While some people complain that Congress has done nothing, recent activity on a few measures can impact your business. Some changes should help, while others may have an adverse effect. Here is what you need to know.
1. Repeal of withholding on government contractors
The 3 percent withholding on payments for goods or services of more than $10,000 to government contractors has been repealed by the Withholding Tax Relief Act of 2011 (it was was scheduled to take effect on January 1, 2013). However, withholding continues to apply to contractors who fail to pay their taxes.
At the same time that Congress repealed this harsh rule, it created two new tax credits to give businesses incentive to hire vets:
$5,600 tax credit for each veteran who has been unemployed for at least six months
$9,600 tax credit for hiring an out-of-work veteran with service-related disabilities
Both credits, which are part of the Work Opportunity Credit, apply through 2012. If your business hires an employee that would entitle you to the credit, be sure have the new employee complete Form 8850 Pre-Screening Notice and Certification Request for the Work Opportunity Credit and submit it to your state workforce agency within 28 days.
2. Tax on telecommuters
Today, more and more businesses allow employees to telecommute. This is a win-win for you and your employees. You save on space and increase employee productivity, the employee is freed from the time and cost of commuting, and the community benefits from reduced traffic and fuel emissions.
At present, telecommuting from another state can result in additional state income taxes for teleworkers.
The Telecommuter Tax Fairness Act of 2011 would prevent states from imposing individual income taxes on telecommuting nonresidents who are physically present in another state. Thus, if your company is in New York and your workers telecommute from Connecticut, New Jersey or any other state, your workers will not have to pay New York taxes.
The measure has bi-partisan support and is supported by various groups, including the Telework Coalition, the National Taxpayers Union, the Small Business & Entrepreneurship Council and the Association for Commuter Transportation. However, a similar bill failed in the past, so we’ll see if it is enacted.
3. Sales taxes on wireless devices
Currently, state and local taxes and fees on wireless devices average about 16.3 percent, compared with 7.4 percent on other goods and services. The disparity could get worse as cities and states continue to look for new sources of revenue and businesses rely more and more on wireless devices.
The Wireless Fairness Act of 2011 (H.R. 1002), passed by the House on Nov. 1, would prevent states from imposing “discriminatory” taxes on wireless devices. It would impose a five-year moratorium on any new taxes and fees on wireless devices.
Businesses and providers such as AT&T and Verizon favor the measure. Cities and states that need the revenue oppose it. Let’s see if the Senate can pass this quickly.
4. Sales tax on online sales
Sales tax for online purchases is a complicated matter. Many small businesses are unclear about their collection responsibilities. Generally, states cannot collect sales taxes from online retailers that do not have a physical presence in the state. The definition of “physical presence” (or “nexus”) has been expanding as states seek to increase the scope of collections. It can, for example, include not only having a sales force in another state, but also warehouses, shipping facilities and other connections.
The Marketplace Fairness Act would create the first national authorization for states to collect online sales tax. The bill likely will exempt “small businesses” (defined in the bill as those with online revenue under $500,000). The exemption amount may be changed in a final bill, which likely won’t happen until next year (after this year’s holiday sales season).
Amazon, which had $34 billion in online sales last year, has come on board to support the measure. Some small business groups, along with eBay, oppose it because of the added administrative cost. It would mean that whether a business operates locally or across state lines, it would collect sales tax on its goods and services.
Stay abreast of developments on the federal and state level that can have an impact on your business. You can keep tabs through the National Federation of Independent Business.