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Community Paper Case to Repeal the 1099 Paperwork Tsunami

In Competition, Healthcare Reform, Rules&Regs, Testimony, Uncategorized on March 18, 2011 at 12:11 pm

For countless months, we have joined with our peers across the small business community in calling for full repeal of the new 1099 reporting provisions. We have made our case to the House and Senate, and gradually they began to listen.

Sort of.

Currently all sides say they want to repeal this job-killing paperwork nightmare. Several bipartisan votes have demonstrated that. Competing legislation has now moved from the Senate to the House and the House to the Senate…and even more repeal language has been attached and will soon be offered to larger pieces of unrelated legislation. Great, freestanding and pin-the-tail-on-the-donkey are both ways to get the job done.

But the Lingering Problem: Repeal is still not legally complete! Please Click Here on Our Industry Action Page to let your House and Senate Members know that you appreciate their efforts so far — BUT it’s now time to Finally Repeal the 1099 Paperwork once and for all!

The Free Community Paper Case for Repeal the 1099 Paperwork Tsunami has been made to Congress from the unique perspective of our industry — as well as part of a much broader coalition of small business groups. For the most comprehensive analysis of the impact to Our Industry, read excerpts of our formal Comments to IRS and Treasury as follow:

 

THE FREE COMMUNITY PAPER INDUSTRY

RE:  Notice 2010–51

Information Reporting Under the Amendments to Section 6041 for Payments to Corporations and Payments of Gross Proceeds and With Respect to Property


The Association of Free Community Papers (AFCP) and Mid-Atlantic Community Papers Association (MACPA) submit these comments to the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) on behalf of the united Free Community Paper Industry (Community Papers)1 in response to Notice 2010-51, regarding guidance concerning new requirements with respect to the reporting of payments made in the course of the payor’s trade or business.  Specifically, the Treasury and the IRS have asked for comments regarding the implementation of the expanded information reporting requirements included in the Patient Protection and Affordable Care Act of 2010, Pub.L.No. 111-148, 124 Stat. 119 (PPACA).

Community Papers are concerned about the increased complexity and cost this new requirement will place on small business generally, and on our hometown publishers and their community advertisers specifically.  The potential reach of the new reporting requirement is vast, requiring small businesses to report almost every business-to-business transaction including commerce-driving advertising services.

It is our understanding that the goal of this exponential expansion of reporting requirements is to increase the aggregate amount of income believed to be currently underreported by some in the business community, and thereby bolster collection of the sum total tax revenue believed to be owed.  Even in theory, it is generally understood that these new burdens will fall on already compliant small business taxpayers.  As a matter of practice, there are concerns even within Treasury and IRS that a tsunami of new 1099s will not provide any practicable new information, or whether this tidal wave of data can even be purposefully integrated into current data analysis systems.

Community Papers appreciate the fact that Treasury and the IRS have requested ways to minimize the expanded burdens on our small business communities. We note that attention has been given to, and comment sought on, specific concerns including duplicative reporting, disproportionate burdens among types of taxpayers and businesses associated with implementation and compliance, as well as the privacy concerns arising from the new, widespread wave of soliciting taxpayer identification numbers (TINs).

It is our strong and considered belief that these new reporting requirements will wreak havoc beyond even that currently contemplated, with a net return to Treasury and IRS far less than hopefully projected. Plainly stated, this costly scheme will do far more harm than good, and we will continue working with small business peers across industries united for full repeal measures before Congress. Here, however, we plead for the specific remedy of exempting advertising expenses from 1099 reporting at the new $600 threshold.

Community Papers offer five (5) concrete reasons why advertising — a commerce-driving, routine business operating expense — should be exempt from the duplicative 1099 reporting and the requisite and potentially hazardous TIN swapping triggered by $600 of services rendered over the course of the year:

• First, in practical terms with tax revenue objectives in focus, 1099 reporting on advertising will not provide any bottom-line information about any unreported revenues from client advertisers. The avalanche of requests for TINs, and subsequent cross-filings of 1099s will not reveal whether or not our advertisers are underreporting the income generated by their own, respective businesses. The overriding goal of making sure — or finding out whether — the plumber, the pizzeria or the seasonal lawn mowing and snow plowing service is reporting all of their income and paying their taxes will not be advanced one penny by this futile enterprise.

• Second, advertising expenses are not even remotely likely to involve any real compliance difficulties. These are tracked by front-end systems, generating a trail of payment and receipts, and presumably our clients already claiming advertising as a deduction.

• Third, a $600 threshold, or any other nominal and arbitrary baseline, could lead to the consolidation of advertising with fewer, larger firms — or even a reduction in advertising by small business altogether. Advertising generates a proven multiplier effect on economies, and since each ad dollar lost compounds to a net economic loss of 4 to 10 times or more, this would be a disaster for small business generally, our hometown publishers particularly — and quite possibly a net loss to Treasury and IRS.

