Posted on 11/19/2010 12:19:11 AM PST by 2ndDivisionVet
President Obama’s Health Care Bill requires that businesses involved in health care file a 1099 with the IRS for any purchased goods valued at more than $600. As a follow up to the bill, Representative Barney Frank introduced the Small Business Jobs and Credit Act of 2010 (H.R. 5297). Ostensibly the goal of the act is to increase the availability of credit for small businesses, provide tax incentives for small businesses and create jobs.
That all sounds nice, depending on your political affiliation. However, one of the requirements of this act extends the Form 1099 requirement to anyone receiving rental income from a rental-property business. While this is clearly a revenue-raising measure designed to offset other losses from the credits issued by the new act, the thinking is more reported payments will result in more taxes to collect. This change in the law has two potentially negative impacts to your day-to-day self-storage operation.
What You Need to Know
First, you’ll need to require a 1099 from anyone your business pays in excess of $600 a year not in the form of wages and salaries. Ordering a batch of new locks and boxes in excess of $600 per year? Make sure you receive a form 1099. Same with landscapers, asphalt repair, gate repair, software upgrades, etc.―the list goes on and on. This even applies to your trusted lawyer. If you’re going to spend more than $600 on anything you may deduct as a business expense, you’re going to need a 1099 from the person or company selling products or services to you.
As if the first issue isn’t a big enough paperwork nightmare, several state tax commissioners—with more to follow, I’m sure—have interpreted this change in the law as assistance in making a bigger sales-tax grab. In their interpretation, if you make a sales-taxable purchase and the receipt doesn’t indicate sales tax was charged and collected, you the self-storage operator/real estate owner will be liable for payment of that tax to the state. The new Form 1099 requirement makes it easier for the commissioners to follow the money and check sales-tax collections and payments.
For example, let’s say you use a company to mow the grass at your facility. If, in your state, that’s a sales-taxable event, not only must you get a 1099 from the lawn-care company because you’ve paid it in excess of $600 per year (which you will use to support your business-expense tax deduction), the invoices the company sends you must show that sales tax was charged.
Some tax commissioners will say that if the invoice for grass-cutting doesn’t show sales tax was charged when they crosscheck the 1099 you file with the IRS, they have the right to assume sales tax was not charged, thus not paid, and hold you personally liable. Many vendors have said for years that sales tax is simply “included in the price.” In many states, by 2012, that will not do; and for safety’s sake, you should insist that any bill you pay for a sales-taxable event in your state should clearly delineate the portion of the bill that’s sales tax.
What’s a Sales-Taxable Event?
Of course, the problem is knowing what qualifies as a sales-taxable event in your state. Purchasing a product at your local store is easy―the register figures it out for you and puts sales tax on the receipt. But what if you order supplies from an out-of-state vendor who feels it’s not necessary to charge sales tax to out-of-state customers? Suddenly, you become the CPA who has to figure out whether your vendor is right. The larger national vendors know this information, and it’s safe to say that if you ask once, you can rely on their answer. But what if you’re ordering from a smaller, less sophisticated company?
For example, let’s say you hired a vendor to install cylinder locks on 500 storage doors. The act of making these changes may be considered a service, and thus a sales-taxable event in your state. The company you hired didn’t charge sales tax because it’s from another state, or sales tax is not indicated on the bill. This is likely because the vendor doesn’t want to file 50 sales-tax returns every year.
In some states now, if your taxing authority crosschecks your 1099 with the company’s bill and fails to see a sales tax, you could be held liable for it. By the way, if this happens, it’s a personal liability, not a business liability. Simply closing up the business or filing bankruptcy doesn’t necessarily make it go away.
I warn you of this because, although the federal requirements are not necessarily in effect until 2012, you have to begin gathering the 1099s in 2011 to get used to the requirements and make a 2012 filing. This is a good time to check with your accountant and understand the specific requirements in your state and under the federal law.
Also discuss with your tax advisor the sales-tax issue and how your state commissioner may be interpreting the law as it pertains to sales-taxable events. Make sure you have all the necessary paperwork in place before you make your 2011/2012 tax filings.
Lets hope the Supreme Court repeals the HC Bill as this 1099 requirement will fall with it since the HC bill has no severability clause. Dec. 16th, the federal judge in Pensacola, Fla. decides on behalf of the states whether this can proceed to the SC. He is a Reagan appointee so we do have hope. He can slap an injunction on the bills enforcement until it is decided in the SC but I think the injunction will only affect Florida.
My guess; at least until late 2013.
There is no chance that the new congress can succeed in repealing this mess. Reed’s senate will never pass a repeal bill and even if it did Obama would veto the bill.
Our best bet is to leave the bills unfunded. But even if the 2011 congress does not appropriate funds to implement the Obama Attack on America Bills we will still have to comply with the laws’ tax provisions incorporated in those laws.
[we will still have to comply with the laws’ tax provisions incorporated in those laws. ]
No one will be able to fully comply with the 1099 law, it is very nebulous when you think about it.
Let’s hugely expand the scope, reach and cost of government. I mean, what could go wrong?
Cutting funding for the law also cuts "official" funding for the enforcement. Now that won't stop some of his goons trying to on their own accords but that is what law suits are for.
First time I've seen that stipulated. My business (storefront combined with online retail) isn't involved in any way with health care, we're too small to be required by this new law as far as I've seen.
Assuming the worst however, that we're still required to report on customers and suppliers, I keep wondering if the mountains of paperwork won't force this 1099 requirement to go paperless. If the new congress could sneak in a provision that 1099's could be automatically generated with as much information as the retailer has collected at the point of sale, I think we could provide so much garbage information that no system could ever possibly sort it all out.
Just imagine every single sale from every business being emailed as a 1099 every time. I think we could overwhelm both the internet and the government to the point where they'd beg us to stop.
Mandarins worked hard: 10-day work weeks and work days that often started at 5:00am. They oversaw the regulation of trade, managed the money supply, maintained security in the provinces, and settled legal disputes. Mandarins were well rewarded for their work. They enjoyed lavished banquets several times a week and often lived in luxurious homes with their own concubines and entertainers.
Better yet how about mass civil disobedience? Everyone just refuse to comply...tell Timmy and his apparatchiks to pound sand...
We should refer to this as “1099 Democrat economic stimulus plan for accountants.”
And it's working so well, isn't it!
ML/NJ
In real life Texas, there are several hundred taxing jurisdictions that I used to file sales tax reporting.
Each county (254), each city (over 10k), each mass transit, each "special use" sales tax (Jerryworld, etc). I simply dropped selling anything that required a quarterly sales tax report.
Multiply that number by 50 states and their counties and cities, and it becomes a real nightmare.
Or an accounting firms' dream.
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