1099 Reporting Requirement: A New Compliance Problem for Self-Storage Operators?

By Jeffrey Greenberger Comments
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President Obama’s Health Care Bill requires that businesses involved in health care file a 1099 with the IRS for any purchased goods valued at more than $600. As a follow up to the bill, Representative Barney Frank introduced the Small Business Jobs and Credit Act of 2010 (H.R. 5297). Ostensibly the goal of the act is to increase the availability of credit for small businesses, provide tax incentives for small businesses and create jobs.

That all sounds nice, depending on your political affiliation. However, one of the requirements of this act extends the Form 1099 requirement to anyone receiving rental income from a rental-property business. While this is clearly a revenue-raising measure designed to offset other losses from the credits issued by the new act, the thinking is more reported payments will result in more taxes to collect. This change in the law has two potentially negative impacts to your day-to-day self-storage operation.

What You Need to Know

First, you’ll need to require a 1099 from anyone your business pays in excess of $600 a year not in the form of wages and salaries. Ordering a batch of new locks and boxes in excess of $600 per year? Make sure you receive a form 1099. Same with landscapers, asphalt repair, gate repair, software upgrades, etc.―the list goes on and on. This even applies to your trusted lawyer. If you’re going to spend more than $600 on anything you may deduct as a business expense, you’re going to need a 1099 from the person or company selling products or services to you.

As if the first issue isn’t a big enough paperwork nightmare, several state tax commissioners—with more to follow, I’m sure—have interpreted this change in the law as assistance in making a bigger sales-tax grab. In their interpretation, if you make a sales-taxable purchase and the receipt doesn’t indicate sales tax was charged and collected, you the self-storage operator/real estate owner will be liable for payment of that tax to the state. The new Form 1099 requirement makes it easier for the commissioners to follow the money and check sales-tax collections and payments.

For example, let’s say you use a company to mow the grass at your facility. If, in your state, that’s a sales-taxable event, not only must you get a 1099 from the lawn-care company because you’ve paid it in excess of $600 per year (which you will use to support your business-expense tax deduction), the invoices the company sends you must show that sales tax was charged.

Some tax commissioners will say that if the invoice for grass-cutting doesn’t show sales tax was charged when they crosscheck the 1099 you file with the IRS, they have the right to assume sales tax was not charged, thus not paid, and hold you personally liable. Many vendors have said for years that sales tax is simply “included in the price.” In many states, by 2012, that will not do; and for safety’s sake, you should insist that any bill you pay for a sales-taxable event in your state should clearly delineate the portion of the bill that’s sales tax.

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