During tax season, too many business owners utilize “creative accounting.”  A common thread: Reluctance to report all revenue.  Now due to a recent law passed by President Bush, HR 3221, the American Housing Rescue and Foreclosure Prevention Act of 2008, merchants may find it harder to win the game of “Hide and go seek” with Uncle Sam.

The law has made it incumbent upon merchant acquiring entities and third-party settlement organizations to report the amount of funds that certain merchants receive through credit card processing and debit transactions.  The IRS will be the recipient of this information and now can gain a much clearer picture of just how profitable a given merchant is with his/her business.

To be specific, payment card processors will not have report the accounts receivable of all merchants.  However, the activity of business owners who amass more than $20,000 in transactions per year and who concomitantly process over 200 transactions annually will be shared with Internal Revenue.

Mom and pop who are trying to make extra money on e-bay and fail to report such income to the IRS may still find it easy to fly under the radar.  However, small business owners who fail to report their income accurately may now be under much greater scrutiny.

Imagine this possible scenario – an audit with an IRS official.  “Joe Q. Merchant, you indicate that you only made $10,000 with your online business.  However, according to your merchant account provider, you’ve amassed more than seven times that amount in credit card and debit card transactions.  Can you explain the discrepancy?”  (How much can be explained away with refunds, chargebacks, deposits, and cash back on debit card purchases?)  No doubt, it pays to be honest in the first place.

Such a law pays out for our government as well.  It’s clear that the new reporting will ensure a more accurate declaration of income … and more declared income = greater tax revenues. 

Opponents of this law contend that credit card processing information is already accessible on customers’ bank statements, making it very difficult to underreport business-related income.  However, the powers that be counter that another reporting tool will further decrease the odds of merchants cheating on their income.  With more data collection and a higher microscope lens magnification, the less likely that the specimen will be comfortable altering its shape or course, so to speak.

Detractors of HR 3221 are also concerned with the stipulation that reports must be filed using the merchants’ taxpayer identification number (TIN).  In cases where a TIN could not be verified, credit card processors are to withhold taxes on payments to merchants.  Some fear that administrative glitches can irreparably harm “innocent merchants” where they will be unable to receive close to 30% of their credit card reimbursements.  Their cash flow will be impeded until their TIN can be confirmed – a situation beyond merchants’ control.

How credit card processors are to enact systems tracking merchant payment transaction to TINs remains to be seen.  At the present time, there is no mechanism in place to do this.  Creating a means to accomplish this objective seems arduous, time-consuming, and expensive. 

Furthermore, payment processors must figure out how to secure the data and safely pass it on.  Of course, before compiling the data on behalf of the IRS, payment processors must also ensure the integrity of the data and that transactions, for example, are not counted twice.

Developing reporting systems and channels requires additional financial resources, and it is predictable that a rise in the processors’ expenses will trickle down to independent sales organizations, then to merchants, and ultimately to customers.

Finally, with every law, there are those who find a way around it.  Some merchants, for instance, may decide not to accept credit cards and rely on cash payments.  The IRS has not figured out a foolproof way of knowing a merchant's cash intake ... at least not yet!

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To learn more about our merchant account services, please visit us at  http://www.intelli-collect.com.

The trouble with government regulation of the market is that it prohibits capitalistic acts between consenting adults.” … Robert Nozick

Visa, MasterCard, American Express, Discover, and processing banks would applaud the above quote and embrace the notion that their big businesses should not be regulated by an even bigger government – at least when it comes to determining credit card processing fees.  The long-standing Interchange fees, the rates which acquiring banks pay to card-issuing banks (inevitably passed on to merchants), set by Visa and MasterCard, are coming under great scrutiny and under the federal microscope as reflected by Bill HR 5546.

The Credit Card Fair Fee Act, HR 5546, sounds innocuous, and well … judicious.  Who isn’t a proponent of fairness in every field?  The bill empowers retailers to be able to negotiate Interchange fees – fees that would no longer be the sole domain of the two card brand powerhouses. 

Initially, the bill called for a panel comprised of three judges to arbitrate Interchange pricing if merchants and the bank networks were to disagree with the proposed pricing model.   (No doubt, these judges would have been very busy.)  The judges needed to possess seven years legal experience, one deemed an expert in electronic processing affairs and one in economics.   The other judge was to have at least 5 years of experience in adjudications, arbitrations, or court trials. 

These three learned men or women were to assume great responsibility.  But HR 5546 has discarded the provision calling for the three-judge panel in favor of the U.S. Department of Justice’s Antitrust Division who, if the bill becomes a law, will now be entrusted to settle disputes and enforce the law.

HR 5546 has already passed the U.S. House Judiciary Committee and now will be evaluated by the entire House of Representatives.  There is a similar companion bill in the Senate, now sitting in the Senate Judiciary Committee.

