For those that may be unclear as to exactly what an affiliate is, let me explain it as simply as I can and use Amazon.com as an example.  Amazon allows other website owners to post links or advertisements to their products on their website. In exchange, Amazon pays those website owners a small commission on the products sales that this generates. Simply put, these website owners are basically providing a targeted advertising medium to Amazon. What the “Amazon Tax” law does is it requires Amazon (or other Internet retailers) to collect sales tax in a particular state, even if Amazon has no physical presence in that state.

As an example, let’s say that Suzy Customer lives in Raleigh, NC.  She is reading the Century House SEO blog from Robert Enriquez who is physically located in Charlotte, NC.  Robert is discussing a book that he recently read, and Suzy decides to buy it. Suzy follows the link to the Amazon.com website where she makes a purchase. Even though Amazon has no physical presence in North Carolina, the State of North Carolina expects a piece of the pie.

According to the report, Amazon taxes do not provide easy revenue for the states that have enacted them. In fact, the Amazon taxes that are in already in place have not produced any revenue to those states and there is evidence of lost revenue. This is because Company’s like Amazon have discontinued their affiliate programs in these states, the website owners in those states are now earning less income and paying less income tax than before.

Some additional key findings from the Special Report are as follows:

Amazon taxes are unlikely to produce revenue in the near term.  New York continues to face a lengthy legal constitutional challenge.  Rhode Island has even seen a drop in income tax collections due to the law.

Amazon taxes do not level the playing field between brick-and-mortar and Internet-based businesses because they require Internet-based businesses to track thousands of sales tax bases and rates while brick-and-mortar businesses need to track only one.

Unconstitutionally expansive nexus standards like the Amazon tax undermine legal certainty, burden interstate commerce, and harm economic growth.

Enacting an Amazon tax law sends a signal of hostility to businesses engaged in interstate commerce, runs the risk of retaliation from other states and from affect businesses, and undermines efforts to improve the uniformity of state sales taxes.

One of the biggest factors that proponents of the Amazon tax use is that it isn’t fair that these purchases go without tax, while brick-and-mortar businesses are required to collect tax – offering a competitive disadvantage.  The fact of the matter is that even those these retailers are not required to collect sales tax on these sales, consumers are still legally required to pay use tax on those goods.  The problem is that 99% of consumers do not do so.    Certainly, looking at methods to enforce existing law would be better than passing new laws that have a negative effect on businesses within these states.

Many taxpayers have not filed because they didn’t have enough income to require them to file a tax return – even though they had taxes withheld from their wages.  The law only allows these taxpayers a three year window to claim their refund – after that, the money becomes property of the U.S.Treasury.    For 2006 returns, the deadline to claim their refund if April 15, 2010.

The IRS provided a breakdown of these refunds by State.  In South Carolina, there were 16,400 individuals that have yet to apply for $13.8 million in refunds.  In North Carolina, there were 39,100 individuals that have yet to file for their $32.9 million in refunds. 

The IRS makes it sound like all of these taxpayers are due money back.  In actuality, all of these taxpayers are due money back based on the data that the IRS currently has available to them.  Many of these taxpayers may actually owe money if they file their tax returns.  This may very well be the reason that many of them have yet to file.

This brings me to a little rant.  It is amazing to me how many businesses that we run across that have simply not filed a tax return in several years.  Some of these businesses are making money, many of them are losing money.  Either way, if you are a business you need to file your returns.  From talking to many of these business owners, it basically comes down to one of two things – laziness or dishonesty.  Those that are the result of laziness usually have very poor records and don’t keep up with it anyway.  These business owners are destined to fail.  It is only a matter of time.  Most of them are losing money anyway due to the poor management of the owners.

The other class are the ones that do not file because they are afraid they will owe – and either don’t have the money to pay it or don’t want to pay it.  I have no idea how the IRS can not track these jokers down, but they are out there – everywhere.   I will end my rant now.

The parent who believes that the college admissions process is a game is intent on figuring out first the rules, then the unwritten rules, and especially the deep secrets of this new game – and then mastering them.  Game-playing parents range in style from the athletic through the compulsive gambler type and finally to the organized-crime-connected politician.