• Fourth, given that TINs are unique, very real and powerful identities — the object of illicit demand and subject of theft and abuse — the forced, widespread unprotected sharing among all businesses based solely on a small dollar amount of aggregate yearly expenditures, would in other applicable contexts be scorned as dangerously promiscuous.  The magnitude of compulsory risk for our industry, and all of small business, is chilling.

• Fifth and finally, disproportionate burden:  Estimates of compliance across industries puts new 1099 reporting at multiples of ten (10) upwards past fifty (50) times current levels — Community Papers, anticipating formal requests for TINs from even our smallest and occasional advertisers, will see increases one thousand-fold (1,000x) and even higher at larger publications.  We are in the business of helping businesses generate business, and over the course of a single year even the smallest hometown publishers provide advertising services totaling $600 to several hundred and more micro and small businesses, in addition to others. For larger community paper publishers, that could run into the tens of thousands over the short span of fifty-two weeks.

The presumption behind these exponentially expanded reporting measures is the hopeful expectation that disclosure of this tsunami of new information will translate into significantly reduced illegal tax avoidance.  At the same time, there is a considerable concern bridging industry and government regarding the resulting paperwork burden and security risks, especially for small businesses.  Treasury and the IRS seek comment and have authority to issue rules exempting certain expenses unlikely to involve compliance difficulties, such as advertising, and in particular print advertising.

For the reasons detailed above, Community Papers urge the exemption of advertising from the duplicative 1099 reporting and the requisite and potentially hazardous TIN swapping triggered by $600 of services rendered over the course of the year.

Notes

………………..

1 The Association of Free Community Papers (AFCP) and Mid-Atlantic Community Papers Association (MACPA) are joined by the following state and regional trade associations of Free Community Paper Publishers:  Midwest Free Community Papers (MFCP), Southeastern Advertising  Publishers’ Association (SAPA), Community Papers of Florida (CPF), Community Papers of Michigan (CPM), Wisconsin Community Papers (WCP), Texas Community Newspaper Association (TCNA), Community Papers of Ohio and West Virginia (CPOWV), Free Community Papers of New York (FCPNY). Collectively, the Industry includes 2,673 hometown publications with a combined, audited circulation 65,187,292, and a small business client base, investing at least $600 a year, well into the millions — all to grow our inter-dependent economies.

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Saving Newspapers, or…

In Competition, FCC, FTC & DOJ, Rules&Regs, Testimony on October 15, 2009 at 8:07 pm

…Corporate Bailouts. As I wrote before, there’s no shortage of voices on topic. Professors, Think Tanks, Foundations, Advocacy Groups, Big Media…and Us. We’re still at the beginning of this national debate, and we had a seat at the last House Committee Dog & Pony Show. There’s lots more to come and lots at stake. Next up are the Federal Trade Commission and the Federal Communications Commission, and we need to step up our united efforts immediately — Season starts in earnest next month!

Here’s what we can expect from Big Media: On display before a Senate subcommittee this summer, NAA’s reps got softballs on “competition” and hit them over the Sherman, Clayton and Cross-ownership walls, i.e. tear down the last legal barriers to total local market domination for “our survival.” Go figure, their reporters don’t spell it out that nakedly. And recently before the latest House Show, the voice for Gannett, Tribune, NewsCorp & Fortune 500 asked for Tax & Pension Relief.

Sounds good? Here’s my caution on NAA’s ask: Fails to note that businesses with revenue under $15 million got the 5 yr operating loss carryover (v. current 2 yr) as part of the stimulus package that passed. Those above a part of a fairly select group enjoying multiple other perks, loopholes and other advantages we don’t have. Factoring offshore havens, goodwill impairment write-offs and a host of other “savings” that come from complex organization and the ability to hire the very best accountants and tax attorneys, many of these folks already pay proportionately much less than we on gross revenues. (NOTE: They also have better access to cheaper capital, pay 20% less on health insurance not trapped in small group market, and on…)

And on deferred payment to defined benefit plans, just know that we’re all ultimately on the hook. At USPS this makes sense, where H.R. 22 tackles the double funding concession they made to get the Military’s rightful obligations off the Postal books. By contrast, USPS is multiples better funded than the private sector — and my real concern is the fall-back for Fortune 500 pensions is the Pension Benefit Guarantee Corporation (PBGC), which is so disastrously underfunded that over the last yrs they’ve redefined “underfunded” and “at-risk liabilities” a few times to make the looming Armageddon only look like Hiroshima. Big Biz’ underfunded pensions are backed by the underfunded PBGC, which is backed by we taxpaying citizens and small businesses.

