CLA, Lobbying Group Intervene to Protect Laundry Owners’ Sales Tax Exemption in Kentucky
Laundry owners in Kentucky dodged a bullet this spring – a bullet aimed directly at their bottom line… in the form of a 6 percent sales tax.
Due to the state’s more than $50 billion underfunded pension system for its teachers, as well as state and county employees, Kentucky Governor Matt Bevin proposed a very bleak biennial budget that featured major cuts across all state agencies, including education.
“Legislators did not want to cut education, so there was some talk about making minor tax changes to help boost the budget funding,” explained Karen Thomas Lentz, a partner at Commonwealth Alliances, a government affairs consultancy based in Frankfort, Ky., and working for the Coin Laundry Association on behalf of the industry. “The House proposed some minor changes, but the Senate said that it was not interested in minor tax changes and would be proposing a bare bones budget.”
During the final week of the session, as legislative leaders were meeting behind closed doors to discuss the budget, there was talk of expanding the state sales tax to include specific services.
“I asked if there had been discussion about laundry services, and a member of the leadership confirmed that laundry services were on the list for consideration,” Lentz said. “I took that opportunity to talk with him about the difference between coin-operated laundry services and drycleaning or other laundry services. I explained that the only way to collect the proposed 6 percent sales tax on coin-operated laundry services would be to tax the business owner. At first, he tried to argue that you could retrofit the machines to charge more to cover the tax. However, I explained that it would be very costly to retrofit the machines, if that could even be done. And he finally agreed to make our case to the group when they got back into the discussion again.”
At the end of the day, legislators passed a package of tax reform bills that are estimated to bring about $400 million in additional tax revenue during the 2018-2020 budget period – but the coin laundry tax exemption was spared.
The reforms did include a flat 5 percent income tax for all individuals and companies, a sales tax levy on previously untaxed services, and an increase in the tax on cigarettes. Citing concerns that the tax reform bills fail to make the state more financially stable, Governor Bevin vetoed the tax package; however, the legislature overrode the veto and the tax reform package became law.
In a nutshell, here’s what this means for vended laundry owners in Kentucky, according to Lentz:
What’s the current sales tax situation in the state?
House Bill 487 applied the 6 percent sales tax to a number of services, including industrial laundry services, as well as individual drycleaning and non-coin-laundry services.
What was done to protect laundromat operators’ existing sales tax exemption?
We talked with key legislators who were working on tax reform to emphasize that, if the tax were to be applied to coin laundry services, it would be a tax on the business owner rather than the individual utilizing the service, since you cannot add 6 percent to a coin laundry washer or dryer.
Specifically, what does this mean for laundry owners in Kentucky?
If you are operating a coin laundry, there is no impact. We were glad that legislators working on the tax bill finally understood that you cannot put a sales tax on a coin laundry machine. I was glad that common sense won out and we retained the exemption.
However, if you also provide drycleaning services, you will be responsible for collecting and submitting 6 percent to the state, beginning July 1, 2018.
What does the future hold, with regard to this or other legislation potentially impacting the vended laundry industry in the state?
House Bill 487 was considered to be “Tax Reform 1.0,” and they are already discussing “Tax Reform 2.0” coming either later this year in a special session or next year during the regular session. We will need to ensure that changes are not made that impact coin laundry. Also, in the next phase of tax reform, there will be consideration given to eliminating the inventory tax paid to both the state and to local taxing districts, which would be a benefit for the laundromat industry.
USCIS Modernizes E-Verify
U.S. Citizenship and Immigration Services has launched a modernized version of E-Verify. The changes are a result of gathering feedback and extensive testing from E-Verify users and are intended to enhance the employment eligibility verification process.
E-Verify is a program that allows participating employers to confirm employment eligibility of newly hired employees by comparing information provided on the Form I-9 against records available to the Social Security Administration and the Department of Homeland Security. Participation may be mandatory for employers with federal contracts or required under certain state immigration laws. President Trump and Congress have indicated that E-Verify may become mandatory for all employers in the near future.
