Horrible New Paperwork Requirement Slipped into Health Care Bill

This is lifted from an email I got from America Outdoors

A little noticed provision in the recently passed health care reform bill will require every payment to corporations over $600 to be reported on a Form 1099 to the IRS, including payments for the purchase of merchandise and services. This provision takes effect in 2012.

The current law requires a Form 1099 to be submitted to the IRS when your business pays more than $600 for rent, interest, dividends, and non-employee services if the payments are made to entities other than corporations. Currently, payments made to a corporation and payments for merchandise are not required to be reported.

To file the required 1099, a business will have to obtain and keep track of a Taxpayer Information Number (TIN) from every vendor before submitting the 1099 to that business and the IRS. Under current tax law, one copy of the form is sent to the IRS, and another copy is sent to the person to whom the business made the payments.

Rep. Dan Lungren (CA-3) introduced "The Small Business Paperwork Mandate Elimination Act" (H.R. 5141). The legislation would repeal the expanded 1099 reporting requirement.  Lungren correctly asserts that the burdens placed on small businesses by this reporting requirement would be overwhelming.

Call your U.S. Representative today and ask them to cosponsor H.R. 5141. The House switchboard number is 202-225-3121.  Ask to be connected to your Representative's office.

My small business has over a thousand vendors.  I would have to hire someone full time for a month to do this.  And it would be to zero purpose.  The IRS would be so flooded with forms that there would be no way they could pull any useful information from the blizzard.  This is yet another example of legislators operating with absolutely no idea how commerce actually works.  We have coined a name for it within our firm -- we call it arrogant ignorance.

Chris Edwards at Cato had more on this a while back.

I'm stunned that there wasn't a broader debate before such a costly mandate was enacted. If it goes into effect, it will waste vast quantities of human effort in filling out forms, reworking computer systems, collecting and organizing data, and fighting the IRS. The struggling American economy can't afford anymore suffocating tax regulations. This mandate is a giant deadweight loss. It should be repealed.


  1. colson:

    All the better to calculate your tax bills, my pretty!

  2. iceberg:

    "we call it arrogant ignorance"

    Doesn't 'hubris' fit the bill already?

  3. AnObserver:

    I can't believe the several blogs and news sites where I've read of this, no one, not even the commenters, recognize what's going on with this new requirement. It most certainly is the basic framework data collection that would be required to enforce a VAT. Now does it's insertion into ObamaCare make sense?

  4. Dr. T:

    I cannot think of any reason why today's IRS would want this information. It does nothing to increase revenues from corporate taxes (which shouldn't exist). Instead, because of the costs of compliance, it will decrease corporate profits and thereby decrease tax revenues. Yet, the Democrats in Congress wrote this into law. The only rationale I can conceive of is to gain the ability to track every significant business-related transaction. This smells like the foot-in-the-door for a value added tax. With information on every transaction, the government can decide which ones add value and are subject to the VAT.

    Note: I wrote this before seeing AnObserver's comment. We're obviously on the same page.

  5. Not Sure:

    "The IRS would be so flooded with forms that there would be no way they could pull any useful information from the blizzard."

    At least there's an upside. :)

  6. AnObserver:

    @Dr. T - You make me feel a little better. I was beginning to think everybody thinks the VAT is some sort of national sales tax.

    @Not Sure - Maybe IRS won't choke on the rich new diet of 1099's. 17,500 new BB stackers are provided for by ObamaCare.

  7. Dr. T:

    My elder daughter lives in Germany where the VAT is 19%. I helped set-up her apartment last year, and I saw first-hand the effects of the VAT on the prices of everyday goods. I don't even want to think about how much the VAT adds to the cost of a car.

    A VAT here would be disastrous: our politicians would be in hog heaven with their snouts in the enormous VAT-filled trough. The thought makes me shudder.

  8. ZZMike:

    "I was beginning to think everybody thinks the VAT is some sort of national sales tax."