Ad Tax Threat in PA…

In Ad Tax, Testimony on October 12, 2009 at 8:48 pm

…Defeated! 101 days past the Constitutional Deadline, after a tortured process that saw countless proposals to expand the 6% sales tax on goods and services, we finally have a New Budget. Our threat here was unfortunately not unique. AdvertisingAge reports today on the growing trend in cash-strapped states to seek “soft targets,” specifically Advertising and related services.

We argued against any expansion of Sales Tax generally, further detailing how a specific Ad Tax would cripple Us and our Advertisers. Bolstered by member surveys, we showed that before even attempting to collect the first penny for the state, we would be collectively in the hole hundreds of thousands of dollars we just don’t have, because we cannot simply press a magic button on a cash register. What we do for a living requires very expensive proprietary front end systems, most needing upgrades or all out replacement, and then a cascade of other costs and burdens. All before the mere attempt to collect. Which only then would be followed by the pass-along brick wall, subsequent reductions, a lose-lose situation at the worst possible economic time on Main Street.

Here’s a sample of correspondence with PA Legislators:

RE: Opposition to Taxing Advertising

Hand Delivered – September 15, 2009

Dear Budget Conference Committee Members:

The Mid-Atlantic Community Papers Association is deeply concerned by comments that continue to be floated publicly about broad expansions to the Sales and Use Tax. We empathise with the dire predicament our Commonwealth faces, and we do not envy your monumental challenge to craft a fair and balanced budget.

Please know this: Our publishers operate on the front lines of the economy, providing the glue that bonds neighbors and the merchants on Main Street. We share a singular perspective on the condition of truly local commerce. Our collective enterprise serves the unique and most critical function of communicating between Mom and Pop businesses and their customers.

We admit candidly that if we were in your shoes we might be tempted to gaze longingly at spreadsheets circulating that promise a windfall buffet of “new revenue.” Should the mood suddenly swing in favor that commerce-killing option, we urge you to consider Three Critical Tests for fixing any new bulls’ eyes:

1. Is it a simple “sale at retail” or a complex range of commerce-driving services?

2. Is it a luxury or a necessity — a want or a need?

3. Would any new burdens of collection be minimal or disproportionately onerous?

Our member publishers would be forced to spend hundreds of thousands of dollars — money they do not have — on new software before even attempting to collect the first penny for our Commonwealth. Then double that with costs of programming, training, administration and compliance, and even new computers — all incurred before even attempting to collect the first penny of sales tax.

Community papers cannot simply press a button on a cash register and try to begin passing 6% on to our struggling customers, automatically collecting fees on diminished volume. In community publishing, the advertising “transaction” is actually a discrete set of simultaneous processes linked to billing. We rely on industry-specific, proprietary and usually customized software, which is available from only a select group of specialized vendors. The license, the programming, the training and the hardware upgrades alone will cost fortunes we just do not have.

The new burdens of sales tax collection will be disproportionately onerous on the community paper publishing industry. But that is only the beginning of the cascading disasters and counter-intended outcomes on Main Street, PA. Publishers from every corner of the state provide a granular view of the stark realities they and their advertisers struggle with today without a 6% penalty:

• An Historic Number of Small Business Doors have Shuttered — Reality in Downtown, PA

• 6% is Roughly Double the Last Average Rate Increase — For Many, No Increase for Years

• A 6% Ad Tax Can’t Be Passed Along — Much or Most Will Be Offset by Diminished Advertising

• A 6% Ad Tax Simply Cannot Be Swallowed Without Additional Job & Healthcare Losses

………………………………………

Details from the MACPA Member Ad Tax & Local Economic Survey:

QUESTION: When was last time you raised (or decreased) rates? What Percent?

– “in 2009 I decreased rates 25% on the rate card.”

– “Retail ROP rates were held across the board for 2009”

– “Last time was May of 07 at 3%”

– “no change for a few years”

– “August 2008 – 3%”

– “2008, 4%”

– “1/1/09 5% (Only raise in 3 years)”

– “not raised rates in nearly 4 years. If anything we have had to find ways of providing more value for no additional cost. A rate hike of 6% would be unacceptable to advertisers of all levels from local to national. We would more than likely have to eat the increase to sustain volume.”

– “July 2008, 4 to 5%”

– “Last year: What %? just 3”

– “We have been fortunate to be able to keep our same rate for the past 3 years by keeping a low overhead and constantly looking for ways to cut costs.”

– “haven’t raised the price for 3 years. Classified also is only raised every two years.”

– “2008, -3% Note: that’s decrease!”

– “We have not raised our rates in 5 years. We have been hit hard with the current economic times. We deal with small local businesses that are struggling.”

