[Congressional Record Volume 146, Number 135 (Wednesday, October 25, 2000)]
[Extensions of Remarks]
[Page E1916]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          COSMETOLOGY TAX FAIRNESS AND COMPLIANCE ACT OF 2000

                                 ______
                                 

                         HON. NANCY L. JOHNSON

                             of connecticut

                    in the house of representatives

                      Wednesday, October 25, 2000

  Mrs. JOHNSON of Connecticut. Mr. Speaker, I have introduced the 
``Cosmetology Tax Fairness and Compliance Act of 2000'' to extend the 
same tax fairness provision applied to the tip-intensive restaurant 
industry, to the tip-intensive cosmetology industry. Just like 
restaurant owners, this legislation will permit salon owners to claim a 
credit against income tax for the employer's share of FICA (Social 
Security and Medicare) tax paid on tips paid to their employees.
  Under current law, salons are required to pay FICA taxes on tips paid 
to their employees even though the employers do not pay the tip 
compensation to the employees or control the amount of tip compensation 
paid to their employees. The credit would be allowed only for FICA tax 
on tips paid to employees. It would not be allowed for SECA tax (Social 
Security and Medicare tax paid by the self-employed) paid by individual 
salon owners and independent contractors on tips that they receive.
  In addition, the Act will also help to correct the problem of 
systemic tax evasion in the cosmetology industry. This proposed 
legislation would close a loophole in a group of tax compliance 
provisions that are intended to encourage everyone to comply with the 
tax law. Under present law, when an independent contractor provides 
services to a business, the business generally must provide the 
independent contractor with a Form 1099, and the IRS with the 
information contained in the Form 1099. This is vital information for 
the IRS because the form tells the Service the address and taxpayer 
identification number (``TIN'') of the independent contractors. The IRS 
can then check to see if tax returns were filed by them. However, under 
current law, Forms 1099 are not provided to cosmetologists who are 
independent contractors because they are technically providing their 
services to individual customers, rather than to businesses. The 
legislation requires salon owners (and others who lease space to 
hairstylists and other cosmetologists) to provide a type of Form 1099 
to stylists and other cosmetologists operating as independent 
contractors on their premises, and to provide the IRS with the names, 
addresses and TINs of the independent contractors. It also requires 
salon owners (and other lessors) to provide a copy of an IRS 
publication describing the tax obligations of independent contractors. 
The IRS has a publication, Publication 3518 Beauty Industry Federal Tax 
Guidelines, that can be used for this purpose.
  This minimal reporting requirement will go a long way in solving the 
widespread tax cheating that currently occurs in the professional salon 
industry. Today, thousands of law-abiding salon owners who pay their 
taxes, are placed at a competitive disadvantage by a persistent 
minority of the salon industry who do not report or underreport their 
revenues and tips. Legitimate salon owners are hurt when some stylists 
leave to become independent contractor ``booth renters'' believing 
their take home pay will increase because they won't report all (or 
any) of their revenues and tips. Legitimate salon owners are forced to 
replace the departed stylist, as well as losing the customers who 
follow the stylist to the underground economy.
  Simple equity requires that salon owners not be asked to pay tax on 
tips that others choose to pay to their employees. The cosmetology 
industry should be placed on an equal footing with the restaurant and 
food delivery industries. Further, law-abiding salon owners should not 
be penalized and placed at a competitive disadvantage because they pay 
their taxes while others in the industry do not.
  This identical bill was introduced in the other body by Sen. Rick 
Santorum. (R-PA). While Congress is not expected to act on this 
legislation in the waning days before adjournment, this legislation 
lays down a marker for reintroduction next Congress when we will push 
for enactment.
  I urge my colleagues in the House to review this proposed legislation 
and to cosponsor the ``Cosmetology Tax Fairness and Compliance Act'' 
when it is reintroduced in the 107th Congress.

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