    If it were a "sales tax", they'd call it a sales tax. But it's not. It's a tax on "value added" - whatever value is added at each step in a production. Start with a house or a car, and trace the materials in that house or car back to the point of origin: a forest, for the house; mines (among others) for the car.

    Now take each step in production that turns those raw materials into houses and cars. There are at least a dozen steps. Each step adds value to what comes in - each bit of value added gets taxed.

    I knew that Formerly Great Britain has a 17.5% VAT - I didn't realize that Germany's is so high.

    And it's an overall tax - buy a house or a pencil, pay a VAT.

    As usual with wild-eyed Democratic schemes (in the American sense, not the British), the people most hurt by this tax will be the people at the bottom - those without a cushion to absorb a big tax hike.

    In 2008, Obama promised the People that:

    "In fact, we were told that the vast majority of those making less than $250,000 would actually receive a tax cut."

    We didn't really expect his to keep his word, did we? Honesty is not in his vocabulary.

  9. rxc:

    Although the VAT is supposed to be on the "value-added", it only gets collected at the very end, from the final purchaser. Here in France, businesses are exempt from paying the VAT on lots of stuff that they use, and on stuff that they purchase to incorporate into stuff they sell. When you buy something, it usually has the VAT included (TTC (tout tax compris (all taxes included))), but for stuff at places like hardware and home improvement places, you also see the price HT (hors taxe). Here, if you buy a 2x4 to install yourself in your own home, you pay 19.6% VAT. If you hire someone else to install it, you pay 5.5% VAT on the same 2x4 and on the cost of installing it. So, it is really a sales tax, with a complicated justification to call it something else, and LOTS of regulations to explain how to apply it. More justification for accountants and lawyers.

    This move may be the first step in installing a VAT in the US, but believe me, it is far from the last. If you think the income tax is complicated, wait till you see how the special interests work to get lower rates for their own "disadvantaged" activities. It is amazing. I am glad that I am old and don't need to buy much - govt can raise enormous amounts of revenue thru the VAT.

  10. Reformed Republican:

    Perhaps it is an unemployment fighting measure. Think of all the people who would be hired to handle this paperwork.

  11. Mark:

    Too bad the representatives didn't read the bill in the first place.

  12. perlhaqr:

    The Neo-Feudalism Party strikes again.

  13. Old Grouch:

    Payments requiring 1099s? Don't forget the backup withholding!

  14. spiro:

    Thanks Coyote,

    This makes me feel much better about going out of business in 2009. I also made hundreds of purchases over $600 every year from several vendors, and would hate to have to contact every one of them to get their stupid federal ID #, not to mention the extra fees from my accountant.

  15. Peter:

    Does the 1099 requirement only apply to corporations purchasing products or to individuals as well? Will I need to file a 1099 for my local grocery store because I spend over $600 per year there? Or how about if I buy a TV for $1000? I have gotten very tired of trying to read these laws just to complain to representatives who don't even start to listen or care. After all they haven't read it either. I could just make up complaints about the law and get the same results. They wouldn't know what I was talking about and wouldn't bother finding out either. They would just go on ignoring me. The last letter I wrote to my senator I tried playing along his line of thought to complain about the law (the one about lead in items for children) and he stupidly took it to mean I supported him and the law.
    As far as my first 2 questions I really want to know because I want to start annoying every business with whom I spend money with information requests until they start complaining to their representatives.
    Another thought - are VAT taxes deductible off the federal income tax like sales or state income taxes?

  16. jaed:

    As I understand it, the new regs apply to individuals as well as corporations, but only for business expenditures. So if you're buying groceries for your family, you don't need to issue a 1099 to the grocery store.

    But if you're a freelance, you need to issue 1099s to, for example, your Internet provider, Costco (if you buy $600 worth of office supplies there), Apple or Dell (if you buy a computer), et cetera. et cetera. Anyone from whom you buy $600 or more of goods during a tax year.