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National Restaurant Association - NRA witness tells Congress 1099 mandate will overwhelm small businesses

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NRA witness tells Congress 1099 mandate will overwhelm small businesses

A Colorado restaurateur today called on Congress to repeal a provision of 2010’s health care reform law that threatens to overwhelm small businesses with paperwork by requiring them to report to the IRS and vendors transactions valued at more than $600 in a year with many vendors, contractor and business partners.

Testifying on behalf of the National Restaurant Association and Colorado Restaurant Association, Mark Eagleton, franchisee/owner of the Egg & I restaurant in Arvada, Colo., asked the House Committee on Small Business to repeal Section 9006 of the Patient Protection and Affordable Care Act of 2010.

Starting in 2012, Section 9006 will require businesses to report all business transactions with vendors, contractors and business partners that in the aggregate are valued at $600 or more in a year. The measure covers payments made in cash or by check for services and materials. Congress included the measure in the health care law to generate revenues to help pay for health care reform.

“Providing 1099s for essentially all business-to-business transactions may be a simple edict, but it could put me out of business,” Eagleton testified. “The practical consequences of the expanded 1099 requirements are staggering for a business like mine.”

Eagleton told the House Small Business Committee he works with 200 to 300 vendors each year and will have to start tracking purchases for each one. “Not all will reach the $600 threshold, but since I don’t know who will, I will need to record all the purchases I make. I must buy, install and learn new software; track down each vendor’s taxpayer identification number and address; key in information to 200 to 300 vendors; compile data onto 1099s; and print and mail forms to vendors and the IRS if my purchases to any one vendor total more than $600 for the calendar year.”

As examples of the types of reporting the law will trigger, Eagleton said the expanded 1099 mandate will require him to provide 1099s to his local grocery store for the $1.79 head of Romaine lettuce he buys each day to add to his salad mix; to his local nursery for the outdoor seasonal plants he buys once a year; and to his local hardware store for a series of incidental purchases he makes over a year.

“If this requirement is not repealed it will create a new hardship … at a time many of us are attempting to survive under the current weak economy,” Eagleton said.

The mandate also will require restaurants to make their own taxpayer identification numbers more easily accessible by restaurant customers. Eagleton said local businesspeople frequently use his restaurant for breakfast or lunch meetings, and pay in cash or check for their weekly or monthly meetings. The new 1099 mandate could require them to issue 1099s to the Egg & I if they spend more than $600 in his restaurant during a year, he noted. “Will they continue to patronize my restaurant if they need to track purchases and send me a 1099?” he asked.

More than seven in 10 eating and drinking establishments are single-unit operations. Restaurants operate under relatively low profit margins of an estimated 4 percent to 6 percent before taxes, Eagleton noted.

“Many of these small businesses do not have a large administrative staff to handle recordkeeping and reporting responsibilities,” Eagleton said. In the case of new government mandates, he said, “I have two choices: Do it myself, or pay someone else to do it. Where am I going to come up with the money? I don’t have spare assets to put into play to make this happen.”

Eagleton also urged Congress to address fundamental problems with PPACA. “The early feedback from our industry on PPACA is not encouraging. So far, PPACA is failing to constrain rising health care and coverage costs, while imposing unsustainable costs and job burdens on the restaurant industry.”

Read Eagleton’s full testimony at http://www.restaurant.org/Downloads/PDFs/advocacy/20110209_1099_testimony.pdf

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