that makes the payment to the merchant (payment facilitator) for a payment card (both credit cards and debit cards) report annually to the Internal Revenue Service (IRS) the name, address, and aggregate amounts of payments for the calendar year of each participating merchant. Additionally, the payment facilitator or the electronic payment organization must validate the Taxpayer Identification Number of the participating merchant. If the number does not match, then the payment facilitator or the electronic payment organization must withhold 28-percent from the merchant.
This unprecedented level of reporting to the federal government will likely impose substantial implementation costs that will be passed on to many compliant small business taxpayers. Small business owners will also have to ensure that their records conform with the additional information reported by the merchant card processor. This is an additional compliance step, which will add to the already high cost of tax compliance for small business owners, who currently spend on average over $74 per hour to meet tax paperwork and compliance burdens.
The structure of the merchant card system does not make complying with the proposal feasible in a couple of years. Merchants are not currently identified in systems by Social Security numbers or Taxpayer Identification Numbers. Instead, merchants are generally assigned a merchant identification number. If implemented, this proposal would require institutions to spend several years trying to match merchants to Social Security numbers or Taxpayer Identification Numbers.
I appreciate the fact that the underlying legislation extends the effective date for reporting to December 31, 2011, and the effective date for backup withholding to December 31, 2012. However, I do not believe this provides enough time to make the changes to existing systems and processes, to build and test new reporting systems, perform Taxpayer Identification Number matching, to hire and train the personnel needed to implement and to comply with the new reporting requirements.
In addition, a higher dollar reporting threshold is necessary to eliminate reporting on casual sellers rather than persons engaged in business, and it should be granted to all payment settlement entities.
My preference would be that we strike this section until we identify the costs to business, the total costs of implementing the new reporting regime within the IRS, and the ability of the IRS to use the information in a meaningful way to close the tax gap. If that amendment is defeated, then the Senate should provide an additional year to implement this system.
Thank you, Mr. President.