Posted on 08/03/2005 4:51:43 PM PDT by RobFromGa
Dear pigdog,
"In fact, its more likely that you will not have increased compliance costs."
Have you ever actually owned and managed a small business, with, say, 15 or 20 employees??
See, my compliance costs right now total maybe a few thousand dollars per year. Total. On a seven-figure revenue per year business. It would be hard for my compliance costs to fall further, and frankly, even if they went to zero, I wouldn't be saving much, at all. A couple of dinners a month at a nice restaurant. That's it. If my compliance costs were entirely zeroed out.
Regrettably, my compliance costs would skyrocket. It would likely drive me out of business. Maybe I'll go on welfare. Heh, heh. If the govt is going to screw me with a so-called "fair tax," I'll fire all my workers and let the govt support me.
Most of my business would be non-taxable.
But all of my business is non-taxable, now.
Because we provide only services, there are no real compliance issues. Services aren't taxed in my state or in the surrounding jurisdictions. So, the state isn't suspicious that I'm avoiding the sales tax on what I'm selling (or, more properly, not reporting the sales tax due from my clients).
But under the new law, I will first have to distinguish between my clients (compliance cost), second, collect the tax from the few who do have to pay tax (compliance cost), document each client by type (compliance cost), and send in the money periodically (compliance cost).
Furthermore, because the amount of taxes I remit will be rather low in comparison to my overall revenues, the software that looks for non-compliance will flag my account, and I will be routinely audited (* really big compliance cost *). Perhaps as much as 98% or 99% of my business would be exempt. My business is in seven figures. If the IRS could demonstrate that I was cheating on what was exempt, at a sales tax rate of 30% (sheesh!), they'd be looking at potentially recovering hundreds of thousand dollars.
AFTER they audit me, they'll figure out that it's all legit. But BEFORE they audit me, I'll look like a big, fat, juicy target. I WILL be flagged. ANY business that reports seven figures of revenue and three or four figures of collected taxes will be flagged. At least for the first ten years or so, until the IRS software figures out appropriate industry patterns for the new so-called "fair tax."
As well, I don't know if you've ever had to tangle with the IRS. I have. Once they think they might get a few bucks out of you, it's hard to persuade them of your innocence. Once, they thought I owed 'em $11K. I showed them the canceled check for the payment. They even showed on their own records that I had an unexplained credit in another account for $11K. I said, well, gee, do you think you just filed my payment under the wrong accounting code, and thought I didn't make the $11K payment that I actually made? Well, we can't be too sure of that, came the answer. Six years later, and a couple of thousand dollars of accountant fees later, the IRS finally figured out I was right and they were wrong.
"The FairTax won't help with workers comp but unemployment insurance may or may not be helped depending - can't say."
I can. FUTA (federal unemployment) isn't a tax, it's an insurance program. Won't get covered by the so-called "fair tax." So, I have to document everyone's wages to the government, and then, I have to document who is a subcontractor and who is a W-2 employee (I do this now, so it isn't an added compliance cost, but it is a compliance cost that wouldn't go away.). On the other hand, even if it were, I'd still have to comply at the state level (the state also charges me unemployment tax), in that the so-called "fair tax" has nothing to do with state taxation and mandatory insurance programs.
"As far as purchasing untaxed goods that would be aseily handled by your having a sales tax exemption certificate - which many state now make regular use of. Once you're on file with a given supplier, it's a very simple thing."
Ah, but this is another thing on which to be audited. You see, if they want to audit me now for my use of my sales tax exemption certificate, they can't. I don't have one, and so, I don't use one. No compliance cost to me at all. No auditing, no documenting what I buy and why to tell the state of Maryland whether I was entitled to buy the item tax-free.
But if I'm forced to use a sales tax exemption, then all of the sudden, I'm committing an activity where the state (and the feds, now) will wonder, "Is that for business or not?" And all of the sudden, I have one more compliance issue. Currently, I have to account for my expenses at a federal level, but with the so-called "fair tax," the state has one more reason to audit me, too (remember that the plan is to use state agencies to run much of the collection, and likely, first line auditing, of the so-called "fair tax.").
"And yes, wages would be reported to the SSA which is required for purposes of the exissting laws govering that entitlement. That would be a good bit less onerous than the payroll reporting, etc. rigamarole that you now go through and there would be no payment for that required - reporting only which is much less of a burden."