The athletic parent rises to the challenge of mastering the new sport.  I have a  friend who always gets lessons when he does a sport; the moment something goes wrong with his golf game he’s back to consult his pro.  He takes windsurfing lessons, skiing lessons, he consults with experts before he hikes.  So when his son, who was a good student in public school, got to spring of his junior year, the father hired an outside educational counselor.

The counselor explained that the rules of the game were fair, there were no deep secrets, told him that his son had a good chance at five colleges, but he had to “present himself well.”   So the father and son went on the trip, with the father acting like a Little League dad, giving pointers, pep talks, expressing disappointment when his son did not chat up the hockey coach at one college.  Happily, his son fell in love with the first college he saw and is at the present moment enjoying his years there very much.  My friend retired from the field, fully satisfied that he had played the game the right way, and had gotten the right advice from his pro.

The gambler parents are like the fans of race tracks, talking about weather conditions, trading stories about previous races and the mental state of jockeys, and finally, painfully laying down their bets. The wisest among them at least acknowledges that there is something arbitrary about the process. The worst of them want to give their child an advantage by getting a phony psychologist to certify a dubious learning disability so that their child can take untimed SATs. The sad part about the handicappers is that their children are not racehorses and it does them harm to be talked about in terms that imply winning or losing.

The only students that are destined to fail in college are the ones who have been shoehorned by their parents into schools for which they are not well qualified academically. The secret, sometimes unconscious knowledge that he doesn’t really belong there undermines the student and he drops out, flunks out, or fails to thrive.

To the students, follow a few simple rules when preparing for the overwhelming thought of choosing the right college:

1. Assess your personality type – Don’t hyper focus on the things you “like” at the moment or what other students are doing.  Remember, abilities and interests change.  Just ask your parents.  Make sure your values and personality traits come first.
2. Perform research on the careers that best fit your personality -  CSI, Grey’s Anatomy, and Law & Order don’t speak to the extra years of education, internships and multiple years working long shifts before you can branch out into the field of choice.  Choose a college that offers a solid curriculum in your career.
3. Keep up your grades, community service and extracurricular activities -   Get yourself the credentials so that others can easily see your ambitious personality and be able to write a powerful recommendation for you.
4. If necessary, seek a professional counselor.   Trained professionals depend on the success of their student clients to maintain their business.  They can be a valuable investment in one of the biggest decisions in your life.

Bill Hughes is a Professional College Planner located in Lake Wylie, SC.  Bill works with parents and students to help them with financial aid, career planning, scholarships, and SAT/ACT test planning for college.  You can contact Bill at 704-239-7772 or you may email him at billhughes [@] comporium.net.


It all goes back to value.  When you are setting the value of your services or products, what is it worth?  Chris is a well known business strategist, but lets look at this same scenario in a typical small business – for instance a contractor who does home remodeling services.

Let’s look at two scenarios.  Jim Contractor has ten different jobs working at the current moment.  In order to win the bids on the jobs, he had to be the low bigger.  His expected profits was cut to the bone and he has to work around the clock to get them done on time – and if his budget is off – he will likely lose money on a few of the jobs?

Bob Contractor has only three jobs in process right now.  When he bid the jobs, he priced the jobs so that he could make a nice wage once the jobs were completed.  His prices were more expensive than Jim’s and he had a higher profit margin.  Bob has time to excel in not just the quality of his work, but also in building a relationship with his customers.  He is able to give them comfort that the job is being done right – providing that extra little bit of value in the eyes of his customers.  He also does not have to worry as much about making an error figuring up his job cost – if he is off a little bit, he isn’t as likely to go into the hole.

Who would you rather be – Jim or Bob?

There are thousands of Jim’s out there – fighting for that customer who is always looking to pay the cheapest price.  He is always struggling to win bids and a typical dinner time conversation is how he keeps getting underbid by his competitors – ultimately resulting in him lowering his prices even more.    Jim is selling a commodity.

There are only a handful of Bob’s.  Bob creates value for his customers.  I suggest you strive to become Bob.

Due to the strain on the states budgets throughout the country, we suggest that you adjust your tax withholdings to eliminate the possibility of having substantial over payments in either federal or state payments.  We have already seen several states over the past year that have issued IOU’s instead of actual refunds.    The problem with an IOU is that you can’t use that to pay your mortgage or put food on the table.

