Before the health care reform bill was passed earlier this year, House Speaker Nancy Pelosi, D-Calif., told Americans that “we [Congress] have to pass it to know what’s in it.” As business owners have begun sorting through the massive law, they are discovering not only a host of new taxes but also expanded reporting requirements that will result in an avalanche of paperwork and raise the cost of doing business.

Under current law, corporations must send an IRS Form 1099 to any individual or business that it has provided at least $600 in services to per calendar year. But Section 9006 of the Patient Protection and Affordable Care Act dramatically expands the reporting requirement to all corporations, tax-exempt organizations, and government entities, and includes payments for all goods, not just services, that exceed the $600 annual limit. The provision is slated to take effect in 2012.

The new law has been described in some quarters as the “Staples tax,” as it will force millions of companies to begin filing 1099 forms to every business selling them office supplies, snack foods, and cleaning products.

The Heritage Foundation, a Washington, D.C.-based public policy research organization, says the new regulations will affect 40 million businesses, of which 26 million are sole proprietorships. Small businesses face the biggest threat because they lack the resources to track and manage this type of reporting.

In a statement on its website, the National Federation of Independent Business says tax paperwork costs small businesses about $74 an hour and “is the most expensive paperwork burden ever placed on small businesses by the federal government.” Even without the new regulations, the NFIB says tax compliance costs small businesses 66 percent more than it does large businesses.

Small businesses historically account for the largest share of job creation in the United States, but they’ve been particularly hard hit in this recession. In its June survey of members, the NFIB reported a drop in small business optimism, with only 10 percent of firms planning new hiring and more firms expecting lower sales than those anticipating higher sales. The number of businesses looking to increase capital expenditures over the next few months fell to 19 percent, just 3 points above the 35-year record low, said the NFIB.

The precious metals and tangible assets industry expects to bear a particularly heavy paperwork burden from the new 1099 provisions. Unlike companies with only a handful of suppliers, coin and precious metals dealers both buy from and sell to potentially thousands of suppliers, said Diane Piret, industry affairs spokesperson for the Industry Council for Tangible Assets.

Piret told Carolina Journal that some association members estimate they will have to file an additional 10,000 to 20,000 1099 Forms. “We have sent out alerts to our members, encouraging them to contact their representatives,” Piret said, “and our board is discussing further lobbying efforts.”

The price of gold and other precious metals has risen dramatically over the past couple of years, fueled by inflation. Investors, large and small, have been purchasing precious metals to hedge against further declines in stock, retirement, and real estate portfolio values.

Tracking confidential information

With the new 1099 provisions, dealers will be required to collect and track confidential tax information by customer name, sparking concerns that sales will decline as customers may be reluctant to provide such information. Larry Hyatt, owner of Hyatt Coin Shop in Charlotte, told CJ that some small businesses will go out of business because they won’t be able to afford the cost of collecting, preparing, and mailing out so many forms.

“We’re a small, small business,” said Linda Wright of Wright’s Coin Shop in Asheville. “We’ve been in business for 38 years, and I have to do all the paperwork and bookkeeping. This will really hurt us. With a bad economy, it’s too hard to pass on additional costs to customers.”

“It’s a stupid law that will put a lot of small coin dealers, pawn shops, and small jewelers out of business,” said Jeff Rubenstein, owner of Carolina Silver and Gold in Greensboro. “If you’re a small business and buy a refrigerator, you’ve got to do a 1099. It makes no sense. Commercial property defaults are already high, and now more businesses will go under. That’s what happens when lawmakers don’t read the bills they vote on and don’t understand business.”

Wright and other dealers asked what these provisions have to do with health care reform. Piret said she was told the Congressional Budget Office believes the provisions will generate $17 billion over 10 years by catching tax cheats. But business advocates, including the NFIB, say the cost to business will far outweigh any revenues the government might collect.

Dealers also said the new regulations will fuel the black market. Hyatt, whose family has been in the rare coins and currency business for more than 51 years, said the frustration level among business owners and his customers is the highest he’s ever seen. “The biggest competition we have is the underground economy, and this will make it much worse.”

“People are out of work and need money, but they’re not going to feel comfortable providing confidential information,” said Rubenstein, “and that’ll lead to a black market.”

There’s also a security risk from criminals. Dealers will have to collect and store their customers’ names, addresses, amount of holdings, Social Security or taxpayer identification information. Piret worried that customers easily could become targets for identity theft if criminals broke into a business and stole records, or hackers breached computer systems. Business owners could face increased liability risks if they failed to secure confidential records adequately.

Repeal efforts

Congressional efforts to repeal Section 9006 are under way, in the form of H.R. 5141, sponsored by Rep. Daniel Lungren, R-Calif., and S. 3578, sponsored by Sen. Mike Johanns, R-Nebr. Sen. Richard Burr, R-N.C., is an original co-sponsor of S. 3578.

A spokeswoman for Sen. Kay Hagan, D-N.C., told CJ she is reviewing the issue. As for H.R. 5141, none of North Carolina’s 13 U.S. House members is listed as a co-sponsor. All the representatives were contacted. The only response, from a spokesman for 10th District GOP Rep. Patrick McHenry, acknowledged that McHenry plans to support the bill should it reach a vote in the full House.

Karen McMahan is a contributor to Carolina Journal.