[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
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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
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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.]
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