The recent modifications reflect just how far the electronic verification concept has evolved since it was proposed in the early 1990s, when Congress called for the testing of alternative verification systems that could prove more effective than the Form I-9 process. In 1994, the SSA and the Immigration and Naturalization Service (now the DHS) were asked to institute a national registry combining both agencies’ data for use in electronic employment verification. Although the SSA and the INS could not combine data at that time, they did test electronic verification for new employees for a number of pilot employers using each agency’s data separately. Employer participants quickly identified problems with the original basic pilot program. Since then, improvements have been made to E-Verify as technological capabilities have advanced.
Some of the most helpful E-verify upgrades include the following:
- Greater use of plain language in the instructions: It currently takes more than one read-through to fully understand the current set of user guidelines. Incorporating more plain language is likely to reduce confusion and save time.
- Real-time feedback on errors: This change addresses a historical challenge in the system. It is likely to increase the immediate identification of errors and lead to improved compliance statistics for employers, as it will allow users to correct data and prevent tentative non-confirmations (TNCs).
- A personalized “Are You Sure?” alert, showing only fields that may have triggered a TNC: This change focuses the user on errors more easily.
- Process updates to improve initial match rate: These changes are intended to improve the accuracy of results and reduce the number of TNCs issued.
- A streamlined TNC process: Under the updated process, cases are sent to the SSA and the DHS simultaneously, allowing for the issuance of a dual TNC in instances where both agencies issue a TNC. This is likely to help provide faster results to employers and employees, and limit the negative effects of a TNC, which typically cause stress, missed work, and loss of productivity while the employee works to resolve the problem.
- Reduction of steps required to close a case: This change is intended to make closing a case faster and easier. Failure to close a case is a frequent error identified in E-Verify audits. It remains to be seen whether decreasing the steps will reduce this problem, but it could go a long way toward better compliance.
- Requirement that users enter a reason why an employee is working after receiving a final non-confirmation (FNC): In certain instances, an employer may decide to continue to employ an individual in spite of a FNC. Until now, an employer has not been able to create a record regarding its choice. This option requires the employer to record its reasoning and the circumstances surrounding the individual’s continued employment. The monitoring and compliance branch will be able to view this information.
The expansion of E-Verify is an important feature of President Trump’s overall immigration plan. In his proposed budget, Trump requested $23 million to expand E-Verify and make it mandatory nationwide.
Four Keys to Tax Cuts 2.0
The White House and some prominent GOP lawmakers want to roll out a second package of tax cuts this summer, building from the tax law President Trump signed last year.
Republicans are interested in pushing for changes to the tax code they were unable to achieve in their 2017 measure, though a new tax bill is unlikely to become law this year. They say they want to make improvements to the tax code on an ongoing basis.
Some Republicans think a vote on more tax cuts would be good for them politically, forcing Democrats to go on the record in an election year. But a vote on another tax bill also has the potential to backfire on Republicans if a few vulnerable Democrats back it.
According to The Hill, here are four things to know about “phase two” of the tax cuts:
A focus will be extending the individual tax cuts.
Republicans’ top priority for a second round of tax cuts is to make permanent the tax cuts for individuals that were included in the new tax law on a temporary basis.
These cuts – such as the lower rates and larger standard deduction and child tax credit – expire after 2025.
Lawmakers put an expiration date on the individual cuts in order to comply with rules that allowed the tax bill to pass the Senate with just a simple majority. Those rules prevent legislation from increasing the deficit after 10 years.
Republicans want to extend the tax relief they provided for individuals, and they also see a vote on cementing the individual cuts as a good way to put Democrats on the spot. Democrats said that one of the reasons they voted against the tax law was because the tax cuts for corporations were permanent but the tax cuts for the middle class were not.