You can read the guest post here: Are you focused on the right target to grow your business?

A 1099-MISC form is issued to a person or unincorporated entity that is paid more than $600 in the calendar year.  If they pay you less than $600, the payor does not have to issue a 1099-MISC but that does not mean it is not income to the receiving party.  The purpose of the 1099 is to notify the IRS that this person should be claiming the income and paying taxes on it.  The IRS then matches this amount reported to the proper return and if it is not reported, the IRS sends out a lovely balance due notice.  Are these individuals that “have” to have a 1099 in order to do their taxes excluding the income from the ten vendors that paid them $500 each that were not required to send a 1099?

Independent contractors are self-employed are businesses whether they know it or not.  Just like any other business, they should keep a proper set of books and records to substantiate their income and expenses.  They are also eligible to deduct qualifying expenses against the income before paying taxes on it.

With electronic filing being done for most returns today, no statements like W2s have to be submitted to the IRS with the returns.  Even with paper filing, you only attach statements showing how much was withheld and remitted to the IRS.  1099s do not normally have withholding so they are not required and never have been required to be submitted to the IRS.

So when I hear someone asking for their 1099, I hear a business owner saying “I do not keep books and records.  I do not keep up with my business as a business.” and “I plan to only claim the income that is sent to the IRS.”  This is a recipe for pure trouble and is the reason the IRS scrutinizes self-employed filers so much.  The truth is that this one the highest concentration of tax cheating that exists in our tax system today.

Do yourself a favor.  If you are a business owner, require all potential 1099 vendors to complete the form W-9 from the IRS before they receive any payments from you.  If they are planning to cheat on their taxes, remember that they may not always be the best vendor for you.  Have a backup!

Small Business Tax Credit. One of the big highlights of the Presidents speech was where he proposed a new small business tax credit that would go to small businesses who hire new workers or raise wages.  Generally speaking, small business owners would get a portion of the new worker’s salary or existing worker’s raise back as a tax credit – effectively allowing the government to subsidize a portion of this person’s salary.    As general policy goes, I hate the idea of the government subsidizing anything.  However, if they are going to help someone with subsidies to help create jobs, small businesses are where it should be.    After all, its better than spending $533,000 to create each temporary job, as we did with the Stimulus Bill.

Elimination of All Capital Gains Taxes on Small Business Investment. Wow!  This sounds great!  Except for one thing.  When someone invests in a small business, they typically invest for the long-term.  While this policy would mean well, will it really create a flood of investment into the small business market?  After all, these investments could indeed be subject to capital gains taxes again when they are sold 5, 10, or 20 years down the road.  Don’t get me wrong – I like the idea of lowering the Capital Gains rates because it will allow great investment capital to those people who are likely to invest in the first place.

Therein is the underlying problem that I have seen with using Capital Gains rates to encourage investment all along.  Altering the tax rate in the short-term does little to spur on long-term investment.  The problem is that the tax rate is determine based on when an investment is sold – not when the investment is made.  If I invest $100,000 into a new business venture today, what will the tax policy be 15 years from now when I sale the small business?    If the President and Congress want to spur investment, they need to allow taxpayers to “lock-in” a zero-percent capital gains rate at the time they make the investment – not years later when it is sold.  Investors like certainty.  Little certainty equals little investment.  Greater certainty equals greater investment.

I do like the idea of lowering the Capital Gains rates because it will allow great investment capital to those people who are likely to invest in the first place.  I applaud the President for this proposal.  I just happen to like it for slightly different reasons than he does.

Small Business Lending Fund. President Obama is now promoting a $30 billion fund that will be specifically designed for the nearly 8,000 small community banks (those with assets of $10 billion or less) to loan money to small businesses in hopes that it will spur job growth.   Interestingly, many in the banking industry say that the extra funds will not help lending.  They say that banks with plenty of money to lend are having trouble finding credit worthy borrowers and that small business owners are holding off on expansion and improvements due to the sluggish economy.

If a business participates in the loan program, does it subject that business to more regulation and government control?  If so, the loan may not be worth it.

