[Senate Hearing 114-678] [From the U.S. Government Publishing Office] S. Hrg. 114-678 REDUCING THE FEDERAL TAX BURDEN FOR AMERICA'S SMALL BUSINESSES ======================================================================= FIELD HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP UNITED STATES SENATE ONE HUNDRED FOURTEENTH CONGRESS FIRST SESSION __________ MAY 4, 2015 __________ Printed for the Committee on Small Business and Entrepreneurship [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.fdsys.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 25-886 PDF WASHINGTON : 2017 ---------------------------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Publishing Office, http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-mail, [email protected]. COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP ONE HUNDRED FOURTEENTH CONGRESS ---------- DAVID VITTER, Louisiana, Chairman JEANNE SHAHEEN, New Hampshire, Ranking Member JAMES E. RISCH, Idaho MARIA CANTWELL, Washington MARCO RUBIO, Florida BENJAMIN L. CARDIN, Maryland RAND PAUL, Kentucky HEIDI HEITKAMP, North Dakota TIM SCOTT, South Carolina EDWARD J. MARKEY, Massachusetts DEB FISCHER, Nebraska CORY A. BOOKER, New Jersey CORY GARDNER, Colorado CHRISTOPHER A. COONS, Delaware JONI ERNST, Iowa MAZIE K. HIRONO, Hawaii KELLY AYOTTE, New Hampshire GARY C. PETERS, Michigan MICHAEL B. ENZI, Wyoming Zak Baig, Republican Staff Director Ann Jacobs, Democratic Staff Director C O N T E N T S ---------- Opening Statements Page Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana.. 1 Witnesses May, Margot, Owner, Inspired Media, Denham Springs, LA........... 3 Urdiales, Jim, Owner, Mestizo Restaurant, Baton Rouge, LA........ 7 Forbes, Candy, Vice President/Sales Manager, Denham Springs Housing, Denham Springs, LA.................................... 11 Gitz, Ron, Executive Director, Society of Louisiana CPAs, Kenner, LA............................................................. 16 Alphabetical Listing Forbes, Candy Testimony.................................................... 11 Prepared statement........................................... 13 Gitz, Ron Testimony.................................................... 16 Prepared statement........................................... 19 May, Margot Testimony.................................................... 3 Prepared statement........................................... 5 Urdiales, Jim Testimony.................................................... 7 Prepared statement........................................... 9 Vitter, Hon. David Opening statement............................................ 1 Prepared statement........................................... 42 REDUCING THE FEDERAL TAX BURDEN FOR AMERICA'S SMALL BUSINESSES ---------- MONDAY, MAY 4, 2015 Livingston Parish Council Chamber, Livingston, LA The Committee met, pursuant to notice, at 8:30 a.m., at the Livingston Parish Council Chamber, 20356 Government Blvd., Livingston, LA, Hon. David Vitter, Chairman of the Committee, presiding. Present: Senator Vitter. OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S. SENATOR FROM LOUISIANA Chairman Vitter. Good morning, everybody. If I can ask everyone to take a seat, we are going to go ahead and get started. Well, good morning welcome to our Town Hall Meeting and Field Hearing of the U.S. Senate's Committee on Small Business and Entrepreneurship. The topic of our Field Hearing today is ``Reducing the Federal Tax Burden for America's Small Businesses.'' An organization, a leading small business organization, NFIB, surveyed small business and they asked a very direct question, ``What's the greatest burden on your small business when it comes to taxes, the check you actually write out for taxes or all of the work you need to do to comply with the very complicated Federal law, the administrative burden?'' A majority, actually 53 percent, said the bigger burden was the administrative burden. I mean, don't get me wrong, I'm sure none of them liked the check they have to write out, but a majority said the even bigger burden was figuring out a very complicated tax code and complying with that and all of the costs that go along with that. And that tax compliance burden had grown enormously over time. This is a simple chart of the number of pages of the Federal Tax Code. And you can reasonably say the bigger the code, the more complicated it is, the bigger the Federal burden. And so look what that has done over time since it was first instituted around 1912 and it's just gone through the roof. Right now that Federal Tax Code is over 70,000 pages. Another way to look at the tax compliance burden, 40 percent of small businesses spend over 80 man-hours a year on compliance, just figuring out, making sure they follow the rules. Then 25 percent actually spend more than 120 man- or woman-hours every year. One in three small businesses spend more than $10,000 on, again, figuring out the rules. We are not talking about the bill they write to the IRS, we are just talking about figuring things out and over half spend over $5,000. For very small businesses, that's a big burden. Now, what