“I invite Sen. [Bernie] Sanders and all of my Democratic colleagues to join me today and make tax rate cuts for hardworking middle-class families permanent,” Sen. Ted Cruz said in January when he introduced legislation to make the individual rate cuts permanent.
A bill is likely to include more than just permanent individual cuts.
GOP lawmakers and the White House are also looking at including other tax changes on top of cementing the individual rates.
House Ways and Means Committee Chairman Kevin Brady has repeatedly mentioned that he’s looking at including incentives to boost business innovation and saving for retirement and education.
House Republicans released a tax-reform blueprint in 2016 that called for streamlining tax incentives for retirement savings and education. But these topics weren’t addressed in the tax law.
“We think we can do good things to help families save more and earlier in life,” Brady said, at an event hosted by the Texas chapter of Americans for Prosperity, a group backed by GOP donors Charles and David Koch.
Another issue that the White House and GOP lawmakers are discussing is cutting capital gains taxes, either through lowering rates or indexing capital gains to inflation.
“I think we need to be bold on things like capital gains, indexing that for inflation,” Brady noted, adding that he wants to unleash investment by individuals.
Legislation to index capital gains has been offered by Cruz and Sen. James Inhofe, and conservatives are also making a push for the Trump administration to do this through executive action. But there are questions about whether the Treasury Department actually has the authority to index capital gains through regulation.
Republicans want a vote in the House this fall.
Brady and White House legislative affairs director Marc Short have both said recently that they want a proposal for additional tax cuts to be released over the summer.
Brady also said he sees an “early fall passage out of the House.” Likewise, House Majority Leader Kevin McCarthy agreed that he thinks a tax bill will be approved in the House before the midterm elections.
When Fox Business Network host Maria Bartiromo recently asked McCarthy if the House would be taking up a phase two of tax cuts after the midterm elections, McCarthy replied, “No, that’s before the election.”
The politics in the Senate are complicated.
While a second tax bill could pass the House this year, there’s little chance it could pass the Senate – if a vote even occurs in the upper chamber.
The Senate doesn’t have any plans to pass any legislation this year using the procedures that allow bills to pass with only a simple majority. As a result, a tax package would need 60 votes, meaning at least nine Democrats would have to back it.
It would be a tall order for Republicans to get nine Senate Democrats to vote for another round of tax cuts. However, if the Senate holds a vote, several of the Democrats most vulnerable in the midterms could support such a measure as a way to show voters that they support Trump’s agenda.
That could be detrimental for Republicans who have made attacking Democrats for opposing the tax law central to their campaigns.
Besides the political risks of giving Democrats the chance to vote for tax cuts, Republicans also may see some “no” votes from their own conference.
Survey: Tax Complexity Expected to Increase
The National Small Business Association has released its 2018 Small Business Taxation Survey, which shows administrative burden continues to far outpace financial burdens, and unfortunately, there doesn’t seem to be a light at the end of the tunnel: complexity is expected to increase for tax year 2018. The survey also asked several questions about the Tax Cuts and Jobs Act, and how the recently passed tax reform law will impact small business.
“Small businesses have a great deal of confusion and insecurity in terms of how the new tax law will really impact them,” stated NSBA President Todd McCracken. “And while NSBA ultimately supported the bill, more reforms clearly are necessary to address complexity, parity with large corporations and permanency.”
According to the survey, one-third of small businesses report spending more than 40 hours each year on federal taxes, and the majority spend more than $1,000 each year on the administration alone of federal taxes.
Payroll taxes and income taxes were ranked the top two most burdensome taxes for small businesses. Among those small businesses that collect sales taxes, one-in-three report spending one full workweek and more each year on sales tax. More than half of small firms with five or more employees pay an outside firm to prepare their payroll.
“The majority of small-business owners say federal taxes have a significant to moderate impact on the day-to-day operation of their business,” explained NSBA Chair Cynthia Kay of Cynthia Kay & Co. “Small businesses spend a great deal of time and resources that could be far better utilized growing their companies.”
