New Act Could Cause Self Storage Industry Financial Woes

President Obama has put forth much legislation in the hopes of helping small businesses grow and thrive, depending on a person’s opinion of his political objectives. But a major trip up in a new act could cost self storage owners a lot of money in the form of taxes and require piles of paperwork.

For the most part, the storage industry has been free of burdensome laws and bureaucracy. But President Obama’s Health Care Bill requires that businesses involved in health care file a 1099 with the IRS for any purchased goods valued at more than $600. Mirroring that law is the introduction of legislation by Rep. Barney Frank called the  Small Business Jobs and Credit Act of 2010 (H.R. 5297). On the surface, the goal of the act is to make credit more available for small businesses as well as offer tax incentives for small businesses while creating jobs.

The impetus behind the act sounds appealing, but it is suspect whether the burden on businesses that rely on rental income was thought of when the bill was formed. This act includes extending a Form 1099 requirement to any business receiving rental income from a rental property business to pay a sales tax under certain conditions. The government is clearly trying to raise revenues to offset losses from credits to other businesses in the new act. Thinking by the politicians runs along the lines of more reported payments results in more taxes to collect.

This act could have several negative impacts on a self storage business, some which could be quite burdensome. A 1099 form would be required from any self storage business paying in excess of $600 a year that isn’t in the form of wages and salaries. Also, if the business spends more than $600 a year on anything, such as gate repair or software upgrades that can be deducted as a business expense and a 1099 form from the purchaser or company must be received from the person selling the products or services.

The paperwork involved is mind boggling. And if that weren’t enough, the 1099 requirement makes it easier for the state tax commissioners to follow the money and check sales-tax collections and payments. The commissioners have interpreted 1099 as a way of getting more sales tax. Under their watchful eye, if a sales-taxable purchase is made and the receipt doesn’t show that sales tax was charged and collected, than the self storage facility owner is responsible to pay the tax.

So if someone is hired to repair some asphalt and the bill comes out to be $600 or more, that is considered a state, sales-taxable event. A 1099 must be received from the asphalt company that was paid in excess of $600 per year. Invoices the asphalt company provides must show a sales tax was charged to the self storage company.

Sources Used:

Greenberger, Jeffrey. “1099 Reporting Requirement: A New Compliance Problem for Self Storage Operators?” Free Republic. Nov. 19, 2010.

“H.R. Small Business Jobs and Credit 5297: Act of 2010.” govtrack.us. 2010