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Potential Issues That May Affect Spa Industry

Posted: November 26, 2008

With a new administration, control of Congress by the Democrats and significant changes to many state legislatures, Sam Leyvas of the Professional Beauty Association (PBA) has outlined some of the key issues beauty industry professional should be aware of.

Positive impact

FICA tax credit for spas and salons. The bill's principal sponsor (Shelley Berkeley D-NV) retained her seat in the House and is poised to keep this issue a priority. Additionally, 2009-2010 are likely to be years in which we will see a flurry of tax legislation in Congress, giving the beauty industry newfound opportunities to advocate for a FICA tax credit. The FICA tax credit would give spa and salon owners a dollar-for-dollar tax credit on the FICA taxes paid on employees' tip income putting the professional beauty industry on equal footing with the restaurant industry. Employers currently do not share that income, but are taxed on it. This legislation would significantly help small and large spas and salons to lower their tax liability and allow them to further invest in their businesses.

Credit card interchange fees. For years, small businesses, such as spas, restaurants and other merchants have been waging a quiet war with the credit card companies over interchange fees, the hidden costs of processing credit and debit card transactions that can gobble up a store's profits while earning banks a pretty penny. With a new Democratic Congress set to take power in January, it's likely to see the resurrection of the Credit Card Fair Fee Act, federal legislation that would require credit card companies with substantial market power to negotiate with merchants and retailers about terms for fees paid when processing card transactions. "Interchange" is a percentage of each transaction that credit card companies collect from merchants every time a credit/debit card is used to pay for a purchase. The fee varies with type of card, size of merchant and other factors, but as much as $2 of every $100 consumers spend goes to card issuers.

Negative impact

Card Check law (Employee Free Choice Act). This law could have a significant impact on the beauty industry and many other Main Street businesses. While the bill was approved by the House in 2007, it died in the Senate this year but will most likely resurface in early 2009. With Democrats traditionally supporting organized labor's agenda and with unions aiming to fold more employees into union membership, this law would completely change the economics of union-organizing. Card Check would make it cost-effective for unions to go after Main Street businesses, such as beauty/nail salons, spas, restaurants and other retail establishments that have never experienced unionization before. The law would do away with the secret ballot process currently used for unionization in the workplace and replace it with a Card Check system. Once a union persuades more than half of workers to sign membership cards, the union would automatically be certified. Without the secret ballot process, employees would be exposed to intimidation and bullying tactics from union organizers. From large-scale beauty manufacturers to spa owners, this is a law that could have serious consequences for the beauty industry.

Elimination of LIFO Accounting Method. Distributors and manufacturers take note as the permanent repeal of the use of "Last-In, First-Out" inventory accounting would translate into massive tax increases for hundreds of thousands of American businesses. Although the proposed repeal of LIFO was recently defeated in Congress, with a new Congress controlled by one party and the increased pressure to close the federal tax gap along with finding additional revenues to cover budget deficits, it is likely to resurface. The restricted use or outright repeal of LIFO would have far-reaching and potentially damaging effects on companies within the professional beauty industry that rely on effective inventory management to remain profitable, principally distributors and manufacturers.