From the October 1997 issue of Entrepreneur

Small-business owners unhappy about having to file their federal taxes electronically have won a reprieve via the tax bill recently passed by Congress and signed by President Clinton.

The IRS began requiring any business paying more than $47 million annually in payroll taxes to pay them through the Electronic Federal Tax Payment System (EFTPS) starting in 1996. That figure was scheduled to drop to $50,000 by January 1, 1997. And that's what set off the fireworks.

Reacting to complaints from small businesses concerned about having to pay bank fees or content with the paper payment system, Congress pushed the deadline back to July 1, 1997. Then Vice President Gore announced another six-month delay of the filing mandate. In the bill just passed, Congress pushed the deadline back again--this time to June 30, 1998, and President Clinton did not object.

David D'Onofrio, director of government and public affairs for National Small Business United (NSBU), hopes the delay will be used to build support for the House and Senate bills that would make electronic payment of payroll taxes voluntary for small businesses below a certain threshold.

H.R. 722, sponsored by Rep. Doc Hastings (R-WA), sets the threshold at $47 million a year in payroll taxes; below that, electronic filing would be voluntary. In S.570, Sens. Don Nickles (R-OK), and John Breaux (D-LA) set a $5-million-a-year threshold and establish a five-year phase-in for businesses above that amount. Besides NSBU, the U.S. Chamber of Commerce, the National Federation of Independent Businesses and the National Restaurant Association support the bills.

"Filing taxes electronically might very well be an option that many businesses would find helpful," says Nickles, who chairs the Senate Finance Committee's Subcommittee on Taxation and IRS Oversight. "But that should be a choice the individual makes based on what is best for his or her business."

The electronic system allows businesses to pay taxes by telephone or computer through either debit or credit. Using the debit option, a taxpayer asks a financial agent of the Treasury Department to transfer funds from the taxpayer's bank account to the Treasury's general account. With the credit option, the taxpayer's financial institution transfers the funds.

Randy Mason, co-owner of Salem, Virginia-based Mason Mechanical Laboratories, testified to the House Ways & Means Subcommittee on Oversight that filing electronically would cost him either $120 or $600 a year in fees, depending on which option he chose. "I'm also concerned about the disappearance of a paper trail, which could help me defend myself in [the event of] an audit," Mason adds.

In a letter to Sen. Nickles, acting IRS commissioner Michael P. Dolan said nearly 1.2 million businesses pay between $50,000 and $47 million in payroll taxes; 1.1 million of those are already enrolled in the EFTPS.

Mason, whose company employs 10 people, signed up for the EFTPS in case the filing mandate took effect, though he doesn't currently file electronically. "Just because 1.1 million businesses signed up doesn't mean they like the system."

Contact Sources

Mason Mechanical Laboratories, P.O. Box 459, Salem, VA 24153, (540) 387-0463

National Small Business United, 1156 15th St. N.W., #1100, Washington, DC 20005, (202) 293-8830.

Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.