Independent sales organizations should concentrate on making their Internal Revenue Service reporting more efficient and merchant friendly instead of trying to turn it into a profit center, says a tax-compliance service provider.
For the first time, the IRS is compelling the acquiring industry to report merchants’ credit card transactions to curb fraudulent or erroneous tax filing by merchants.
The government forbids ISOs and processors from charging fees for reporting the transactions, but many intend to levy fees and call them by some other name, sources tell PaymentsSource (
However, the fees likely will shrivel over time, driven down by the acquiring industry’s competitiveness, says Troy Thibodeau, executive vice president of Minneapolis-based Convey Compliance Systems Inc.
Besides, other industries faced with reporting requirements have accepted the regulations as a new cost of doing business, not as an opportunity for profits, Thibodeau tells PaymentsSource.
The brokerage business, for example, is learning to live with a new reporting requirement, Thibodeau says. To help the IRS determine how much an investor has gained or lost with the sale of stock, brokers now have to report how much the investor paid for the stock and provide that report during the year of the sale, he notes.
As with the acquiring industry, brokers are incurring costs associated with the reporting, for both technology upgrades and the extra hours of human labor, Thibodeau says.
If businesses are not passing along those costs, it makes sense to do everything possible to reduce them, he says.
Larger ISOs appear likely to spend an average of $17.80 per merchant to reconcile business names and tax identification numbers in their databases with IRS records, Adil Moussa, an analyst for the Boston-based Aite Group LLC, tells PaymentsSource. For small ISOs, the cost could come to as much as $48 per merchant, he says.
ISOs have little choice but to pursue the correct names and numbers because the entries in their records must correspond exactly with the IRS records for the reporting to occur.
Because of the difficulty of the matching and the possibility that ISOs may not find a way to pass on the costs, the industry should try to become more efficient, Thibodeau says. Following all the best practices of reporting could reduce the cost by one-fifth to one-third, he says.
One major component of making the reconciliation more efficient and more acceptable to merchants is taking the time to set up an interactive website that enables retailers to enter their business names and tax numbers and receive immediate notification of whether the entries match IRS records, says Thibodeau.
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