[Congressional Record Volume 151, Number 13 (Wednesday, February 9, 2005)]
[Senate]
[Pages S1202-S1203]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SANTORUM (for himself and Mrs. Lincoln):
  S. 327. A bill to amend the Internal Revenue Code of 1986 to expand 
the tip credit to certain employers and to promote tax compliance; to 
the Committee on Finance.
  Mr. SANTORUM. Mr. President, I would like to introduce, along with my 
colleague, Senator Lincoln of Arkansas, the Small Business Tax 
Equalization and Compliance Act of 2005, which would amend the tax code 
to expand the tip credit to certain employers and to promote tax 
compliance.
  This bill addresses an unfair aspect of our current tax code that 
adversely affects tens of thousands of small businesses across the 
country. Under current law, certain small business owners are required 
to pay Social Security and Medicare (FICA) taxes on tips their 
employees earn, despite having no control over or share of the tip 
earnings. This legislation will allow these small business owners to 
claim a tax credit against their income taxes for their share of the 
FICA tax paid on their employees' tips. The Small Business Tax 
Equalization and Compliance Act would place cosmetology service owners 
on equal footing with other similarly tip-intensive businesses such as 
the restaurant and food delivery industries that already benefit from a 
similar tax credit.
  I ask unanimous consent that the text of the bill be printed in the 
Record, and am hopeful my colleagues will join me in support of this 
legislation.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 327

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Small Business Tax 
     Equalization and Compliance Act of 2005''.

     SEC. 2. EXPANSION OF CREDIT FOR PORTION OF SOCIAL SECURITY 
                   TAXES PAID WITH RESPECT TO EMPLOYEE TIPS.

       (a) Expansion of Credit to Other Lines of Business.--
     Paragraph (2) of section 45B(b) of the Internal Revenue Code 
     of 1986 is amended to read as follows:
       ``(2) Application only to certain lines of business.--In 
     applying paragraph (1), there shall be taken into account 
     only tips received from customers or clients in connection 
     with--
       ``(A) the providing, delivering, or serving of food or 
     beverages for consumption if the tipping of employees 
     delivering or serving food or beverages by customers is 
     customary, or
       ``(B) the providing of any cosmetology service for 
     customers or clients at a facility licensed to provide such 
     service if the tipping of employees providing such service is 
     customary.''.

[[Page S1203]]

       (b) Definition of Cosmetology Service.--Section 45B of such 
     Code is amended by redesignating subsections (c) and (d) as 
     subsections (d) and (e), respectively, and by inserting after 
     subsection (b) the following new subsection:
       ``(c) Cosmetology Service.--For purposes of this section, 
     the term `cosmetology service' means--
       ``(1) hairdressing,
       ``(2) haircutting,
       ``(3) manicures and pedicures,
       ``(4) body waxing, facials, mud packs, wraps, and other 
     similar skin treatments, and
       ``(5) any other beauty related service provided at a 
     facility at which a majority of the services provided (as 
     determined on the basis of gross revenue) are described in 
     paragraphs (1) through (4).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to tips received for services performed after 
     December 31, 2004.

     SEC. 3. INFORMATION REPORTING AND TAXPAYER EDUCATION FOR 
                   PROVIDERS OF COSMETOLOGY SERVICES.

       (a) In General.--Subpart B of part III of subchapter A of 
     chapter 61 of the Internal Revenue Code of 1986 is amended by 
     inserting after section 6050T the following new section:

     ``SEC. 6050U. RETURNS RELATING TO COSMETOLOGY SERVICES AND 
                   INFORMATION TO BE PROVIDED TO COSMETOLOGISTS.

       ``(a) In General.--Every person (referred to in this 
     section as a `reporting person') who--
       ``(1) employs 1 or more cosmetologists to provide any 
     cosmetology service,
       ``(2) rents a chair to 1 or more cosmetologists to provide 
     any cosmetology service on at least 5 calendar days during a 
     calendar year, or
       ``(3) in connection with its trade or business or rental 
     activity, otherwise receives compensation from, or pays 
     compensation to, 1 or more cosmetologists for the right to 
     provide cosmetology services to, or for cosmetology services 
     provided to, third-party patrons, shall comply with the 
     return requirements of subsection (b) and the taxpayer 
     education requirements of subsection (c).
       ``(b) Return Requirements.--The return requirements of this 
     subsection are met by a reporting person if the requirements 
     of each of the following paragraphs applicable to such person 
     are met.
       ``(1) Employees.--In the case of a reporting person who 
     employs 1 or more cosmetologists to provide cosmetology 
     services, the requirements of this paragraph are met if such 
     person meets the requirements of sections 6051 (relating to 
     receipts for employees) and 6053(b) (relating to tip 
     reporting) with respect to each such employee.
       ``(2) Independent contractors.--In the case of a reporting 
     person who pays compensation to 1 or more cosmetologists 
     (other than as employees) for cosmetology services provided 
     to third-party patrons, the requirements of this paragraph 
     are met if such person meets the applicable requirements of 
     section 6041 (relating to returns filed by persons making 
     payments of $600 or more in the course of a trade or 
     business), section 6041A (relating to returns to be filed by 
     service-recipients who pay more than $600 in a calendar year 
     for services from a service provider), and each other 
     provision of this subpart that may be applicable to such 
     compensation.
       ``(3) Chair renters.--
       ``(A) In general.--In the case of a reporting person who 
     receives rent or other fees or compensation from 1 or more 
     cosmetologists for use of a chair or for rights to provide 
     any cosmetology service at a salon or other similar facility 
     for more than 5 days in a calendar year, the requirements of 
     this paragraph are met if such person--
       ``(i) makes a return, according to the forms or regulations 
     prescribed by the Secretary, setting forth the name, address, 
     and TIN of each such cosmetologist and the amount received 
     from each such cosmetologist, and
       ``(ii) furnishes to each cosmetologist whose name is 
     required to be set forth on such return a written statement 
     showing--