solutions do we bring to bear? I have been reaching out, talking to a lot of Louisiana small businesses and other small businesses asking besides fundamental simplicity, what are some of the specific provisions you want to see? Don't want to get into the weeds, but these are what we have been hearing about: Permanently extending expensing, Section 179. This is an example of a perennial problem. We have some good provisions of the code, but they are very short-term. They are temporary. Now they are almost always extended, but that creates great uncertainty for small business. Increasing the limit for cash-basis accounting; eliminating burdensome record-keeping requirements, particularly for business computer equipment; simplifying complex rules regarding retirement accounts; and requiring the IRS to consult with small business representatives before passing new rules on small business. So we are taking these specific ideas and we are putting them in a small business tax reform bill. Now this isn't going to be every good idea out there for fundamentally simplifying the tax code. It's not going to be, you know, all of the tax reform that we need. It's going to be focused on small business relief and I'm drafting that bill now with the help of other members. We are going to be introducing that small business tax reform bill in the next few weeks and then hearing it and marking it up in the Small Business Committee and going from there. We are going to move on to our panel because I want to give them plenty of time for their testimony and to discuss things with them. We have a great small business panel today to talk about our topic. Let me introduce all four of them and then we will hear from each in turn in the order that I have introduced them. First is Margot May. Margot is the owner of Inspired Media, which specializes in print publications for selected niche markets. It publishes the Livingston Business Journal, a monthly news magazine. Margot has served as a graphic designer and head of marketing for the Journal since 2006. And May and her colleague, Helen Turner, formed Inspired Media and acquired and became publishers of the Journal in May 2014. Margot is a member of several organizations, including LEDC, and the local BNI chapter of the Livingston Leaders. Jim Urdiales has been the owner of Mestizo Louisiana Mexican Restaurant in Baton Rouge for the past 16 years. He's a third-generation restaurateur and has been involved with the Louisiana Restaurant Association since 1999, serving as Baton Rouge chapter president in 2006, and on executive board until 2013. Candy Forbes is the president of Denham Springs Housing in Denham Springs. She is also the owner of Superior Communities, LLC. Candy has over 22 years experience in sales and finance and she is a Licensed Property and Casualty Insurance Agent. She's been a board member of the Louisiana Manufactured Housing Association since 2006. And Ron Gitz serves as the Executive Director of the Society of Louisiana CPAs, which represents more than 6300 Certified Public Accountants across Louisiana. Mr. Gitz is a CPA as well as a charter global management accountant. And he also manages a state government relations program of the Louisiana CPA organization. Welcome to all of you and I know you all have five-minute presentations and then we will have some discussion. We will get started with Margot. MARGOT MAY, OWNER, INSPIRED MEDIA, DENHAM SPRINGS, LA Ms. May. Thank you very much. As he said, my name is Margot May. I'm also very active in the Livingston Parish Chamber of Commerce and have been a board member for years. I'm a part owner of Inspired Media, which publishes the Livingston Business Journal. As a publishing company, we are in a position different than most other small businesses because publications are not subject to sales tax laws and we do not have inventory to which we pay taxes. So our primary tax affects us in the income tax. We have found it necessary to retain a CPA to help us with tax planning, and keep abreast of the ever-changing income tax laws, particularly the complicated laws and regulations pertaining to business expense deductions. Tax planning for a small business is complicated by the fact that not only do the laws change almost every year, but new laws and extensions of expiring tax laws often not written until late in the year, sometimes in December, and are then published with a retroactive effective date of January 1st. This sometimes greatly affects the planning and budgeting of our business, which is done in good faith and paid our CPA for, but is no longer applicable under these new laws. Tax incentives which were previously in effect were allowed to expire in 2014 and may not be reinstated by the end of 2015. But because it's unknown, businesses have to have a Plan A and a Plan B to try to anticipate if they should or should not buy equipment or otherwise invest in the business and wonder if they will have enough funds to pay their tax bills if the laws turn out to be something completely different. Our CPA has related to us that it's further complicating the situation that the IRS