Tonight NFIB Pennsylvania sent this letter to state lawmakers. We don’t want them to pay for the billion dollars in new state spending on the backs of small business. One source of revenue legislators are considering is a cap on the compensation small business is paid for collecting state sales taxes. Gov. Tom Wolf has said that should be no more than $25 dollars a month. But we need to let the General Assembly know it costs much more than that and explain the reasons why.
TO: Honorable Members of the General Assembly
FROM: Neal R. Lesher, Legislative Director
DATE: June 30, 2016
RE: NFIB Opposition to Eliminating Vendor Compensation for Sales Tax Collection
It has come to our attention that you may be asked to consider eliminating or capping the compensation that businesses receive for collecting the sales tax for the state. On behalf of the over 14,000 small-business owners that NFIB represents, we strongly urge you to reject this proposal.
Currently, businesses are able to keep 1% of the total amount of sales tax they collect if it is timely remitted to the state. An independent study by Pricewaterhouse Coopers in 2005 found that the current vendor compensation only reimburses Pennsylvania businesses for 30% of their cost on average. For small retailers, it is significantly lower! Small retailers are only reimbursed for 7% of their cost.
Please consider that small businesses also pay credit fees as high as 4 percent based on the full amount of the charge including the state sales tax. The 1% they receive as compensation does not even cover these fees. Small businesses must also determine the taxability of each item, validate and audit the calculations of the proper tax, account for the sales tax in their tax returns and train employees on how to collect the tax.
Many businesses must also pre-pay the sales tax on items sold, even before receiving payment. Often they must access lines of credit to do so, and end up paying interest well above the 1 percent they receive.
Of the 45 states that have a sales tax, the majority allow for vendor compensation. Only 13 have a cap in place and the $25/month that was proposed by Governor Wolf would be the lowest cap in the country.
Please consider what two NFIB members have reported to us:
“If the cap on that allowance is set at $25 a month, as Gov. Tom Wolf has proposed, my employees are then doing work for free for the state, collecting Pennsylvania’s taxes.” – Paul Murry, Murry Automotive Electric in Delmont, PA.
“I could have an invoice for a commercial customer of $10,000. With the added tax in Pittsburgh, we need to advance a tax of $700, even though I may not collect on that invoice for up to 90 days. To do so, I am borrowing money at around 4 percent. I hope that lawmakers consider that placing a cap on the allowance does hurt small family businesses like mine.” – David Crantson, Jr., Cranston Material Handling in Pittsburgh, PA.