• How President Bush’s Budget Proposals Affect Micro-Business
• House Subcommittee Weighs Internet Sales Taxation Impact on Small Business
• IRS Announces “Dirty Dozen” Tax Scams for 2006
• Member Poll: Looking Back at 2005

How President Bush’s Budget Proposals Affect Micro-Business

President Bush’s proposed budget for fiscal year 2007 includes an expansion of savings for health savings accounts (HSAs) used in conjunction with high deductible health plans and higher caps on small business expensing, both of which would benefit the nation’s smallest businesses. However, continued cuts to Small Business Administration (SBA) development and loan programs will hurt budding entrepreneurs’ start up and growth. “The NASE is happy to see that small business issues are a concern to this Administration. As it becomes harder and harder for micro-businesses to keep up with large corporations, the President is taking strides to keep this important segment of our economy competitive,” said Kristie Darien, executive director of the NASE legislative office. “However, the SBA provides critical services for micro-business owners and the NASE is disappointed to see this Administration attempt to cut some of those programs again.” The implementation of HSAs began several years ago, and the Administration wants to provide more incentives for individuals to participate in them. Instead of paying a high monthly premium for insurance, a low premium, high-deductible health plan is purchased. The HSA then acts as an investment account from which people can withdraw money tax-free for medical care. Bush included the idea of allowing individuals to keep these high-deductible health insurance policies without extra cost if they change jobs or start a business in addition to providing tax deductions and credits for those who purchase such a premium. Bush has also proposed doubling the Section 179 big capital business expense of the Internal Revenue Service (IRS) tax code to $200,000. Current law allows $100,000 to be deducted, a four-fold increase from $25,000 in 2003. However, this increase is set to expire in 2007. Bush wants to make the new expense cap permanent. “That could do more to boost the economy than any other tax (change) ever will,” said Rep. Nydia Velázquez (D-NY), Ranking Member on the House Small Business Committee. While Velázquez expects bipartisan support for the increase in business expensing, she and Democrats, as well as some Republicans, on the House and Senate Small Business Committees criticize Bush’s proposed cuts to SBA programs. Bush requested $624 million for the SBA budget, an increase of $31 million over last year, but still resulting in a 41 percent cut to the SBA budget since he took office. Some of the major changes Bush proposed to the SBA’s budget include: Elimination of the Microloan program, which last year provided $31 million in loans in addition to business training for low-income entrepreneurs. The Microloan program proportionally serves the most minorities and women of all small business assistance programs. A raise in interest rates for disaster loans. Interest rates would continue to be subsidized for five years but then rates would go up. A raise in the borrower fees to continue to subsidize the popular 7(a) loan program, which is no longer subsidized by the government. Cuts to Small Business Development Centers, Women’s Business Centers, Small Business Innovation Research rural outreach program, BusinessLINC, PRIME, and the New Markets Venture Capital. An NASE online member poll from 2005 found that that 61 percent of respondents said programs offered by the federal government are valuable and helpful to small businesses while only 29 percent had actually utilized any of them. “These programs have a proven track record and help those wanting to start or develop micro-businesses,” said Darien. “I encourage the federal government to keep these programs in place and expand their outreach so that more micro-business owners can benefit from them.” The NASE will continue to work with Congress and the White House to implement policy that benefits the micro-businesses in this country. For more information about the NASE’s legislative priorities, visit http://advocacy.NASE.org. House Subcommittee Weighs Internet Sales Taxation Impact on Small Business The House Small Business Subcommittee on Regulatory Reform and Oversight held a hearing last week to discuss the possibility of changing the way goods sold on the Internet are taxed. The proposal would shift responsibility to collect state sales and use taxes to the seller, regardless of where the goods are shipped. Bills have been introduced in the Senate that would allow states to collect such taxes, but no companion legislation has yet been introduced in the House. The proposed tax arose from states’ fear of the potential tax revenue loss as a result of burgeoning online markets. In recent years, many once-small businesses, such as eBay, Yahoo and Amazon, have exploded, making the Internet a highly-accessible option for sole proprietors to conduct business. This means that instead of a state being able to collect sales tax from a brick and mortar store sale, a state cannot collect when that same business sells the good online. Many small business owners complain that the new bill would result in higher cost and administrative burdens. Committee Chairman Todd Akin (R-MO) expressed frustration in his opening statement that there is no uniform system for collecting taxes on Internet sales. Currently, only the destination state, or the location where the good was shipped, can impose the sales tax, resulting in many variations on the collection systems and amounts. In his testimony at the hearing, Senior Director of eBay’s Federal Government Relations Brian Bieron stated that over 700,000 small businesses use eBay “as a way to compete and grow.” Of these businesses, half a million began by selling goods offline, then expanded onto the Internet. Bieron argues that an Internet sales tax is not necessary, because more than 97 percent of state revenues remain offline in retail sales. Ernest Perry, a sole proprietor from North Carolina, said he decided to take his business online in 2002, which allowed him to vastly expand his customer base. Under the new proposal, Perry would need to upgrade computers and teach his employees the new system. He said administrative costs and taxes would be unmanageable. “There is already too much paperwork,” he said. During the 2005 Fiscal Year, total e-commerce revenue amounted to nearly $80 billion in the United States; revenue from which state governments want to profit. Opponents of the proposed tax say that if it passed, many people would likely be dissuaded from starting businesses online, creating a new burden altogether. The NASE will continue to follow the subcommittee’s work on this issue to ensure any added sales taxes not are too burdensome for micro-business owners to comply with. Tell your legislators how you feel about the Internet sales tax proposal by visiting the NASE Legislative Action Center at http://advocacy.NASE.org. IRS Announces “Dirty Dozen” Tax Scams for 2006 The Internal Revenue Service (IRS) issued the 2006 “Dirty Dozen”––its latest annual tally of some of the most notorious tax scams––along with an alert to taxpayers this filing season to watch out for schemes that promise to reduce or eliminate taxes. Two new schemes have worked their way onto the list in 2006. In recent months IRS personnel have noted the emergence of the two scams––“zero wages” and “Form 843 tax abatement”–– in which filers use IRS forms to claim that their tax bills have been wrongly inflated. “When it comes to taxes, everyone has to pay their fair share,” IRS Commissioner Mark W. Everson said. “I urge taxpayers not to be taken in by hucksters who promise to lower or eliminate taxes. Getting caught up in the Dirty Dozen or similar schemes can lead to big headaches.” To view the entire Dirty Dozen and learn how to avoid them, visit the IRS Web site at http://www.irs.gov/newsroom/article/0,,id=154293,00.html. Member Poll: Looking Back at 2005 With a new year ahead, many business owners take the time to evaluate the previous year and determine their business strategy for the year ahead. Tell the NASE how you your business fared in 2005 in this month’s online poll. Let the NASE know your opinions by visiting the MyNASE Web site at http://my.NASE.org/. Log in to your free MyNASE Web Account. If you have not set up an account, you can do so at http://my.NASE.org/ with your member number. Let your voice be heard in the association by taking this survey during the month of February.