agents don't even know their own laws sometimes. You can speak to one agent one time and get an answer, and speak to another agent another time and get a completely different answer on the same issue. And if you can even reach an agent because of the long phone hold times. Many times you're required to search their website and try to interpret the regulations on your own or e-mail or write your IRS and wait and wait for a reply. As a publisher, we are also in a position where we talk to our clients each month and we work with them on advertising budgets. We see from them the difficulty that many of them have being able to budget their money because they are paying so much in taxes and it limits their available funds. They are spending so many hours of their available time filling out paperwork to comply with Federal taxes and other workplace regulations which take precious time that could be spent on their business and often cost them extra money to consult an advisor. If they can even afford one. If a business makes a mistake, or interprets their regulations differently from the IRS, penalties can be very severe. Instead of making complicated laws and then slapping hard-working businesses with penalties, they should put more time and effort into simplifying these laws and providing assistance to businesses up front so they can comply, as most business owners want to do up front. The tax burden is stressful for small business owners because it's difficult to understand the tax laws and expensive to hire an accountant to help you. But the biggest burden is not knowing what the tax law is going to be the next year. Furthermore, most business laws aren't even written in the benefit for that small business. We would like to see a tax code for small businesses simplified, laws written well in advance to the applicable tax year to make it permanent so possibly business owners and accountants and their own IRS agents can help to understand and plan properly for the following and upcoming years. We would also like to see penalty reform to give businesses a break when they have tried in good faith to comply with these complicated laws. Thank you for this opportunity, Senator, to share my thoughts on the tax burden of small businesses today. [The prepared statement of Ms. May follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Vitter. Thank you very much, Margot. And now, Margot, you will be followed by Jim. Jim, welcome. JIM URDIALES, OWNER, MESTIZO RESTAURANT, BATON ROUGE, LA Mr. Urdiales. Thank you. Actually I have to concur with Margot with everything you said because that was part of my journey in the first few years, too. Probably had the same burdens as well. Thank you, Senator Vitter, for taking the time to understand some of the issues of small businesses today. I've owned and operated my own restaurant for over 16 years and there's many issues that we faced throughout this tenure. The first one that's been interesting that a lot of people don't understand is the effect that the Farm bill had for corn growers for ethanol. Now although there's a drought in California that has dramatically affected beef prices, that bill in particular has probably risen beef prices fourfold in just the last five years. And even your average family has seen the prices at the grocery stores increase. But in case you're wondering why you've seen beef prices rise in restaurants, that's the one main thing. As a restaurant owner, when I started, you know, you were lucky if you were operating with a 10 percent margin on a plate of food and right now most restaurants, even fast food, are operating with probably less than 2 percent margin of profit on food because of the increase. And you have got to realize everything that comes from the cow, whether it's the beef, cheese, or sour cream has all risen because of this subsidy. The second topic is the Earned Tax Tip Credit, which is something I have been to your office in DC and we have lobbied quite a bit before. It was a compromise, I think Senator Breaux initiated before he left, but basically, what we do is the restaurants, the tip reporting is put on the restaurant owners now and no longer on the servers. And so what happens is we actually pay a payroll tax on their tips. So there's a discussion, you know, even when people talk about minimum wage increases, you know, there's always the discussion of servers only making 2.13 an hour, but in essence when they calculate their tips in a restaurant like mine, they probably average between 25 and $30 an hour. But what happens is like for a weekly payroll of about 4,000, which is what my small restaurant runs, my weekly payroll tax 940 runs about 2,000 close to 2,000. So basically we overpay and then we get back a credit at the end of the year. In some ways it's really great, but there's a margin between that 2.13 and 7.25, which is minimum wage, that that money is not given back. So basically you're basically overpaying for the tax period and that's something that a lot of full service restaurants have to deal with. And you know, even this year, there was the beginning of some changes with automatic