When Dan Weidinger tailors suits of state lawmakers, he has what every lobbyist dreams about: direct, unfettered access to those in power. And Weidinger minces few words. He tells them straight up that taxing clothing alterations – as proposed by the governor – would cost the small tailor’s shop plenty of time and money.
Like Weidinger, some small-business owners are stewing over the potential of having to outfit their cash registers and adjust their accounting in order to collect sales tax for the state.
“I think it’s going to be a hassle for the small businesses,” said Weidinger, who owns Frank’s Fine Tailoring & Dry Cleaning with his father in North Providence.
In his budget, Gov. Lincoln D. Chafee proposes taxing a laundry list of products now exempt from sales tax in an effort plug seemingly constant budget gaps. While business owners grumble about the extra expense for customers, they will also pay more, says Inez M. Mello, a principal at accounting firm Carlin, Charron & Rosen.
Mello, who heads up the firm’s state and local tax consulting group, said business owners may be in for a costly surprise as they upgrade cash registers to track sales or hire accountants to sort through the new rules.
“I don’t know how a small business would handle the additional burden of compliance,” Mello said.
Chafee has also proposed creating a two-tiered sales tax structure, with different rates for different products. That could also complicate matters for businesses, especially ones that never before collected sales taxes.
Members of the Greater Providence Chamber of Commerce have expressed concern, saying in a survey they are worried about Chafee’s proposed budget. In a statement, the Chamber said it “believes that the two-tiered structure is overly complex and could potentially increase the cost of doing business in our state for local companies.”
But Chafee’s proposal has left him scratching his head on how he would record sales taxes on his books.
“It’s a whole new gray area,” he said.
A gray area he plans to leave to his accountant to solve. If he starts collecting sales taxes, Reeder expects a pricier bill from his accountant.
Mello said there is a larger problem as well. Businesses generally must remit sales taxes on a monthly basis based on the sales billed that month. Even if they have yet to collect the revenue, they still owe the sales tax.
Small businesses may not have the cash flow to front the money needed to pay the sales tax.
Accounting firms are not salivating over the potential work either. While more sales tax collection will likely translate into more work, Mello said it’s generally not lucrative.
“It’s not really a big money maker for us because, how much can you charge to prepare a sales tax return?” Mello said.
Patricia Thompson, a tax partner at Piccerelli, Gilstein and Company LLP, said accounting firms also must tread carefully. Charging small-business owners lots of money to advise them on sales tax collection may send them – and their more profitable business – packing.
Thompson said no clients have yet called inquiring about how much her firm would charge for sales tax work.
But Weidinger, the tailor, is not waiting until lawmakers act. He’s trying to avoid the phone call to the accountant altogether by going direct to the politicians.
“Hopefully the bill never gets passed,” Weidinger said. •