This bill predictably has ignited much discussion and controversy, and its value or lack thereof depends on which side of the fence you’re standing.  Let’s briefly look at the contrasting perspectives:

Merchants – This includes major retailers like Walmart and Target, mid-sized companies, and small mom and pop equivalents:

We are the backbone of the American economy and it’s difficult to expand and grow and keep our pricing consumer-friendly when we have to apportion too much of our profit to credit card processing companies.  Interchange rates keep on rising and we’re seeing our profit margins diminish.

Cardholding institutions

We make no revenue from the Interchange fees.  We have been very sensible and fair-minded in establishing Interchange rates; they are not arbitrary.  No regulation is necessary when the system works and is not burdensome to merchants in light of present conditions in the marketplace.

How can this even work from an administrative point of view.  Can you imagine 25 million business owners directly negotiating with us?

Banks

We are against HR 5546 as we assert that it will ultimately hurt consumers, particularly from the standpoint of card-issuing banks.  We will lose revenue and will have to make it up by eliminating reward and loyalty programs and increasing cardholding fees.

Merchant Account Providers

We cannot imagine why the legislators who drafted this bill contend that merchants are compelled to sign “take-it-or-leave-it” contracts to acquire credit card processing capability.  We incessantly compete against each other to secure clients, ensuring that discriminating merchants will obtain extremely merchant-friendly pricing.    

Consumers

Using credit cards has become a necessity.  Merchants should factor in the fact that they are paying the credit card processing companies for our convenience.  But perhaps if merchants do not pay as much for their credit card processing, they can reduce prices to some extent.  However, we are concerned that are card-issuing banks will increase our rates and decrease card options.

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The battle lines are drawn and it is still uncertain what, if anything, will change regarding Interchange.  All parties are taking a wait-and-see approach, holding their collective breath. 

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To learn more about our merchant account services, please visit us at  http://www.intelli-collect.com.

If success is only a thought away then perhaps we have more control over business outcomes than meets the eye.  It is so important to envision what we want – especially what we need – with confidence and enthusiasm.  Inspiration can overcome a sense of immobility and jumpstart feelings of faith and optimism so important in accomplishing our goals and objectives.  

So many of us embrace the idea that we’re incapable and perhaps even undeserving of success.  We go through our daily routine uninspired, if not defeated, believing that our businesses are doomed to fail.  The dismal economic climate only serves to rain down upon us, flooding us with thoughts of negativity and pessimism. 

As one of our new merchant clients declared, “I’m not even sure why I’m starting this business.  How can I hope to succeed in this economy?”  This type of limited, restricted thinking will only be counterproductive and serve as a self-fulfilling prophecy of failure.

I immediately asked the client to place her doubts aside and think about what inspired her to launch the business.  She immediately said, “Putting food on the table,” but upon further questioning, she began to tell me about successful entrepreneurs that she knows – her relatives – who, in her estimation, were not any more “gifted” than herself. 

In particular, she remembered her grandmother with devotion and fondness who opened a successful bakery in the 1940’s.  Despite other family members’ admonitions that her grandmother did not know “anything about business,” her grandmother tossed aside the objections and blazed a path of successful entrepreneurship.  Growing up, her grandmother would utter the following words again and again to the granddaughter: “You control your destiny.”

After our conversation, I would like to believe that the client will regain a sense of control and ownership of her thoughts and beliefs, and that her patterns of self-sabotage will soon dissipate.  In her case, she was allowing her own negative thought patterns to control her, forgetting that she is in control of what she thinks.  I advised that she reminisce about her grandmother anytime the thoughts of gloom and doom appear.  Who better to serve as a source of inspiration than one’s grandma?

For me, anytime that I think in a defeatist way, I conjure up images of my son, Scott, who is on the autism spectrum.  Despite social, communication, and sensory issues, he perseveres against all obstacles, and is making discernable progress in all areas, especially academic.  While he gets easily frustrated, he does not give up.  Although he incessantly utters that he can’t do something, he is determined to accomplish this so-called unattainable goal.  If he is up to at least meeting his challenges, than I, as his dad, can do the same with mine, regardless of the end result.  But with an inspired attitude, this end result is more likely to be a positive one.

A couple of years ago, I went to a minor league baseball game with my older son, Matt.  Our home team was losing 10-0 by the 4th inning.  While my son told me that the game was over, I asserted that the outcome was far from determined.  In the hope of inspiring the home team, I started a chant of "Don't Give Up" which caught on with the other fans.  We chipped away the lead in subsequent innings, and got three runs in the bottom of the 9th, winning the game 11-10.  

Matt's face glowed with a sense of excitement, happiness, if not shock.  I was so happy, too, not necessarily because the home team won but because I knew Matt would always remember this game, and that I can use the memory to inspire him when he faces seemingly insurmountable challenges.   

As I have a very strong emotional bent, it does not take much to inspire me.  Just yesterday, I was watching (blushing with this admission) America’s Best Dance Crew, and was very impressed with the performance of a group called “Fanny Pak.”  Matt and I are rooting for this crew and we were happy that they had danced so well.  I reminded him what one of the crewmates, Glenda Morales, said before the performance: “We have to nail it but we’re not going anywhere.”  Glenda’s confidence was admirable and helped propel Fanny Pak to an unforgettable routine.