gratuities which most restaurants have moved away from now because it's a whole other level of taxation that the burden is put on restaurant owners. The third topic is, again, the Affordable Care Act and I always bring this up that I have 19 employees, but the 25 suppliers that I buy from have over 50 employees and they have seen their prices increase. So another thing that's just important for people to know, because that is part of what all restaurants have been going through, is that everything that comes through our doors has risen in the last two years because basically the Affordable Care Act is a tax that affected all small businesses and they have to push it down. Something as simple as Coca Cola, I mean, every year it does probably about a dollar or two increase on their boxes of soda. This year, it was five like 5.20, which is probably the biggest increase I have seen them push on a business in one year. And then, of course, just the plan that I have for my business is three employees with, you know, some dependents. And I remember when I went back and looked at the fact that in 2010, it was $1,100 for three people and right now I'm currently at 2,500. So it's one of those things that is a burden every year that I have to sit there and analyze. It's just a lot of these things are bigger regulations on the Federal level that affect the small guys. I think it's also always important to remember that restaurants are part of the hospitality industry. One in ten jobs in our country is affected by this. So through the restaurant association, NFIB, we have always been trying to champion for the smaller guys, as well as the multi-level units. So again, thank you for listening and taking time. [The prepared statement of Mr. Urdiales follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Vitter. Thank you, Jim, for being here, very much and what you do in our economy. Next we will hear from Candy Forbes. Candy, welcome. CANDY FORBES, VICE PRESIDENT/SALES MANAGER, DENHAM SPRINGS HOUSING, DENHAM SPRINGS, LA Ms. Forbes. Today I'm here to represent the Livingston Parish Chamber of Commerce. In the audience with me today is the CEO of the Chamber, April Wehrs, and the co-chair of the Legislative Committee for the Chamber, Mr. John Blount, President of Blount General Contractors, a commercial and residential contracting firm. The Chamber represents over 500 local businesses within the parish and the majority of those businesses would be characterized as small business owners like myself. I'm the president of Denham Springs Housing. It's a small family-owned and operated manufactured housing dealership in Denham Springs and we have been in business for over 30 years. We employ eight full-time employees and over 12 separate subcontractors at our business. Mr. Blount, who is in the audience, he employs about 25 full-time employees and numerous subcontractors and been in business 28 years. Regardless of the scope or size of our operations, both of us pretty much face a common issue and that's the complexity and cost of dealing with the Internal Revenue Service. There are three thing I'd like to touch on today. The first one is Section 179 changes that will affect the bottom line of most businesses. Very simply put, depreciation of equipment, automobiles, and other tangible business property helps to offset a company's scheduled tax burden. Big ticket purchases that business owners make help drive the economy. For example, if I decide not to purchase a large piece of equipment in 2015 due to unfavorable depreciation rules, no profit is made at the heavy equipment sales center, no taxes are paid to help support the local and State economy. If a business can't depreciate big ticket items, they will simply wait it out until the IRS rules are adjusted and they can do so unless they absolutely need it. This slows growth and it injures multiple parties. I feel like Congress is doing a disservice to American businesses whenever depreciation rules and tax code in general are used as leverage in year-end negotiations. We need a long- term solution to the problem, not a 2015 year-end retrospective fix. It's vital that Congress act to raise the depreciation limits and give businesses stability they need to make informed decisions about purchases without gambling with their taxes. That's the first thing I wanted to cover. The next thing I wanted to talk about was some of the burdensome IRS regulations, coupled with a lack of accountability on the IRS's part, lead to a lot of problems for small business owners. One local CPA that we do business with has been battling with the IRS for over six months for a client. Mr. Johnson makes on-line payments of roughly $2,000 a week for payroll taxes for his company. He's done so consistently for several years. Mr. Johnson accidentally entered $2 million instead of $2,000 into the IRS's on-line payment system. Mr. Johnson has Parkinson's disease and it makes his hands unsteady. It was the shaking hands that caused him to enter the extra zeroes on the online tax payment. He recognized the mistake as soon as he did it, he called the bank and stopped