Posted on: Wednesday, March 9, 2005

Businesses say tax rules lack common sense

By Mary Dalrymple
Associated Press

WASHINGTON — Taxes cause problems for entrepreneurs even before they open for business, not to mention the paperwork and unintended tax consequences stemming from many decisions, businessmen and researchers told the president's tax reform panel yesterday.

"They have to determine even how to pay themselves," said Roger Harris, president of Padgett Business Services, which provides tax and accounting services for small businesses. "That's a question we get asked time and time again."

The President's Advisory Panel on Federal Tax Reform, meeting in Tampa, Fla., added business taxes and the maze they pose to entrepreneurs to a growing list of tax headaches. The committee must sort through the problems and recommend solutions later this summer.

The tax issues for small businesses begin with the startup, Harris said. The entrepreneur must decide how to create the business, such as forming a corporation or partnership, knowing that each type of organization comes with different taxation systems.

Then there are tax issues about paying employees, withholding payroll taxes, paying employee benefits and paying themselves while also tracking revenues, expenses and equipment investments. Then add state and local tax requirements.

"We need to get common sense back in the tax code and make it such that a normal business decision is always the right decision," Harris said. "You shouldn't have to call me before you do things in your business."

Some of the tax rules seem arbitrary, said one small-business owner.

Why should a business be allowed to write off the cost of very heavy vehicles and not pickup trucks, asked David Hurley, president of Landmark Engineering and Surveying of Tampa.

"I have almost 20 pickup trucks in my company," Hurley said. "Guess what? Every one of them is out there working. ... If I had gotten in a Hummer to drive over here today, I could have written that off."

The small-business owners who testified to the panel said they rely on experts to handle matters they don't or can't understand.

Todd Flemming, president and chief executive officer of Infrasafe in Orlando, Fla., told the committee his company spends an average of 40 to 60 hours a week keeping records for taxes. Last year, the company spent more than $15,000 for tax return preparation, not including payroll tax processing.

A former chairman of the House Ways and Means Committee, which writes the nation's tax laws, told the panel the system should be scrapped.

"You've got to just ditch it, get rid of it," said former Florida Rep. Sam Gibbons. "Let's go on to the future."