Much of the success of the program will revolve around how much control the federal government wants to exercise over the program participants (the banks) and what kind of regulations the government places on the banks.    An easy example of this are the underwriting guidelines for these loans.

The federal government will have to change drastically from the ARC Loan program for small businesses if they want it to succeed.  (See prior posts, ARC Loans are Ready to Go – If You Can Find A Lender and What Ever Happened to ARC Loans?)  The ARC Loan program was a complete failure by any measure.  It was amazing to me how many SBA Lenders had never even heard of it.   A big reason for its failure was the stringent underwriting guidelines placed on the banks for a very low-profit loan for them.  They had no interest in underwriting a loan that was simply not profitable for them – even with little or no risk.

While the above three proposals are a step in the right direction, they ultimately do not solve the underlying issue.  Small business owners rarely make decisions based solely on tax results.  Regardless of whether there is a credit available, most small business owners are gong to be reluctant to hire or borrow money until they see their business moving in the right direction.

In excerpts of a speech from today that were released by the White House early, President Obama states that “Jobs will be our No. 1 focus in 2010. “  Well, that sounds spectacular, Mr. President.  I am not sure why it was such a back burner item in 2009, but at least we can look forward to 2010.  Or, are you just paying us lip service again?  Only time will tell.  In the meantime, kudos to the President for at least proposing some small business relief.

Charlotte's Bank of America repaid back its TARP loan in December.

During Wednesday night’s State of the Union Address, President Obama again mentioned a proposal that would impose a tax on banks that have yet to repay their TARP funds.   I find the very idea of this proposal outrageous and feel that it is a vast abuse of government power to impose it.  Let’s see what President Obama said on Wednesday night regarding the the banks that have yet to pay back their TARP funds:

I have proposed a fee on the biggest banks.  I know Wall Street isn’t keen on this idea, but if these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need.

The TARP is just another example of what happens when legislation is rushed through as quickly as possible with little thought to its ramifications or a thorough understanding by the people that vote for it (such as the current Healthcare bill).   If the government wanted to limit the bonuses that the banks could pay out, they should have put that in the agreement.  They didn’t.  Why do our politicians keep voting for bills that they do not understand fully?

First off, a fee is just a more politically acceptable term for a tax.  What he is doing is proposing a tax on the banks that have not paid back their TARP funds.  The problem is that regardless of what these banks are doing with the money, they have no contractual obligation to repay the funds yet.  The deadline for setting up a TARP repayment system is 2013.

When TARP was passed in 2008, they setup rules for how things would be handled.  Now, President Obama wants to change those rules on the banks mid-stream.

Imagine if your brother-in-law loans you $50,000 to start a business, and you sign a written agreement stating that you will pay the amount back in a lump sum in 5 years.  A year and a half goes by, and your business is chugging along nicely.  You decide to reward yourself with a new flat screen TV for the living room.  Now your brother-in-law comes over and has a hissy-fit because you are spending money on a new television, but you have yet to repay the $50,000 to him.  To get back at you, he decides he is just going to help himself to the better part of your DVD collection.  I can see how he may want his money now rather than later, but that was not your agreement.    If your brother-in-law wants his money sooner, he needs to work with you to amend the agreement, not just start taking things.

In his post, Is the Bank Tax Unconstitutional, Peter Pappas of the Tax Lawyer’s Blog discussed the constitutionality of the Bank Tax and whether the banks have a legal or a moral obligation to repay their TARP funds early.   I can see how someone may argue that it isn’t right for them to take bonuses when they have yet to repay their debts.  But do the people making those arguments think that it is morally acceptable to go out and eat an extravagant dinner when they have yet to repay their credit cards debts or home mortgage.  The fact is that the banks had until 2013 to setup a TARP repayment system.  The banks have NOT broken that agreement.

The TARP is just another example of what happens when legislation is rushed through as quickly as possible with little thought to its ramifications or a thorough understand by the legislators that vote for it (such as the current healthcare bill).  If the government wanted to limit the bonuses that the banks could pay out, they should have put that in the agreement.  They did not.  Why do our politicians keep voting for bills that they do not understand fully?

President Obama wants YOU to pay more than your fair share!