payment. He contacted his accountant and he made the $2,000 payment that he was supposed to make. The IRS then levied a $45,000 fine against Mr. Johnson's company for what was determined as dishonest form of payment. The fine was based on a percentage of the $2 million mistake rather than the $2,000 payment that he did owe. Mr. Johnson has now given his CPA a power of attorney in order to deal with the IRS by U.S. Mail because she said that's the way that it has to be done. That's how you have to deal with them. After all these months, no one has been able to fix the problem. No one at the IRS has been able to correct the problem. The CPA is so frustrated that she said that she considered contacting the Parkinson's Disease Foundation to see if she could tell his story to the public. There's a total lack of accountability on the part of the IRS in these types of situations. Fines are levied, accounts are frozen, liens are placed on assets, and all of these costs that are associated don't do anything to the IRS itself, it only hurts the small business. I would like to see Congress increase oversight through legislation and bring about consequences for IRS abuse like this. There will never be any kind of change or relief for small business owners if we are the only ones that are penalized whenever there is an issue. And in the interest of time, and because I believe Mr. Urdiales covered a couple things I wanted to talk about, I would like to thank you for allowing us to come out and speak today and I hope that the information that we provided is helpful in helping you understand the problems that we have as small business owners. Chairman Vitter. Very helpful. Thank you, Candy. Regarding that specific case you outlined, which is outrageous, please-- -- Ms. Forbes. That's a business owner right here. Chairman Vitter [continuing]. Please have them get us, my office, the details of that and we will get actively involved and we will blast through this mind-set of the IRS on this particular case. Shouldn't take that, but it often does. We work on individual cases like that all the time. So please have them--you will get our contact information before you leave. Ms. Forbes. I will. Chairman Vitter. Please have them get us the details. They will have to sign a privacy release form so we can work on it and we'll get right to work on that. Ms. Forbes. They'd probably like to sign any forms with you that would help. [The prepared statement of Ms. Forbes follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Vitter. Right. Let me make that offer to everybody here. We work on those sorts of individual cases all the time, whether it involves the IRS or other Federal agencies like the VA. If you or a family member, a neighbor, a business associate has anything like that that you need help with, call me and my office, and we will get to work on it. I think we have a handout and on that blue column on the left-hand side of the handout is all of my contact information. We have easy e-mail access on the website, and those are all of our offices, including Baton Rouge and Metairie. So please call us. Now we will hear from Ron Gitz. Ron, welcome. RON GITZ, EXECUTIVE DIRECTOR, SOCIETY OF LOUISIANA CPAS, KENNER, LA Mr. Gitz. Thank you. Thank you for being here. I know some have thanked you but I really appreciate the fact that you take time out of your very busy travel schedule to hear from the taxpayer---- Chairman Vitter. Absolutely. Mr. Gitz [continuing]. And the businesses that help this country tick. In the introduction, we represent 6,300 or so CPAs and firms in Louisiana. They represent the majority of business here. Prior to my stint as Executive Director, I come from an entrepreneurial small business background and I have been a partner in small CPA firms that represent business. And so now, we represent the firms that represent business. So I heard a lot of mention of CPAs throughout the panel here. Like Senator Vitter's offer, we also would help the CPA with this client. We do have contacts inside the IRS. I have written testimony that I'm not reading from because it's quite lengthy. It was actually testimony provided by the AICPA, which is the national organization that represents CPAs, actually, internationally. They have 400,000 members and so they are out there doing this in each and every state. The testimony that they helped me provide was actually written testimony that they gave to the Committee on Small Business, which is a U.S. House of Representatives' Committee. Ironically, that testimony was provided on April 15th and I don't know if that's just an anomaly or if it was intended. Chairman Vitter. I'm guessing the House planned it that way to make a point. Mr. Gitz. To make a point, absolutely. Pleased to hear that some of the items contained therein are part of your tax reform package that you're going to present. The document that I have is 16 pages long. It falls a little lengthy if I were to read it, outside the five minutes I'm allotted, but I did select a couple of important items from it to share with you. The goal of the CPA profession is to work with Congress to