Baloney. I don't go through much rigmarole, now. And the little bit I do isn't going to decline by much at all. My payroll tax compliance costs come to less than a thousand dollars per year. But with the so-called "fair tax," the reporting will be pretty much the same, anyway.
The only thing I won't have to do is to take out withholding for federal income and payroll taxes. Big deal. I'm still going to need to pay ADP to do the income reporting, to withhold state taxes across jurisdictions (and sometimes local taxes, as well), to withhold employee-side of various insurance costs, cafeteria plan items, child support (you'd be surprised how many folks in the world have child support orders of garnishment of wages), automatic deposit, etc., etc., etc. So, I won't have to pay ADP 50 cents per month to calculate federal income tax withholding.
And frankly, it isn't as if the payroll stuff is that onerous. We call in wages each pay period. We'd have to do that anyway. We pay ADP about $80 per month to take care of the rest of it, including all federal and state reports and everything. That's less than a thousand dollars per year. Maybe I'll save ten bucks a year because ADP won't have to handle federal income and payroll tax withholding.
"I honestly believe you are frightening yourself unnecessarily and having a sales tax exemption is not a huge bureaucratic thing but quite simple."
I've had sales and use tax licenses before. They are a pain in the a$$. They require monthly or quarterly reporting (depending on amounts owed). When, like me, you collect very little or no taxable revenue, they are easy to forget (compliance cost of fines) or mess up.
I've been audited for them, before. The audits are very intrusive and require having to produce, at random, small items of documentation that can reach back up to seven years.
"And it is very unlikely you'r be greatly pestered with continual audits or with ridiculous requests to prove this or that."
Sorry, been there, done that. I haven't had CONTINUAL audits, only because the first couple produced so little revenue for the revenooers. They found, out of millions of dollars of transactions over a period of a number of years, that I couldn't verify that I didn't owe sales tax on a few thousand dollars worth of stuff. I had to pay them a few hundred dollars in use tax for the unverified stuff.
But my accounting fees (compliance costs, remember them??) were well into four figures. That was over a pittance. Imagine how much of a pain they'll be when they think there might be hundreds of thousands of dollars of unpaid taxes. Yikes!
"Some realism needs to enter into this in your mind. After all, how often has the IRS audited you?"
I have tangled with IRS on occassion over the last twenty years, and do what I can to minimize the possibility. There are deductions I just don't take because they raise red flags. That's money I'm giving away to the damned govt. But the compliance costs involved in being audited outweigh the tax savings.
With the so-called "fair tax," my entire business becomes a red flag.
And there are virtually no compliance costs that would go away for me.
Thanks, but no thanks.
sitetest
If a business overlooks credits for personal to business conversions of 23% of market value of the assets or supplies so converted, as you imply with in suggesting that such will be treated like rebates that individuals fail to collect, then I would suggest you are far of the mark for any business that expects to stay solvent for long.
The nature of business is its accounting, that is inescapable. Most states have sales taxes, a federal sales taxes collected in parallel with a state sales tax does not increase compliance costs, especially when federal income and payroll tax systems are repealed as in the case of the FairTax legsilation.
Again (as I understand it) say the number is 18% on each truck...now lets also say that only 8% actually gets TO the government.
It means along the way there was 10% tax that was "lost"...The person in question pays 18% but only 8% goes to the government sheerly because the system is THAT inefficient.
The imbedded tax method if looked at independently is a completely inefficient model of taxation.
So, in essence (and these numbers are for illustrative purposes only) it would be better to just pay the govt 8% sales tax and mail them a check directly than it would to have an 18% tax imbedded into the price.
I am not talking about collecting sales tax for the hundredth time, I am talking about paying sales tax on business expenses incurred in the pursuit of doing business and how I will either pay or not pay the NRST on these purchases and, if I am forced to pay, how I will get the money back.
My point was that if the retail gestapo were to decide that they didn't want to accept my "Get out of Fair Tax Free" card, then it might not be worth the hassle to fill out the forms in triplicate listing the transactions to get my $3.42 back from the state. Time has value, which I thought was the organizing premise behind NRST-- to get rid of the wasted time of compliance.
People abuse food stamps too...
But none the less if the drug dealer gets a $500 rebate or whatever the number is...so be it. If he buys $30,000 worth of goods over the year then he is able to do so and I don't have a problem with it. Why don't I have a problem with it? Because just by virtue of him spending his drug money he will be FORCED to contribute into the tax system. Unlike now.