In yesterday’s post, I discussed the tax cuts that President Obama mentioned in his State of the Union Address.  As I mentioned in that post, President Obama’s statement that he hasn’t raised income taxes by a single dime on a single person is technically true, one can’t ignore the fact that his administration is working diligently to increase taxes all over the board.  We have been hearing about the massive healthcare bill for months now, and both the Senate and House versions of that bill call for income tax increases.

I had originally thought that I would just list the proposals that have been discussed by the Obama administration, but upon diving deeper, I realize that the list is too extensive to compile and too cumbersome to maintain.   I will try to direct you to different list and resources that have complied a partial list of these proposed tax increases.

First off, we have to look at the healthcare bill.  Ryan Ellis from Americans for Tax Reform constructed a list of the major tax increases in the proposed healthcare bills.  Several of the bigger provisions revolve around an Individual Mandate Tax.  In essence, the bill takes away one’s freedom to choose not to buy health insurance.  If you don’t buy it, they will slap you with a fine.  The larger your family, the larger the fine.  By 2016, the tax will amount to an additional $495 or 2% of adjusted gross income (higher of the two, of course).  A family of three or more would get nailed with a fine of the greater of  $1,485 or 2% of adjusted gross income.  OUCH!  That is quite a hefty fine for a low income family that is already struggling to get by.

The news just gets better for business owners.  If an employer with 50 or more employees does not offer health coverage for employees and at least one employee is eligible for the health tax credit, the employer gets slammed with an additional non-deductible tax of $750 for every full-time employee.  Since the minimum employee size is 50, the minimum amount of tax a business will get hit with is a whopping $37,500 – a brutal fine to pay for many businesses that are already struggling to turn a profit.  To make things worse, it isn’t tax deductible as other employer payroll taxes are.  In addition, if a business requires a waiting period for employees to go onto the health plan they get slammed hard again.  For a waiting period of 30-60 days, they get hit with an additional $400 tax per employee.  If that waiting period is 60 days or longer, they get nailed again.

The partial list of backdoor tax increases in the health bill goes on and on.  Here are just a few more of the other “tricks” in the bill to get more money from the middle class.

Excise Tax on Comprehensive Health Insurance Plans
Removal of Non-prescription/over-the counter medicine from the list of allowable expenses to be paid by health savings accounts, flexible spending accounts, or health reimbursement plans.
Increase additional tax on non-medical early withdrawals from an HSA from 10% to 20%
Capping the amount that individuals can put into a Flexible Spending Account at a meager $2,500.  Currently, this amount is unlimited.
Excise Taxes on Charitable Hospitals.
Tax on Innovator Drug Companies, Medical Device Manufacturers, Health Insurers
Removal of Tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D
Increase the threshold for deducting Medical Expenses from 7.5% of AGI (current) to 10% of AGI
Hike in Medicare Payroll Taxes
Blue Cross/Blue Shield Tax Hike
Tax on Indoor Tanning Services

The Obama tax train is not stopping at healthcare.  There have been a whole host of taxes that have been proposed to help may for the massive amounts of new spending that is planned.    David Boaz of the Cato Institute has compiled an extensive list of taxes that President Obama and his allies were trying to impose.

The largest proposed tax increase is the cap and trade levy that is proposed.   The Congressional Budget Office reports that cap-and-trade would cost the average household roughly $1,600 per year.  The Wall Street Journal reports that “while cap-and-trade rises with income, the relative burden is greatest for low-income households.”   This is because low income families spend a much higher percentage (20%) of their income on energy intensive items, while high income earners spend less than 5% of their income on energy intensive items.

The list goes on and on…here are a few of my “favorite” taxes from David Boaz’s list:

Applying the Medicare Tax to capital gains, and other “unearned” income
Raising the Medicare Tax Rate
Raising the top income tax rates
Impose a value-added tax (VAT) on all goods and services (this would be a monstrous tax increase and would hit everyone.
Raising the Social Security Tax
Impose higher taxes on cigarettes, beer, wine, liquor, and now soda.

As you can see, the myth that President Obama is a tax cutter is very much busted.  His administration has been working as hard as they can to enact these taxes in an effort to pay for the massive spending increases and the record deficits that they are creating.  Since they are not going to truly cut government spending, the money has to come from somewhere.  Unfortunately, we can no longer afford it.