help ensure that the tax reform package follows principally good tax policy. There are ten of those principles. They are listed in that document. I will speak about one of those today, which is uncertainty, which we heard a lot about already. There are nine issues that we have identified that, you know, when you're talking about 70,000 pages of tax code, where do you start? So we have nine that we think can provide some instant relief. You referred to those in some of your opening remarks. We have heard Section 179 referred to a lot. That is one of the sunset tax provisions that dates back to President Bush's tenure as president that had a ten-year life. That ten years expired and so they have been getting annual renewals since then. As it stands now, here we are in May of 2015, and will they be renewed or not? Nobody knows. That's the uncertainty part. This is bad tax policy. That's why we are recommending that we make some of these things permanent. It's not just Section 179. There are 50-plus other provisions as well that affect various businesses in different ways. So we would like to see some permanence in those tax provisions to make them more certain. What happens is, and beyond just hearing from the panel from the business side, from the tax preparer side where CPAs are caught in the middle. What advice do you give? And so with the last couple of years, you get into the spring of the year following the tax year, and then the tax provision get renewed, for instance, 179, financial statements had to be prepared by year end, there had to have been a tax provision put into those financial statements because you can't do anything that's not enacted yet. So there's confusion in the marketplace. There's confusion with compliance, et cetera. The other problem that I heard, you know, you may argue it's a big business, but it's a small business that did it. There's an estimated payment that a CPA had to recommend to their client to make of $250,000 because Section 179 has not been renewed at that time. So you're tying up very important cash flow and business capital. Ultimately, it's great, there's a lower tax burden on the taxpayer, but to make these things permanent and allow for tax planning would certainly be awesome. The IRS services have been cut. We just heard big mention of that. There used to be the ability, there was thing called E-Services that is now gone. It happened two years ago. When I was practicing back in 2011, it worked pretty well. You signed up for E-Services and you had the ability to interact with the IRS and do some of the things described electronically. Well, funding it's been cut to the IRS. Nobody loves the IRS, right? It's the dreaded tax man. We, at the beginning of every tax season, we have a liaison meeting with the local IRS group. One of the most dramatic and, quite honestly, sad meetings that I participated in was that meeting two years ago where, you know, it's the experts in the room. It's not just CPAs, it's open to tax practitioners and the IRS representatives there. These folk, good, good American citizens that have dedicated their career to government service on the IRS side and are experts that have their hands tied, literally. The frustration in the room, mutual respect, because these are the experts on both sides of the tax equation. Their services have been just cut to the point where they can't function. So to wrap up, to make the point a little clearer, I was at the AICPA Board meeting two weeks ago, there's this new thing that the IRS has come out with a new term called ``the courtesy disconnect.'' So after you have been on the phone for two hours, there's a courtesy disconnect. Chairman Vitter. How courteous is that? Mr. Gitz. It's like the mercy rule, the home run mercy rule in baseball. What happens is, to make it even more dramatic, the IRS can now claim that at their call center, there are no calls longer than two hours. Chairman Vitter. What a great way to meet that goal. Disconnect. Mr. Gitz. I will leave you with that. Thank you for letting me be here. [The prepared statement of Mr. Gitz follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Vitter. Thanks, Ron. Very compelling. Thanks to all of you for your very direct, real world testimony. Candy, we heard from you about this outrageous example of IRS abuse not correcting a clear, simple mistake that was immediately identified by the taxpayer. To me, that's part of a broader ``gotcha mentality,'' the way the IRS deal with a lot of individuals and small business. Do any of you all have personal experience that would sort of be examples of that sort of gotcha mentality? Ms. Forbes. I'm going to find some wood up here to knock on. Personally, I personally, I do not have any experience with any of those types of issues. Now I hear a lot of stories from our CPAs, but we have been fortunate enough to have a good solid relationship with our current CPA firm for a long time and we have been able to--find some more wood--avoid those types of problems. Chairman Vitter. Anybody else? Mr. Urdiales. I will say that same thing. I've been very lucky to have a good CPA to assist