What’s Congress Up to? 4 New Measures that May Affect Your Business

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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While some people are complaining that Congress has done nothing, there has been some recent activity on measures that can impact your business. Some changes are good, 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services of more than $10,000 to government contractors, that was scheduled to take effect on January 1, 2013, has been repealed by the Withholding Tax Relief Act of 2011. However, withholding continues to apply to contractors who fail to pay their taxes.

At the same time as Congress repealed this harsh rule, it created two new tax credits to incentivize businesses to hire vets:

• A $5,600 tax credit for each veteran who has been unemployed for at least six months;
• A $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 can be 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 nonresident individuals who are actually 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 escape New York taxes.

The measure has bi-partisan support and is also 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 to be enacted in the past, so we’ll have to wait and see about enactment.

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 November 1^st, would prevent states from imposing “discriminatory” taxes on wireless devices (taxes on wireless devices are double what they are on other goods and services). This would be accomplished by means of a five-year moratorium on any new taxes and fees on wireless devices.

The measure is favored by businesses as well as service providers such as AT&T and Verizon. It is opposed by cities and states that continue to need the revenue. 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, with many small businesses unclear about their collection responsibilities. Generally, states cannot collect sales taxes from online retailers that do not have a physical presence within 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, as well as eBay, oppose it because of the added administrative cost it likely will entail. However, in the end, it would mean that whether a business operates locally or across state lines, it would collect sales tax on its goods and services.

Final Word

Stay abreast of developments on the federal and state level that can have an important impact on your business. You can keep tabs on developments that may affect your business through the National Federation of Independent Business.