Sales Tax Rate Hikes, Expansions Loom in Arizona
Arizona Governor Doug Ducey recently agreed to raise teacher pay and restore funding to state education without raising any new taxes.
However, without a dedicated revenue stream, there is a growing chorus expressing concern that the governor’s plan is unsustainable, according to Coin Laundry Association legislative analyst, MultiState Associates.
“There are a few ideas bouncing around for how the state could remove this instability,” said Ryan Maness, senior policy analyst and tax counsel for MultiState.
- A permanent 1 percent sales tax hike, which is being backed by the Arizona Republic editorial board.
- A temporary, three-year 1 percent sales tax rate hike, followed by a permanent 1.5 percent increase, which is a Republican-preferred plan.
- A millionaire’s tax, which is being backed by a coalition of progressive organizations.
- A 2.5 percent tax on services, which is backed by the local teachers’ unions.
All of these proposals would need to go before the voters this November, and organizers would need to move quickly to get the necessary signatures in before the July 5 deadline, according to Maness.
Trump Signs Bipartisan Bill to Improve Access to Small-Business Loans
President Trump has signed into law a bipartisan, bicameral bill – led by U.S. Senator Jim Risch, chairman of the Senate Committee on Small Business and Entrepreneurship; House Small Business Committee Chairman Steve Chabot; House Ranking Member Nydia Velázquez; and U.S. Senator Jeanne Shaheen.
The bill – the Small Business 7(a) Lending Oversight Reform Act – will ensure appropriate oversight of the Small Business Administration’s flagship loan program and improve access to capital for small-business owners. Numerous small-business advocacy groups, program participants, and entrepreneurs applauded the bill’s passage and encouraged the President to sign it into law. This bill passed both the House and Senate Committees unanimously, and passed the House and Senate without objection.
“I’m grateful to President Trump for signing this important legislation into law,” Risch said, “Since the SBA’s 7(a) loan program was enacted, millions of entrepreneurs have used this critical financial lifeline to start or expand their business – funds they wouldn’t have otherwise had access to. Our job in Congress is to make sure these vital programs are being operated effectively and with appropriate oversight to ensure they will be available for future generations of entrepreneurs. The Small Business 7(a) Lending Oversight Reform Act is an example of hard work in a bipartisan and bicameral way to ensure these objectives are met. I’m proud of the work we’ve done on this bill and thank all of my colleagues involved for their efforts.”
“For many small-business owners and entrepreneurs who have been turned down for financing, SBA’s 7(a) Loan Program can make or break their company,” Chabot explained. “It’s the difference between a small business expanding and creating jobs in their community and a business idea that fails to launch.”
The 7(a) loan program is an SBA program that helps entrepreneurs and small businesses access credit to start and grow their businesses when they are unable to get a conventional loan. The Small Business 7(a) Lending Oversight Reform Act preserves the 7(a) loan program by updating the credit elsewhere test, which is the entry point to the program, increasing oversight of the program and transparency to Congress, and providing flexibility for the administrator to increase the program’s authorization cap in an emergency. It will ensure the SBA has the tools it needs to oversee this growing program, provide lenders with necessary clarity, and make sure entrepreneurs and small-business owners have access to funds they would otherwise not be able to obtain.
“Whether it is a leading-edge technology startup in San Francisco, a small bakery in Brooklyn, or a mom-and-pop diner in Ohio, all small businesses face a common challenge in securing affordable financing,” Velázquez added. “This program ensures more businesses can access capital to grow, invest in their operations and, ultimately, create jobs. This bill will help yet more entrepreneurs’ access capital, creating greater economic opportunity.”
This bill was widely supported in the small-business community, including by the U.S. Chamber of Commerce, the National Association of Government Guaranteed Lenders, the Independent Community Bankers Association, the American Bankers Association, the Consumer Bankers Association, the Credit Union National Association, and the National Association of Federally-Insured Credit Unions.