Death by a thousand paper cuts?

Healthcare reform: Has everyone read this?  

Forces armed with common sense appear to be making a courageous stand against a provision buried deep in the 2,560-page “Patient Protection and Affordable Care Act”—a.k.a. healthcare reform.

We’re talking about the 1099 expansion spelled out in section 9006. The law explains that beginning in 2012, all companies must file an IRS Form 1099 on all purchases of $600 or more.

Currently, businesses must file a 1099 form for other businesses only when dealing with independent contractors. So, according to a study from the National Small Business Association, average annual filings would increase for small businesses from about 10 to about 86. Some small businesses believe the burden would be even greater.

The healthcare architects say section 9006 will help pay for healthcare reform.

Business leaders are divided only on which metaphor to apply to the ensuing paperwork burden—a “flood,” an “avalanche” or a “nightmare.”

A new laptop for a salesman? File a 1099 form. Sales dinner (or two) at the Outback Steakhouse? Report it to the IRS.

This is why some have lampooned the provision as “the Paper Industry Salvation Act of 2010.”

In Washington, D.C., the National Lumber & Building Material Dealers Association has been sounding the alarm for more than a year. And around the country, the issue continues to generate shock. In the heartland, Lynn Schwarz of the Ohio Construction Suppliers Association recently told Home Channel News that there’s a sense of anxiety among her group’s members about the prospects of the costly and distracting paperwork.

Earlier this summer, there seemed to be some momentum to eliminate the paperwork provision. In July, Sen. Mike Johanns (R-Neb.) introduced a measure to repeal section 9006. He famously declared the rule expanding 1099 filings as “nothing more than a government-imposed obstacle to economic growth and job creation.”

But section 9006 supporters have rallied, framing the 1099 expansion with a narrative that pits tax cheats against honest Americans. Vendors won’t pay what they rightfully owe the IRS if they aren’t forced, goes the reasoning. And there’s about $16 billion of potential “tax avoidance” on the table.

Sen. Bill Nelson (D-Fla.) sponsored a compromise: The filing requirement is waived for companies with 25 or fewer employees, and the filing trigger is bumped up to $5,000 for bigger companies.

Sure, the compromise is better than allowing the paperwork provision to stand. But ladies and gentlemen, anyone who has ever received a paycheck knows that the tax code should be simplified, not complicated.

Businesses in the home channel and every channel should be encouraged to focus on service, sales, technology and growth. They should not be focused on 1099-form compliance.

And another thing: Expanding 1099 filings will hurt small businesses across the board by encouraging one-stop-shopping by companies intent on simplifying paperwork.

The Senate is expected to vote this month. We salute all those working to ensure that common sense wins the day.

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