DRA’s ‘reasonable comp’ rules miss the point
Small-business owners have often learned the hard way that not knowing the law is not an acceptable excuse for noncompliance. You are expected to follow the law and the associated rules and regulations, or you will suffer the consequences of penalties and fines, or worse.In theory it may sound simple, but in practice it’s not. If finding these rules isn’t a difficult enough task, actually understanding them is another matter entirely.In most cases, rules created or changed by government employees are posted on a department’s website, and the public is welcome to provide comments and feedback. Unfortunately, this process is not highly visible and the details can be exceptionally complicated and more boring than watching paint dry, making extensive public scrutiny rare.As business owners and legislators, we now find ourselves looking at new rules proposed by New Hampshire’s IRS, the Department of Revenue Administration (DRA), aimed at clarifying changes in record keeping requirements of LLC owners, partnerships and sole proprietors. This is happening now because of an important law we passed in June known as Senate Bill 125, which meant to dramatically improve tax-reporting fairness for our small-business owners by clearly and without question changing the burden of proof in a “reasonable compensation” audit from the taxpayer to the department, just like it is on the federal level. When the burden of proof was with the taxpayer, the department aggressively conducted reasonable compensation audits, which question how much money a business owner can make. If the state felt a business owner was making more than average for that industry, it would force the business owner to restate earnings and pay additional taxes. Nearly every small business owner we know would have a hard time tracking the extensive number of hours they work, night and day, every day, and quantifying the extent of their vision, strategy, management, as well as hands-on contributions to the company. This justification process doesn’t even take into account the stress of risking everything and losing money for many years before finally making a profit.Having the opportunity to work hard, be successful and be rewarded for it defines us as entrepreneurs. It’s why we risk it all and put everything on the line every day.These new rules as proposed fail to implement the fundamental and overriding purpose of the law we passed, and actually impose substantial and burdensome new recordkeeping requirements on our state’s small businesses, dramatically increasing their costs of compliance, and creating uncertainty and confusion.To pull us out of this recession, we need to be doing everything possible to improve the environment in which our responsible businesses operate, so they can succeed, grow and hire. After all, fostering job creation is our No. 1 focus as legislators.In the end, the devil is always in the details, so we urge the department to correct these rules to make them comply with the clear intent of the law and send the clearest possible message to New Hampshire’s small business owners that we value their contributions to our economy.We urge you to contact the DRA and let them know that you want the details written to protect your rights under the law as passed and respect the intent of what legislators were attempting to correct on your behalf.State Rep. Laurie Sanborn, R-Henniker, is founder and chair of the New Hampshire House Business Coalition. Sen. Andy Sanborn, R-Henniker, is vice chair of the Senate Commerce Committee.