QUESTION: Across the board, what portion of a 6% hike could you pass along?

– “0!”

– “Probably half that at best”

– “None”

– “Would have to try to pass all of it on. Couldn’t absorb it”

– “We would just eat the whole amount”

– “Very little”

– “A rate hike of 6% would be unacceptable to advertisers of all levels from local to national. We would more than likely have to eat the increase to sustain volume.”

– “typically we get 50% of a rate increase”

– “A sales tax on advertising is another tax on the already-struggling businesses in our area. Sales taxes are on the consumer. But our “consumers” are businesses.”

– “We couldn’t pass much more than 1% along. If we passed an additional 3% along we would most likely see $10,000.00 less in revenues.”

QUESTION: Or, how much of a 6% Ad Tax would be met with decreased ad size and/or volume?

– “Most of it”

– “Many will have to reduce size, cut zone coverage”

– “Would no doubt lose volume, and they’ll lose business too”

– “It would reduce ad size by as much as 10%”

– “THIS WILL RESULT IN LOST INCHES AS SMALLER MOM & POPS LOOK FOR WAYS TO KEEP THEIR EXPENSES FROM SKYROCKETING. THAT WILL TRANSLATE TO FEWER SALES AT RETAIL”

– “25% at bare minimum”

– “That’s difficult to put a number to. But I’m certain larger ads would be reduced in size, some advertisers would advertise every other week rather than every week.”

– “This would result in many advertisers either cutting back on size or volume of ads. Lose-lose”

QUESTION: Bottom line net loss in dollars if Ad Tax enacted?

– “60%”

– “$30,000”

– “too hard to determine, well into six figures”

– “Net loss of probably $1,000 to $1,200 per week”

– “Loss could be well over $100,000”

– “$1,680 per week”

QUESTION: On Front End Software — You would need to tag classifieds, display and inserts as both taxable & tax exempt, bill & collect accordingly, and send reports and a check to the state on a regular basis. Can your current software do this?

– “NO!”

– “Our current software would not be able to handle all you have listed”

– “NOPE!”

– “no it cannot”

– “Our ad order entry system is antiquated. Having said that, even newer models would need to be modified to accommodate for change in process. It would take time and money. Dollars we don’t have at this time. Given lean operation we don’t have the resources to manually manage the new billing challenges the sales tax would provide.”

– “No, will need new system, new servers, probably new workstations”

– “Current software will work, with some serious tweaking — I hope”

– “No, our IT staff says we’ll need another system.”

– “Definitely not. For what we paid, this is unbelievable”

QUESTION: Rough estimate of cost to upgrade, program & train on a new front end system?

– “$50,000 minimum”

– “Don’t really know, it would involve program and that is expensive!”

– “based on recent rfp, roughly $40-80k to upgrade and flow”

– “$25k in software costs…minimum $20k in training”

– “several thousand dollars, if we can patch, tens of thousands more likely”

– “the cost to get another program would be at least $50K”

– “At least $20,000 for bare bones function”

QUESTION: Ballpark cost for additional accounting relating to sales tax collection?

– “$30,000”

– “This would simply be an accounting nightmare-period.”

– “Additional expense $5,000 per year.”

– “at least another $20k”

– “A few thousand dollars.”

– “extra hour a day for our office workers $150 week, someone to collect figures and file taxes $150 week….And heaven help us if we lose an employee and must retrain someone. As a small business ourselves, just thinking about the extra bookwork, etc. is a nightmare! That’s the problem with being a small business. We try to do everything ourselves and can only do so much”

– “$300 per week”

QUESTION: How many local advertisers have closed their doors in last 12 months?

– “Hard to put a number on closings but more importantly, the remaining businesses are spending 15-20% less on advertising”

– “About 15”

– “We know of about 5 local advertisers who are oob”

– “not very many! we have been lucky”

– “15% and that’s conservative”

– “Over two dozen, with many more to come I fear.”

– “too many to count”

– “Too Many, and another huge batch are faced with the dilemma of the cost of an ad OR paying healthcare OR Wal-mart”

– “116”

– “a f—ing ton”

– “WAY WAY TOO MANY”

– “4 that affected us”

– “About one in 15 local businesses”

– “Our local business scene has drastically changed. The amount of stores that are vacant is staggering. I don’t have a number”

– “6 of my top 10!”

………………………………………………….

The consensus of first-hand publisher accounts conclude that home town economies are teetering on an historic brink. Attempts to place an additional 6% hurdle between any new product or business and their cash-strapped clients will be met with counterproductive reductions in consumption, and steep new margins that can neither be passed along nor absorbed. Any new sales tax will ultimately trigger incalculable job loss. For these compelling reasons, we ask that you please reject any proposals to Tax Advertising.