on some of the issues we have to deal with. Chairman Vitter. We have also been talking a lot about compliance costs, not just the cost of the tax bill, but the cost of compliance. Jim, let's take your restaurant business as an example. How would you describe and estimate the compliance costs, not the check you write for the tax liability, but dealing with figuring out what that check has to be. Mr. Urdiales. That, again, goes back to, you know, with the Earned Tax Tip Credit that we use, we are basically paying double each week. And so, you know, it covers my tax bill for the restaurant, but again you're tying up extra cash flow each week just to do that. But it's because of the extra tip reporting that we have to do for tips on servers. So there's a lot of issues, whether it's minimum wage, you know, that affect us, and it's--we are all operating on a smaller margin than we used to. And so it's one of those things where at the end of the year--not even at the end of the year, this is monthly. I'm sitting there looking at the margins of what we have, what we need to adjust, you know, just to keep on going. You know, it's definitely--and all my costs have risen, but again like I said, the--it used to go from a quarterly to now it's weekly, just to stay abreast of it. Chairman Vitter. And related to something you mentioned, because I don't understand the details of this, so let me ask you to explain. I think you suggested that restaurants that have any sort of automatic tip put on the bill face a higher burden or tax liability. Why don't you explain that? Mr. Urdiales. There was a new rule that went into effect January of this year that basically said that any automatic gratuities added, for instance, if you go in the service industry, like if you have a party of eight or more, they used to sometimes put an automatic tip. Well it's no longer a tip, it's now considered wages so what happens, it goes on to the revenue side of the business, and so we pay taxes and then you disburse. So basically it's a double taxation. It's moving that automatic tip to two different zones to get your tip twice. Chairman Vitter. So it's clearly increasing your tax burden? Mr. Urdiales. Correct. Chairman Vitter. But even if under that practice, which at least used to be very common for large parties, even if that were done, that would represent tip that would go directly to the employee, correct? Mr. Urdiales. Right. Yes. Yeah. Chairman Vitter. Margot, you wanted to add anything to that? Ms. May. Again, like Candy said, I'll knock on wood being that we have only owned it and then operated it for a year, but continuously we hear stories not just from our CPA of their struggles of trying to be in compliance, but the fact that a small business owner is putting their life savings, their work and their day-to-day operations in making a business run and giving more employment to locals and being a good person of the community, and then a letter shows up. And it's like, wait a second, I wasn't supposed to have that, or did that box get checked wrong? That's not correct. It's a simple, simple mistake that can take something like six months to a year and then the letters are coming. And it just overwhelms a small business owner. I believe very strongly that small businesses can do a lot with very little, but when you pull those funds, that burden of finances to taxes that you're not sure if you have or don't have, it stunts the growth of what can happen in a community or in a city or even in a larger state. Chairman Vitter. Right. A related issue to all of this, and certainly an issue that impacts small business, both over 50 employees and under is ObamaCare. Do you all have any direct testimony about your businesses or your members, in Ron's case, in terms of dealing with that in the small business arena? Mr. Gitz. The irony there, again, one of the things we do, CPAs are required to have an average of 40 hours a year in continuing education. So the Louisiana Society of CPAs provides that education. ObamaCare was looming. It was kind of a four- year implementation process and by the time it got to the fourth, it's here, right? It's upon us. The education that we had to provide the CPAs and the complexity therein, I don't know how many pages, 70,000 pages, but it was substantial, beyond the actual check that you write, and it is the burden of being able to navigate and figure it out. And so I know we provided, and continue to provide, continuing education to help our CPAs and there are still many questions that are unanswered. Nobody is even sure that they are completely complying with the law. Chairman Vitter. Right. Anybody else? Ms. Forbes. I'd like to add something. There's a lot out there about how ObamaCare is going to affect taxes and it most certainly will. But there are other issues that are related to this depreciation rule that you may not be aware of. Basically I'm in the lending business, you know. I'm a contractor and we have to arrange mortgage loans for people. A lot of those people are self-employed. One of the things that happened after Dodd-Frank and the financial reform act, which