       ``(I) the name, address, and phone number of the 
     information contact of the reporting person,
       ``(II) the amount received from such cosmetologist, and
       ``(III) a statement informing such cosmetologist that (as 
     required by this section), the reporting person has advised 
     the Internal Revenue Service that the cosmetologist provided 
     cosmetology services during the calendar year to which the 
     statement relates.

       ``(B) Method and time for providing statement.--The written 
     statement required by clause (ii) of subparagraph (A) shall 
     be furnished (either in person or by first-class mail which 
     includes adequate notice that the statement or information is 
     enclosed) to the person on or before January 31 of the year 
     following the calendar year for which the return under clause 
     (i) of subparagraph (A) is to be made.
       ``(c) Taxpayer Education Requirements.--In the case of a 
     reporting person who is required to provide a statement 
     pursuant to subsection (b), the requirements of this 
     subsection are met if such person provides to each such 
     cosmetologist annually a publication, as designated by the 
     Secretary, describing--
       ``(1) in the case of an employee, the tax and tip reporting 
     obligations of employees, and
       ``(2) in the case of a cosmetologist who is not an employee 
     of the reporting person, the tax obligations of independent 
     contractors or proprietorships.
     The publications shall be furnished either in person or by 
     first-class mail which includes adequate notice that the 
     publication is enclosed.
       ``(d) Definitions.--For purposes of this section--
       ``(1) Cosmetologist.--
       ``(A) In general.--The term `cosmetologist' means an 
     individual who provides any cosmetology service.
       ``(B) Anti-avoidance rule.--The Secretary may by regulation 
     or ruling expand the term `cosmetologist' to include any 
     entity or arrangement if the Secretary determines that 
     entities are being formed to circumvent the reporting 
     requirements of this section.
       ``(2) Cosmetology service.--The term `cosmetology service' 
     has the meaning given to such term by section 45B(c).
       ``(3) Chair.--The term `chair' includes a chair, booth, or 
     other furniture or equipment from which an individual 
     provides a cosmetology service (determined without regard to 
     whether the cosmetologist is entitled to use a specific 
     chair, booth, or other similar furniture or equipment or has 
     an exclusive right to use any such chair, booth, or other 
     similar furniture or equipment).
       ``(e) Exceptions for Certain Employees.--Subsection (c) 
     shall not apply to a reporting person with respect to an 
     employee who is employed in a capacity for which tipping (or 
     sharing tips) is not customary.''.
       (b) Conforming Amendments.--
       (1) Section 6724(d)(1)(B) of such Code (relating to the 
     definition of information returns) is amended by 
     redesignating clauses (xiii) through (xviii) as clauses (xiv) 
     through (xix), respectively and by inserting after clause 
     (xii) the following new clause:
       ``(xiii) section 6050U(a) (relating to returns by 
     cosmetology service providers).''.
       (2) Section 6724(d)(2) of such Code is amended--
       (A) by striking ``or'' at the end of subparagraph (AA),
       (B) by striking the period at the end of subparagraph (BB) 
     and inserting ``, or'', and
       (C) by inserting after subparagraph (BB) the following new 
     subparagraph:
       ``(CC) subsections (b)(3)(A)(ii) and (c) of section 6050U 
     (relating to cosmetology service providers) even if the 
     recipient is not a payee.''.
       (3) The table of sections for subpart B of part III of 
     subchapter A of chapter 61 of the Internal Revenue Code of 
     1986 is amended by adding after section 6050T the following 
     new item:

``Sec. 6050U. Returns relating to cosmetology services and information 
              to be provided to cosmetologists.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to calendar years after 2004.
                                 ______