If you’re self-employed, or you are an independent contractor or, even if you just operate a side business, and you use payment apps like Venmo, Paypal or Cashapp, the IRS is now watching you.  Because of a new tax reporting regulation that took effect on January 1, 2022, most payment apps are now required to issue 1099-Ks to any businesses receiving more than a total of $600 in electronic payments over the course of the calendar year.  Previously, this would only be necessary if the business received over $20,000 and conducted 200 or more commercial electronic transactions in one year. This is a huge difference.  

This new rule does not impose any new taxes on businesses that use payment apps and does not apply to 2021 taxes.  It’s nevertheless a wake-up call to businesses that thought if they were receiving money for selling goods or services through payment apps, they didn’t have to report it on their tax returns or they otherwise thought they could fly under the fed’s radar.  Businesses have always been required to self-report income, however, now the IRS no longer needs to rely on you for this information.  Instead, it will get the information directly from the payment apps themselves. And it anticipates that it will generate $1 billion in additional tax revenue in the first year. 

Your business and the IRS will receive a 1099-K from the payment app provider.  Additionally, you may be expected to share your social security number, personal tax ID or EIN to the payment app you utilize so the payment app can properly issue 1099-Ks in compliance with the new rule.  You may also be asked by the payment app to designate transactions as business or personal.   Most payment apps will be impacted by the new rule with the possible exception of Zelle, according to its.   

For those who utilize payment apps for personal transactions, there is no need to worry.  Sending someone birthday cash or splitting the bill for your dinner are not transactions to report on taxes and neither your payment app provider nor the IRS will be checking for these types of transactions. Additionally, selling items at a loss is not taxable—so if you’re selling old furniture for less money than you paid originally, then that is an exception too.

If you have concerns about whether to accept payment for your business through a payment app, it is best to consult with your tax professional and your payment app’s policies. 

is a Martindale Hubbell AV Preeminent-rated trial attorney. A director at Fennemore Craig, Lamber has been featured in national and local media, including the Arizona Republic, USA Today, ABC News, The Wall Street Journal, Forbes, the ABA Journal and many others.

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The Arizona Tax Research Association says Arizona school districts have proposed a $98,886,980.56 increase in property taxes to fund transportation costs. This increase more than doubles state school district spending on the same item in FY2021, when $79,295,907 in property tax dollars were allocated for transportation costs.

The funding formula for transportation spending by school districts is based on route-miles driven the previous year. The sharp increase in property taxes was accomplished through the utilization of a caveat in the funding formula that allows school districts to increase their spending on transportation, denoted as Transpo Delta, in order to account for a difference between projected spending and historic spending.

Federal COVID relief spending

The coronavirus pandemic meant that “Arizona school districts used their school buses far less last school year,” ATRA Senior Analyst Sean McCarthy said. This means that some increase in spending on transportation might have been inevitable as the state and the nation emerge from the pandemic, and children go back to school.

An increase in spending on transportation costs by school districts was likely inevitable, but that does not account for a massive influx of federal fiscal relief for K-12 public schools that came about in response to the pandemic. The federal government has nearly $4 billion in fiscal aid over the course of the past year towards Arizona’s K-12 education system, 90% of which is given “directly to school districts or charter schools.”

These relief funds “are one-time monies and mostly unrestricted, meaning they can be used for any legal purpose,” says McCarthy, “The one-time decrease in formula monies for transportation is a perfect example of what federal dollars should backfill.”

School districts are set to adopt these property tax hikes on Monday, August 16th. ATRA is encouraging the districts to reconsider.

“Saddling the community with increased property taxes when schools actually saved money on these programs last year is insulting and shows a complete lack of regard for taxpayers,” McCarthy said.

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As the state House of Representatives prepares to take up debate on the state budget, legislators should keep in mind the following: 

1. A flatter income tax is better. It removes negative incentives that reduce productivity and investment. 

2. If the Legislature does nothing to blunt the negative impact of the nearly 78% income tax increase from Proposition 208’s new surtax, there will be a negative effect on small businesses and on the state’s ability to attract and grow both small and large businesses in the future. 

3. If the Legislature does nothing to change our tax code, state and local governments will still lose revenue. Proposition 208 has forced the state into an income tax structure that is uncompetitive. 

We have long been proponents of a flatter income tax structure. If a state is going to impose an income tax, we believe a flat tax is the best system. 

A flatter tax decreases the potential for lost productivity typically present with a progressive income tax system, so a switch to a flat tax lessens the disincentive to work and invest locally. 

A flatter tax system also recognizes that progressive systems tend to be enormously lopsided, relying on a small base of taxpayers to pay a substantial amount of the tax. Currently, according to the Joint Legislative Budget Committee, 4.75% of Arizona income taxpayers in the highest income brackets pay 48.5% of all income taxes in the state. Under Proposition 208, these taxpayers (at least 50% of which are small businesses) are responsible for 100% of the income tax surcharge, increasing their total liability to 55% of all income taxes collected. 

We have also seen several new tax revenue sources in recent years amounting to a substantial amount of extra tax. These new revenues come from sales taxes on sales by third party sellers on internet marketplaces, and from taxes resulting from the legalization of recreational marijuana and sports betting. New tax cuts should be warranted commensurate with these new revenue streams when they place the state in a structural surplus. 

Arizona is facing a pending economic development headache caused by the implementation of the tax surcharge. As any economic development professional will tell you, deals and investments are won at the margins. New businesses, both large and small, with higher income job opportunities have come to the state in increasing numbers over the last few years, with capital expenditure commitments that have exceeded all expectations. They came based on a set of economic conditions that, importantly, included our tax structure. Then, we changed it to their disadvantage.  

