JCK Exclusive: Industry Seeks to Repeal 1099 Reporting Measure

The holidays have only just begun but already, retailers are looking to 2011
for that proverbial fresh start. The most attentive among them may even be
looking to January 2012. An add-on in the Affordable Care Act will require
merchants to file a 1099 form with the Internal Revenue Service (IRS) on
purchases from consumers and sales to vendors that exceed $600 in a given
calendar year.

According to the National Retail Federation (NRF), in the past, business owners
were required to issue a 1099 to individuals or unincorporated firms for
payments of services exceeding $600. “With the new health care bill in place,
the government has expanded that requirement to include tangible goods and also
payments to incorporated businesses,” says Craig Shearman, NRF’s vice president
for government affairs.

For retail jewelers, this portends an avalanche of potential paperwork: They
will be expected to issue 1099 statements to customers who purchase $600 or
more of finished jewelry. The secondary market will also be impacted for
retailers buying precious metals and gemstones from the public. (This would
include taking in diamonds for upgrades and payments to product and service
providers.)

Most jewelers have adopted a wait-and-see approach, given the talk of repealing
the entire national health care bill or certain provisions–especially Section
9006, which details the reporting requirements in the Affordable Care Act.
Shortly after the midterm elections, Republican party leaders, including
incoming Speaker John Boehner (R-Ohio) and Mitch McConnell (R-Kentucky),
discussed repealing the whole health care bill, specifically mentioning the
1099 reporting requirement as a revenue-raising measure that would hurt
businesses of many types and sizes. Even President Barack Obama recently
characterized it as “overly burdensome.”

The government is hoping the 1099 reporting requirements will offset Affordable
Care Act costs by $17 billion to $19 billion a year, according to Congressional
Budget Office estimates. But IRS officials have been quoted in a number of news
sources stating that the costs associated with administering these tax revenue
collections will far outweigh the benefits.

Barry Stuppler, a professional numismatist with more than 40 years in the rare
coin and bullion community, is the founder and chairman of GoldandSilverPAC.org,
a political action committee looking to repeal Section 9006. Stuppler and his
constituents hope Section 9006 will be repealed or amended in the 2010 lame
duck session. “If the Affordable Care Act isn’t repealed entirely, or Section
9006 remains intact, our group is proposing using funds that haven’t been
allocated or unfunded programs in the TARP bill,” says Stuppler, referring to
the Troubled Asset Relief Program, a government program to buy up
mortgage-backed securities, and stabilize the financial markets, in the wake of
the 2008 economic crisis.

In June 2010, Jewelers of America (JA) received feedback from its members
regarding concerns over the 1099 reporting. In JA’s summer 2010 member
newsletter, The J Report, the trade association’s legislative counsel lead by
Timothy Haake, principal of Haake and Associates, said: “To repeal this
provision, Rep. Daniel Lungren (R-CA) introduced the Small Business Paperwork
Mandate Elimination Act [H.R. 5141], but we don’t see this gaining traction
until next year.”

For now, JA’s official position on the matter doesn’t mince words: “Jewelers of
America believes this provision should be fully repealed,” says chief operating
officer Robert Headley. “The new regulation, which is set to go into effect on
Jan. 1, 2012, would mean that businesses would have to file an IRS Form 1099
for every vendor that they pay $600 annually, regardless of the service
provided, an unreasonable burden on businesses that are already highly
stressed.”

Rex Solomon, president of Houston Jewelry, is worried about the huge financial
implications. “This could cost me upwards of $5,000 to $8,000 in administrative
costs alone,” says Solomon. “But what retailers need to be really concerned
about are the liability issues that come with having to gather, protect, and
store this very sensitive customer data and tax information.”

Jewelers Mutual, one of the gem and jewelry industry’s leading insurers, is
currently assessing the possibility of offering data liability or data breach
protection–coverages that are currently available from some insurance
companies outside the gem and jewelry industry.

Jared Ashland, a manager in Jewelers Mutual’s information technology
department, suggests that jewelry store owners take a few precautions:
implement access controls like a user ID and password; perform periodic reviews
of security setups in the database system; encrypt personal and tax ID
information when transmitting data by e-mail; and establish confidentiality and
nondisclosure agreements with any outside organization with whom you share
information/data.