has been a huge hit to small business owners, is that it limited their abilities to be able to meet bank requirements because the banks had to adhere to certain lending guidelines. How that relates to the depreciation is that when the depreciation is limited, that's one of the things that mortgage lenders will add back to the bottom line income of the self- employed person. There's an add-back depreciation to their net income and then use that to calculate how much their yearly income is by which they can get a mortgage loan or apply for a business line of credit or personal loan. And if those depreciation limits are lowered, then it actually makes the net income of that business owner less, which affects his ability to go and borrow money or to own a home. And in this instance, I'm talking about your really small business owner who has got one employee, two employees an LLC, some type of flow-through entity and that right there prevents homeownership and it prevents them from being able to borrow and get personal credit lines and that's a huge hit not only for that business owner, but for people like me who sell homes for a living and for people like John Blount who need those people to be able to purchase the homes that he builds. So they are all interconnected. There have been some things that have happened that have really been a sucker punch for small business owners. Chairman Vitter. Anybody else on ObamaCare? Mr. Urdiales. I would add one of the issues I could go into of other restaurateurs who have over 50 employees where they have to--you have to offer the full plan to hourly employees if they are over 30 hours. And one of the things that they are finding out is they can't afford that plan. So then they have to sign a release saying that it was offered and then they have to go to an outside market and a lot of these plans aren't really great insurance. And they are not really there for--they are really only there for something catastrophic. I had the situation where I did have two bartenders that kind of teetered on that 33-, 34-hour week and under the plan, I had to at least offer it to them. You know, I wanted to offer it to them as an option. But it was--it literally was one whole week's pay for them. Their mentality is they can't justify that because they can't live like that. So you know, in the restaurant industry where you do have a lot of back-of-the-house people who may start at $10, $11, $12 an hour, for them, you know the fact at $250, $300 a month, they can't fathom that. Chairman Vitter. Jim, I assume you have also seen in restaurant, and other businesses, certain employees being pushed below 30 hours---- Mr. Urdiales. Right. Chairman Vitter [continuing]. For that reason because it changes the calculation. Mr. Urdiales. Very much so. Chairman Vitter. Any other? Margot. Ms. May. That's what I was going to bring up is personally it hasn't affected us, but I have seen, unfortunately, businesses that don't want to have to go under working more and not have others working, but their employees can't afford the ObamaCare and they can't afford to not have the workers. So they have to supplement it in some way. It just messes up the whole entire purpose of what you're trying to do, run your business. Chairman Vitter. As I mentioned a while ago, we are putting together a small business tax reform bill. I will get each of you an outline of that bill in its present draft form, and any specific provisions that really have a big impact on small business that aren't there, that we should consider and include, please let us know. We want your input on that. We are going to introduce it soon. I think we are covering the big items, certainly Section 179 expensing, making that permanent is one of the obvious ones, but certainly want your input on that. We are going to start to wrap up. Thanks to everybody for being here and special thanks to our four great panelists. Let's give them a round of applause. Thank you all very much. As I told you beforehand, you're the meat of this program and you gave the real world perspective that we were absolutely after. And I know it's a sacrifice to come here, take time out of work, so thank you for that. And thanks to everybody for coming out today as well. Before you leave, let me highlight two things. As I suggested a minute ago, I want this to be an ongoing conversation and if you have any specific problems with the IRS, or some other agency, please let us know the details. We work on those specific cases all the time. All of my contact information is right here on the handout and so please let us know those details so we can follow up. In addition, our Small Business Committee has a little brochure that's available called ``The Small Business Road Map'' that gives you a lot of good small business contact information in Louisiana, specifically. So please look for this and pick this up and use it on a regular basis. With that, thank you very much, very much, and have a great rest of the day. [Whereupon, at 10:36 a.m., the Committee was adjourned.] APPENDIX MATERIAL SUBMITTED [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]