Higher income taxes won’t mean we lose every deal going forward, but it means we will lose those deals at the margin that are sensitive to changes in the tax structure. This could mean we lose out on companies hiring professionals with advanced degrees or headquarter locations that bring executives and their high salaries.  

A small number of high‐income taxpayers pay a large share of tax. Losing even a small percentage of them has an outsized impact on tax collections. And many who will be affected are also small business owners. If they vote with their feet and leave the state, or future small businesses and other high earners decide not to come, we are worse off.  

Something must be done to “unring” the bell and signal to people and companies that they are welcome in Arizona to thrive and prosper without unnecessary and burdensome taxation. We need to retain our pro‐growth reputation and remain competitive.  

The state Senate passed a flatter income tax structure that addresses the looming impacts to many small business owners. The House should do the same. 

Danny Court is a principal and senior economist with Elliott D. Pollack & Company

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In a glimmer of hope for American businesses, President Joe Biden’s administration appears to be steering away from hardline Democrats who want to impose the highest corporate income tax in the industrial world — 28 percent. 

Now, White House officials said that Biden is willing to bend on his tax proposal to gain GOP support for a substantial infrastructure bill.

“He is personally leaning in, willing to compromise, spending time with senators — Democrat and Republican — to find out what is the art of the possible,” Commerce Secretary Gina Raimondo . “The only thing he won’t accept is inaction. It has to be big and bold, $1 trillion or more.”

Bipartisan groups in both houses also indicated Wednesday that they are working to find alternatives to tax increases to pay for the package. 

That doesn’t mean the threat of a harmful tax increase is going away anytime soon, said Erik Paulsen, a former U.S. congressman who now is a consultant with political consulting firm , which is headquartered in Washington, D.C. and has in Arizona.  

“It’s good that the new administration is floating new ideas as alternatives rather than just a straight increase to 28 percent, which is what many Democrats in the House and Senate would still like to see,” said Paulsen, a former leading member of the chief tax writing House Ways and Means Committee. “It’s important to really view these proposals with a lot of caution because the devil is in the details. There’s lots of fine print.”

Compromise possible?  

Biden is backing off of his original request for $2.2 trillion for the infrastructure package, which would be financed by relying heavily on tax increases on corporations and the wealthy. The current corporate income tax rate is 21 percent.

With little support from the GOP, Biden is now calling for at least $1 trillion for the package.

“If anything, it’s pretty safe to assume that Democrats want a rate increase,” Paulsen said. “And they want it badly. Some say 28 percent. Some are saying 25 percent is an acceptable level.”

Congress needs to act with care in considering changes to the current tax code, which came out of the Tax Cuts and Jobs Act of 2017 and has fueled jobs, innovation and tax revenues in Arizona, he said. 

“There is the potential that you would be giving up some very real economic incentives that are in the tax code right now and those could go away. These are incentives like research and development or clean energy for instance.”

Bipartisan groups in both houses seeking to avoid tax hikes 

After negotiations with Republicans failed this week, in both houses are working to find consensus on an infrastructure package.    

On Wednesday, a member of the Senate group, which includes Arizona Sen. Kyrsten Sinema (D), told that it is taking tax hikes off the table as they try to reach consensus on how to pay for the plan after White House negotiations with GOP leaders failed. 

“That’s my understanding. I think there’s ways to do that; hopefully it won’t be smoke and mirrors. Bottom line, this is probably the hardest part from my perspective, is how you get it paid for,” Sen. Jon Tester, D-Mont., said.

The group is expected to produce a $900-billion plan. 

Meanwhile, in the House on Wednesday, the bipartisan released a $1.25 trillion infrastructure plan. It also indicated it is avoiding tax increases right now as they enter into discussions about how to pay for it. Among the proposals being set forth are increased tax enforcement, reducing inheritance tax breaks for the wealthy, and using unspent Covid-19 relief funds. 

Increase would punish more than 1 million small businesses

Pro-business groups, trade associations and chambers of commerce including the Arizona ˿����Ƶ of Commerce & Industry are calling on Capitol Hill to tread lightly when it comes to raising taxes on companies right now, particularly small businesses.

About 1.4 million small businesses that are organized as C-Corporations will pay the higher rate, according to an by Curtis Dubay, senior economist for the U.S ˿����Ƶ, the world’s largest business organization. 

“There is a false assumption that only big businesses will pay a higher rate. In fact, over a million small businesses— ‘Mom-and-Pop’ retailers, small manufacturers, and professional services firms that often suffered the worst during the pandemic—would also see their tax bills increase significantly,” Dubay said. 

These small businesses employ almost 13 million American workers across various sectors. Most are small businesses and many are very small: over 84 percent have fewer than 20 employees. 

“Hardest hit would be the sort of skilled jobs that politicians love to praise, but often in practice, do too little to support,” Dubay said. 

They include manufacturing small business C-Corps which employ the most workers, about 1.8 million; professional, scientific, and technical services are next with 1.3 million employees, followed by retail with about 1.2 million workers. 

Report shows more than half of small businesses need time to recover 

Many of these small businesses are just now beginning to return to normalcy, surveys show. According to the latest , 59 percent of small businesses believe it will take more than six months to return to normal.

That should be reason enough to hold off on a punishing tax hike right now, Paulsen said. 

“We’re coming out of a significant economic crisis coming out of the pandemic and we don’t want to see that stall out —and it is stalling out right now. Unfortunately, despite the rebound, it’s not coming back out as robustly as it should be.”

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