[Congressional Record Volume 156, Number 81 (Wednesday, May 26, 2010)]
[Senate]
[Pages S4444-S4446]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. SNOWE (for herself and Ms. Landrieu):
  S. 3430. A bill to amend the Internal Revenue Code of 1986 to expand 
the tip tax credit to employers of cosmetologists and to promote tax 
compliance in the cosmetology sector; to the Committee on Finance.
  Ms. SNOWE. Mr. President, as Ranking Member of the Senate Small 
Business Committee, I am delighted to rise today, during National Small 
Business Week, with Senator Landrieu, who is Chair of the Committee, to 
introduce the Small Business Tax Equalization and Compliance Act.
  Our bipartisan measure is a pro-small business bill and would allow 
the salon

[[Page S4445]]

industry to have the same tax rules on tips paid to employees as is 
permitted in the restaurant industry. The legislation would increase 
compliance with payroll tax obligations and will make sure that the 
women who work in the salon industry earn all the Social Security 
retirement and disability benefits they should be entitled to. It would 
also help to prevent salons that do not follow the tax law from gaining 
a competitive disadvantage against those that do follow the law. The 
companion bill in the House is H.R. 3724, which was introduced 
Representative Shelley Berkley and Representative Kevin Brady.
  Clearly this legislation will help all parts of the salon industry, 
big and small, men and women. But the reality is that because 84 
percent of the workforce in the salon industry is female, this issue 
has special relevance for women. When women work as independent 
contractors at hair salons, they are less likely to disclose all of 
their tips for purposes of paying Social Security taxes. As a result, 
they reduce their future right to earn retirement and disability 
benefits in the Social Security system and reduce the size of any 
benefit they do ultimately earn. Making sure that working women are 
correctly paying into Social Security is critical to their future 
retirement security because many of these women will have had no other 
retirement benefits available to them.
  We know that women are disproportionately dependent on Social 
Security for their retirement benefits, a March 2010 study by the Women 
for Women's Policy Research showed that women's Social Security 
benefits in 2008 were only about 75 percent of the benefits earned by 
men and it comprised about half of their total retirement income. By 
contrast, Social Security benefits comprised roughly one third of men's 
retirement income. Earning the right to collect a decent Social 
Security benefit is vital to women.

  As a small business issue, salons are a quintessential small business 
on Main Streets across America. According to the U.S. Census Bureau, 98 
percent of salon industry firms have only one establishment; 92 percent 
of salon establishments have sales of less than $500,000; and 82 
percent of salon establishments have fewer than 10 employees. Extending 
the tip tax credit to salon owners would allow them to reinvest in 
their businesses and employees, create new jobs, granting new economic 
and employment opportunities in their local communities.
  I specifically want to explain what this legislation would do. First, 
it would provide the salon industry with the same type of tax credit 
currently available in the restaurant industry. The credit is for 
employers to offset the matching Social Security and Medicare taxes 
that the salon pays on the tips that employees receive from customers. 
Next, the bill would help to make more even-handed IRS enforcement of 
laws on payroll and income taxes. Without this legislation it is often 
the lopsided practice of the IRS to seek back taxes from the employer 
but rarely from the employee or independent contractor despite the 
requirement that taxes be paid in equal measure.
  The legislation will protect both legitimate independent contractors 
and employees who pay their taxes but frees up IRS resources to focus 
on those bad actors who are not complying with the law. Although non-
employer salons comprise 87 percent of establishments, their reported 
sales represent only 36 percent of total salon industry revenues, 
implying a significant underreporting of income in the non-employer 
segment. This legislation includes education and reporting requirements 
which will help address the ``tax gap'' and reveal a valuable new 
source of tax revenues for the federal Government. This is a win-win-
win for the salons, for employees, and for the government.
  This bill is supported by the Professional Beauty Association, the 
largest association in the professional beauty industry, which is 
comprised of salon and spa owners, manufacturers and distributors of 
salon and spa products, and individual licensed cosmetologists.
  Finally, I want to thank two salon owners who brought this issue to 
my attention, Alan Labos of Akari Salon in Portland, Maine and Tiffany 
Conway of bei capelli salon in Scarborough, Maine.
  In conclusion, I urge my colleagues on both sides of the aisle to 
support our bill.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 3430

       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 2010''.

     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.''
       (b) Definition of Cosmetology Service.--Section 45B of the 
     Internal Revenue Code of 1986 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, 2009.

     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 
     adding after section 6050W the following new section:

     ``SEC. 6050X. 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

[[Page S4446]]

     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 the Internal Revenue Code of 
     1986 (relating to the definition of information returns) is 
     amended by striking ``or'' at the end of clause (xxiv), by 
     striking ``and'' at the end of clause (xxv) and inserting 
     ``or'', and by adding after clause (xxv) the following new 
     clause:
       ``(xxvi) section 6050X(a) (relating to returns by 
     cosmetology service providers), and''.
       (2) Section 6724(d)(2) of such Code is amended by striking 
     ``or'' at the end of subparagraph (GG), by striking the 
     period at the end of subparagraph (HH) and inserting ``, 
     or'', and by inserting after subparagraph (HH) the following 
     new subparagraph:
       ``(II) subsections (b)(3)(A)(ii) and (c) of section 6050X 
     (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 such Code is amended by adding 
     after the item relating to section 6050W the following new 
     item:

``Sec. 6050X. 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 2009.

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