Committee Examines Burden of Tax Compliance for Small Businesses
NSBA Survey: 40% of small firms spend 2 full workweeks on tax compliance
As we approach the Tax Day filing deadline, the Small Business Committee, under the chairmanship of Rep. Sam Graves (R-MO), today examined the challenges small businesses face complying with the tax code.
In addition, a new National Small Business Association (NSBA) tax survey was released in conjunction with the testimony of NSBA member Tim Reynolds, a small business executive. The survey shows that a majority of small businesses spend 40 hours preparing to file their taxes, while 40 percent spend a costly two full workweeks on the process. These small businesses say tax complexity and compliance are factors in their day-to-day operation all year long.
The growing number of tax provisions means that small business owners must spend significant resources on compliance that could otherwise be spent growing their companies. Tax complexity is a big problem for small businesses: according to the Internal Revenue Service’s own National Taxpayer Advocate, there were over 500 changes to the tax code in 2010 alone, an average of more than one per day. And high tax rates mean small firms have less capital to invest back into hiring or expanding.
“Tax season is tough on small businesses,” said Chairman Graves. “Taxes are getting more complicated every year, and compliance is a huge drain on their resources. Jobs remain scarce, and the heavy burden of tax compliance is another obstacle to growth. This new NSBA survey of small businesses emphasizes that the complex tax code is not just a problem for Tax Day, but throughout the year. I appreciated the testimony of experienced small business representatives at today’s hearing, and their insights on the concerns of America’s 28 million small business owners.”
Materials from the hearing are available on the Committee’s website HERE.
David Kautter, Managing Director, Kogod Tax Center, Kogod School of Business, American University, Washington, DC, said, “The National Taxpayer Advocate has found that the single most pressing problem encountered by taxpayers, including small businesses, is the complexity of the Internal Revenue Code. The National Taxpayer Advocate estimates that each year small businesses spend approximately 2.5 billion hours complying with tax filing requirements, the equivalent of 1.25 million full-time jobs. According to the National Taxpayer Advocate, more than 70% of all unincorporated businesses (which tend to be small businesses) use paid tax return preparers and spend more than $16 billion for professional advice and compliance assistance from attorneys, accountants and enrolled agents.”
Tim Reynolds, President, Tribute, Inc., Hudson, OH, said, “Approximately 42 percent of NSBA members have fewer than five employees—few, if any of whom is a tax specialist—leaving business owners with no other choice but to hire outside help to keep track of all their additional reporting and filing requirements. In fact, according to the NSBA Small Business Taxation Survey, only 12 percent of small-business owners handle their taxes internally—meaning 86 percent are forced to pay an external accountant or practitioner—this data should send a strong message to the IRS and Congress that the tax code is far too complex.”
Rick Endres, President, The Washington Network, Inc., Alexandria, VA, said, “While I would consider my company to be a true example of a successful small business entrepreneur, I also consider myself to be the prototypical victim of an uneven tax code that is filled with uncertainty, vagueness and unintended consequences for me and other small IT companies. The complexity of the tax code has had a negative impact on both my business growth and my hiring capabilities.”
Donald Marron, Institute Fellow and Director of Economic Policy Initiatives, The Urban Institute, Washington, DC, said, “America’s tax system is needlessly complex, economically harmful, and often unfair. Despite recent revenue gains, it likely will not raise enough money to pay the government’s future bills. The time is thus ripe for wholesale tax reform. Such reform could have far-reaching effects in the economy, including on small businesses.”###