Here Are Some Things that Could Still Affect Your Park
With the holidays behind us and the summer camping season just around the corner – and with President Barack Obama into his second year in office – there are a number of issues percolating around Washington that will likely have at least some impact on the RV park and campground industry. Here’s a rundown on a few things you’re likely to come face to face with in the coming months.
Before I get into that, though, let’s agree to put aside for the sake of this discussion, the mega issues facing the president, the Congress and the nation – health care, the deficit, national security and infrastructure. Each of these is its own thousand-pound gorilla and in some ways beyond the ability of the rather modest park industry to impact.
So we’ll agree today to set those issues aside.
Audit Letters from Your
(Not My) Friends at the IRS
The first 2,000 letters out of an eventual total of 6,000 over three years will be sent to some very unfortunate small businesses by the Internal Revenue Service (IRS) next week. The reason businesses will be getting these letters is because their business rhymes with “random.” The IRS is conducting what it calls a National Research Program (NRP). The purpose is to determine whether businesses are properly classifying individuals as employees or independent contractors. If you are thinking, I do not need to read further because I do not have independent contractors, SORRY, you have to read on.
First, many, many campgrounds rely heavily on workampers for seasonal staff. And parks seem to handle the IRS end of workamping in unique ways. It almost seems like each park owner has their own way of defining workampers, paying them, insuring them and otherwise complying with the IRS Code. Many park owners do view their workamper helpers as independent contractors. So, you may fall into this category.
Second, this IRS research is supposedly a scientific sample. Businesses are not selected based on the likelihood of having an issue with classifications but simply because they are unlucky. Every business that gets the letter will be put through an audit. In addition to the classification issue the examiners will also be looking at executive and officer compensation and whether fringe benefits are being properly reported as taxable or nontaxable income. (The IRS has a publication at www.irs.gov that is a pretty good primer on fringe benefits, Publication 15-B, Employer’s Tax Guide to Fringe Benefits.)
The bottom line is that if you lose and are selected for this “research” audit, it is not going to be a cakewalk just because you do not have independent contractors.
Is there Help in the Works
For Credit Issues? We’ll See
I’ve been hearing for a number of months that many park owners are encountering credit issues – difficulties in re-financing, getting their credit lines renewed or obtaining new financing for expansion and other purposes.
Recently, the federal financial institutions regulatory agencies (i.e. the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision and the National Credit Union Administration) and the state supervisors issued an “Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers” to restate and elaborate their supervisory views on prudent lending to creditworthy small business borrowers.
In part the regulators, said, “As a general principle, examiners will not adversely classify loans solely due to a decline in the collateral value below the loan balance, provided the borrower has the willingness and ability to repay the loan according to reasonable terms. In addition, examiners will not classify loans due solely to the borrower’s association with a particular industry or geographic location that is experiencing financial difficulties.”
So, if the value of your property has declined, that alone is not a reason enough in itself for a financial institution to deny you credit or the use of the collateral for credit. In addition, neither being a part of the RV park and campground industry nor being located in a specific part of the country that may be experiencing greater financial difficulties than other areas should be a cause for being denied credit.
We’ve all heard about the president’s plan to pump $30 billion into the community banks around the U.S. so that they have the resources to loan money, and we’ve all heard about a long list of tax benefits being proposed by the president, many of which are of particular interest to the small business community and discussed a bit further below. How these programs trickle down to businesses such as yours remains to be seen, but at least it looks like someone may receive some help and assistance as a result of all of the plans and programs being put into place to help right the economic ship. We’ll see.
Asking Congress to Balance
Budgets, with Exceptions
I said at the beginning I wasn’t going to deal with the budget deficit and federal spending. Well, I changed my mind.
Congress has recently passed legislation to increase the federal debt ceiling. The president will sign it. The law creates a statutory pay-as-you-go regime that requires Congress and the administration to maintain balanced budgets – not counting all the exceptions such as Social Security, veterans’ disability and other benefits, and major low-income entitlements, such as Supplemental Security Income and Medicaid.
In addition to the exceptions the bill includes four waivers from the pay-as-you-go requirement, if Congress were to pass legislation to address specific issues. The three of interest to small business and the park industry are estate tax relief, Alternative Minimum Tax Relief (AMT) and an increase in the Section 179 Direct Expensing Allowance. The estate tax relief and AMT relief permitted under the bill are for two years in duration. The increase in the Direct Expensing Allowance can be a permanent increase.
The estate tax “waiver” is for an amount of tax revenue “lost” if a two-year freeze, based on the 2009 top rate of 45% and exemption of $3.5 million, is instituted. Congress could devise any variation on the rate and exemption as long as it fits within the revenue lost number. The issue of whether a freeze would be retroactive to the beginning of 2010 when a repeal of the estate tax went into effect for one year is a matter that will be resolved during legislative debate. So something may happen here before the full estate tax rate of 55% and a $1 million exemption kicks back in in 2011 as currently is scheduled.
The AMT income levels for 2010 have reverted to their old levels. The 2009 AMT exemptions of $70,950 for married couples and $46,700 for unmarried filers have reverted in 2010 to the pre-2001 levels of $45,000 and $33,750, respectively. The waiver would allow Congress to push the levels back up to the 2009 levels with indexing for two years. Otherwise, the much lower levels of pre-2001 will make sure that millions of Americans will be subject to the onerous AMT.
When the Direct Expensing Allowance – or, as its commonly known, the Section 179 allowance — was originally enacted, it allowed businesses to write off $25,000 of capital asset purchases in the year of purchase. However, if you spent more than $200,000 on such things as equipment in the year, the Direct Expensing Allowance phased out and you had to use depreciation.
Over the years, the small business community has secured temporary increases in both the allowance and the investment cap. In 2007, the limits were increased to $125,000 and $500,000, respectively, for taxable years beginning in 2007 through 2010. In 2008, the amounts were increased for taxable years beginning in 2008 to $250,000 and $800,000, respectively.
President Obama last February signed into law the American Recovery and Reinvestment Act. It extended the temporary increases of 2008 through 2009. In 2010, the amounts have returned to the 2007 levels of $125,000 and $500,000. In 2011, the amounts revert to pre-2003 levels of $25,000 and $200,000. Enactment of the debt ceiling increase law with this provision given a waiver may enable small business advocates on the Hill to get at least the permanent baseline amounts at the 2007 levels rather than the pre-2003 levels.
Forest Service Considering
Dropping Discounted Fees
The U.S. Forest Service, at the prodding of public land concessioners, is considering lowering the 50% discount camping for Golden Age (Senior) Passport holders. The concessioners say that such a large part of their business has become discount passholders of various kinds that it’s difficult to operate the business on such extensive discounting.
This issue of fees is also entangled with the question of those fees charged for day use within the Forests. The No Fee Coalition comprised primarily of Westerners has been objecting to charging fees on public lands since Congress passed the Federal Lands Recreation Enhancement Act in 2004, and several key Western legislators have introduced legislation to remove the fees.
In an unusual move, AARP has editorialized in a recent issue of its magazine on the impacts of doing away with the discounts for seniors. No doubt RV clubs and user groups in the RV park and campground business are watching this carefully. A 40% increase in public land camping fees may be hard for some to swallow. But it will go some to leveling the playing field with the private sector.
David Gorin, former ARVC CEO, is president of David Gorin & Associates, providing management consulting services to the outdoor hospitality industry. He’s also a partner in King & Gorin, specializing in Washington representation for associations and businesses in travel, tourism transportation, recreation and public lands. Contact him at email@example.com or at (703) 448-6863.