[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
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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
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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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