Contirbuted by Thomas J. Kent, Jr.
"Let me tell you how it will be, there’s one for you, nineteen for me, cause I’m the taxman…"
It’s a tune written by the Beatles’ George Harrison in 1966, but soon franchise owners across the United States may be singing along. Why? Tucked away in Section 9006 of the "Patient Protection and Affordable Care Act" is a requirement that all businesses file a form 1099 with the Internal Revenue Service and furnish taxpayer identification numbers for every vendor involved in a business-to-business transaction or series of transactions that exceed $600 in a year. Section 9006, scheduled to take effect in 2012, will require the reporting of virtually every business-to-business transaction in the United States to the Internal Revenue Service. Further, if a business owner is unable to collect a vendor’s taxpayer identification number, the business is required to withhold the taxes payable to the IRS, in effect becoming the "taxman."
The rationale for Section 9006 is that it will increase tax payment compliance and reduce the "tax gap," the difference between the amount of taxes that are owed and the amount of taxes that are paid. However, advocates for small business throughout the country have lined up in opposition to Section 9006. Many fear that in addition to the new reporting and withholding requirements, Section 9006 may present significant obstacles for small business, including franchises. For example, Section 9006 may deter companies from transacting business with small business owners as companies will look to consolidate their transactions with large providers of goods and services in order to avoid the filing of countless forms with the Internal Revenue Service. Additionally, compliance with Section 9006 will be an expensive and time consuming exercise.
In response to the broad opposition to Section 9006, Senator Mike Johanns and Representative Dan Lungren have introduced the Small Business Paperwork Mandate Elimination Act. If passed, the legislation will repeal Section 9006 of the new healthcare law. On September 14, 2010, attempts to invoke cloture on the Senate version of the Small Business Paperwork Mandate Elimination Act (S. 3578) failed. However, this legislation is certain to resurface as business owners become more educated about the practical impact of Section 9006. While most agree that the tax gap should be addressed, the franchise community appears united against passing this burden to Main Street. Both the United States Chamber of Commerce and the International Franchise Association have voiced their strong support for the Small Business Paperwork Mandate Elimination Act.
Fox Rothschild LLP will continue to monitor this legislation and provide updates once Congress reconvenes. Interestingly, in a recent interview with National Public Radio, Speaker Nancy Pelosi indicated that she strongly "agrees that [Section 9006] must go", and promised to bring the repeal issue to a vote in the House of Representatives during the upcoming lame duck session. Given the strong opposition to Section 9006, it sounds like Congress might actually give smaller business owners an early holiday present.