President Obama’s Health Care Reform Act has been attacked for expanding the Form 1099 reporting requirement for payments made by businesses. Under the new law, payments made to corporations and payments for merchandise exceeding $600 will all have to be reported. Corporations have pressured Democrats and Republicans to repeal this portion of the HCRA. Democrats who support repeal will deprive cash-starved state governments billions in taxes that corporations and other businesses routinely – and illegally – do not pay.
Democrats should step back and support the president's law change (for reasons below the fold).
Companies are required to collect sales tax and pay income tax in states where their activities exceed mere solicitation for sales of tangible property. But without a reporting requirement, companies are pretty much on the honor system to report whatever sales they make on their sales tax returns and pay tax on whatever income they earn. In other words, states are are at the mercy of corporations and businesses to report sales they make and income they earn in states.
Sure, states employ auditors and have routine checks of computer and payroll data, but nothing will be as conducive to honest tax reporting of sales and income tax data than President Obama’s ingenious Form 1099 reporting requirement.
As explained by this article, the Form 1099 reporting requirement will leave companies "nowhere to hide" when it comes to their requirement to pay taxes they’re legally required to pay. State auditors will walk into audits knowing upfront exactly how much companies have sold in their state. They'll be able to collect back sales taxes and be able to figure out whether the corporation making the sales there should have been filing income tax returns.
I expect the new HCRA law championed by President Obama will yield literally billions of dollars in "found money" to states that are now struggling under deficits as companies rush to pony up taxes they've successfully dodged before (and maybe even taxes that have gone unpaid for years.) States that develop "Tax Amnesty" programs tied to the new Form 1099 filing deadline in 2012 could be looking at HUGE revenue windfalls as companies jockey to pay up for their past illegal transgressions.
Companies that object to the reporting requirement say that its "too much work" and "too much regulation". But I’ve filed Forms 1099 for a major corporation and for a small corporation. The REAL work comes from the prior law requirement to EXCLUDE (a.) payments to corporations; and (b.) payments for merchandise or tangible property.
Yes, the HCRA will require me to file MORE forms, but from now on, I’ll simply go through my vendor list and select ALL payees (corporations, LLC’s, individuals, partnerships) to which my company paid more than $600 and I’m done. No fuss; no muss; no trouble. A computer program and printer can spit out the forms in 20 minutes; or, I can outsource them to a contractor (as we do anyway.)
What’s more, I’ll be able to highlight problem vendors by their Taxpayer Identification Number. Contractors who don’t do good work routinely change their names or their D/B/A name. But with the new law, they’ll all have to supply me with Taxpayer Identification Numbers. I’ll be able to keep a side list of problem vendors sorted by Tax ID Number so that I can flag bad vendors to the purchasing department BEFORE we make payment to them.
President Obama should be congratulated – not condemned – for closing this long-standing loophole that has allowed billions of dollars of taxes to go uncollected.
If real small businesses --- say those with less than $250,000 in sales --- can't do this by 2012, they should get a break. Maybe the IRS can give them a break for a year or two. But for most businesses, the whole "too much work" argument is probably a just canard to avoid paying their fair share of taxes in states where they do business but don't file tax returns.
And Democrats should stand by him and not be beholden to their corporate contributor base in making -- or repealing -- laws!