Simply put if he spends money he will more than make up for the rebate he will be recieving.
Actually Nightie, it's NOT a point of contention at all. You SQL trolls are the only ones I know trying to claim that and we now find out (as one of the FairTax supporters noted previously) that you only allow certain sources of which you approve - sort of a Nightie rules rule, eh???If it's not a point of contention than you should be able to find lots of sources that back up the claim. Let's see them.
Dear wardaddy,
"i can remember when folks thought a 9-11% national sales tax would suffice 25 years ago.. "
I remember that, too.
Your post indirectly points at the real problem. It isn't the income tax. It isn't really even the income tax code.
It's that the federal government controls 20% of the GDP.
We can fiddle with the tax code all day long. We can chuck it out, if we want. We can have a national sales tax.
But the government wants 20% of GDP, and that means we all gotta give until it hurts. And because that means that no matter the type of tax, the rate must be high, folks will maneuver to reduce their burden, legally, and illegally.
Anybody who doesn't think the special interests won't be lining up for exemptions is naive.
Anybody who doesn't think there will be massive avoidance is naive.
And anybody who doesn't think that the government will have to spend large sums of money enforcing compliance, and that business will have to spend large sums of money complying, is very, very naive.
Cut the size of the honey pot, and the number of flies (and worse critters) flying around for their fair share of the honey will decline naturally.
sitetest
>>>If you're a businessman and so lazy as to let a dollar escape from you that way
>>Do you stop to pick up a penny that you see across the street? Or are you too "lazy"?
I'll pick up any penny I can see. I've found some rather valuable collector's items that way.
I certainly won't pass up claiming a tax credit as a business for personal property converted to business use when that is of the total paid for it.
If he gets $500 back or whatever it may be...we still get to keep $2500.
Thats $2500 more than the government had before or would have gotten otherwise.
Illegal means or not, if he spends it its taxed. Thats not condoning drug dealing by any means though. But it certainly would result in taxing it.
I am NOT for the so called "fair tax" plan. What we will have is a national sales tax AND an income tax even if not, at first, we do not. The ONLY way to have this "fair tax" is to get rid of the 16th amendment FIRST. Otherwise, we will just be ADDING a tax not REPLACING one.
Is that what you guys want, ADDING a national sales tax to our already overburdned tax system?
Another excellent post that is in agremment with my experience.
Thanks.
OH absolutely.
I am not talking about collecting sales tax for the hundredth time, I am talking about paying sales tax on business expenses incurred in the pursuit of doing business
And so am I it is called conversion of personal property to business use and states provide credits to business for sales taxes paid on items on purchase by individuals put to use in there business. The FairTax act provides for that in a clean manner by providing for credits for any such purchase by a business through its operations.
My point was that if the retail gestapo were to decide that they didn't want to accept my "Get out of Fair Tax Free" card,
What retail gestopo? All retailers are required to provide a receipt that details the sales tax paid. That is all that is required to recaim the NRST on anything purchased in the conduct of legitimate business activities.
then it might not be worth the hassle to fill out the forms in triplicate listing the transactions to get my $3.42 back from the state.
You do do normal accounting practices in your business do you not? Accumulate the results of such exependitures and the credit is applied for on the same returns that are used to remit sales taxes collected by retailers. The receipt is the paper trail necessary for state tax administrators to assure proper compliance.
In the businesses I have operated I have always required my employees to provide the receipts for their expenditures on the business's behalf for proper re-imbursement. Normal accounting would provide the information necessary for recouping any federal sales tax collected on such expenditures.
Time has value, which I thought was the organizing premise behind NRST-- to get rid of the wasted time of compliance.
Lets see, wasted time compliance removed, reduction of number of tax filers from 115 million filing federal income & payroll and state sales tax returns to approximately 20 million engaged filing state sales tax returns. Looks to me to be a considerable reduction. Sorry don't see your room for complaint.
Businesses would pay the tax on some services, where before they were a deduction for taxes. But, businesses won't pay tax on those services under the Fair Tax.
Oh, no. I was just giving it back to him.
Excuse me for saying "your numbers", genius. I should have said "the way you arer using those numbers". And you totally missed the point of my post and repeated your stupid position again.
Smarter
Well unless he wants to break the labor laws he better at least do A.
C'mon in. The water's fine.
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