Tipped over

Joy Staveley makes a living shooting rapids. Or more accurately, it is her job to make sure other people get to ride the fierce whitewater of the Colorado River as it rages beneath the Grand Canyon's imposing vistas.

The combination entices about 1,000 customers a season to Staveley's business, called Canyoneers, for tours ranging from three to 14 days.

She's been doing this for 31 years at the Flagstaff, Ariz.-based outfit that grosses about $1 million annually. With a full-time staff of just five (which balloons to 20 during the April to September whitewater season), Staveley must wear many hats.

When I asked for her official title, she laughed before rattling off a daunting list of duties including vice president, chief of operations, executive secretary, treasurer, chief cook, bottle washer, and head taker out of trash.

But if all of those tasks plus tackling whitewater like Crystal Rapids and Lava Fall Rapids isn't hard enough, soon Staveley will have to steer her business through new rocks in the already treacherous rapids known as federal government regulations.

Thanks to a tiny provision in the 2,500-page, 400,000-word overhaul of the nation's healthcare system, Staveley is worried that the government is about to flood business owners like her with a cascade of mandated paperwork.

Section 9006(b)(1) of the new healthcare law requires that all businesses submit a 1099 tax form for every vendor from whom they purchase more than $600 in goods and services each year. These forms will have to be sent to the vendors, who in turn will have to file a copy with the Internal Revenue Service.

"Whatever happened to the Paperwork Reduction Act," cries Staveley about the long-forgotten 1980 law that has failed to live up to its name.

This new regulation, slated to take effect in 2012, is designed to close complex loopholes and raise $17 billion to help pay for the new healthcare law. But its repercussions could be more costly to businesses of all stripes trying to remain afloat and provide jobs in an already tough economy.

"The worst part is that this has absolutely nothing to do with healthcare," said Bill Rys, the tax counsel for the National Federation of Independent Businesses.

Already worried about the new requirement's implications, Staveley asked her part-time bookkeeper to see how it would have played out if the rule had been in effect last year.

In 2009, Canyoneers had to fill out a mere eight 1099 forms-so few that the bookkeeper did them by hand. But Canyoneers is facing a tenfold increase in the number of 1099 forms it will have to file because of the new law.

Staveley is hard pressed to find any vendor with whom her company doesn't do at least $600 worth of business each year:

First there are the basics of gas, electric, phone, and insurance. Then there are at least three gas stations, four banks, and five grocery stores. Both Bill's Welding Service and Buddy's Welding Service for equipment repair. Plus Estrella Laundry for washing all the sleeping bags. Wholesale Bakery Goods whips up the fresh muffins Staveley likes to have handy as a welcoming smell to incoming adventurers. Anderson General Tires outfits the vehicles that take the rafts and riders to the drop-off point. Mount Vista Marina Motors fixes the boats.

And that's just the tip of the product iceberg. Then there's the people Staveley pays more than $600 annually for their services: the travel agent, the accountant, the electrician, the painter, the copy machine salesman and repairman, the souvenir cups maker, and the garbage collector. And (Staveley's favorite) the supplier who provides Canyoneers with its Porta Johns.

"I just want to stand in front of Congress and ask them if they have gone insane," Staveley says. "If the government stopped spending so much it wouldn't have to play Robin Hood."

But filling out the forms is just the beginning of the potential nightmare: The new requirement says places like Canyoneers must send the forms to the vendors. That means Staveley will have to track down the correct tax identification numbers as well as the appropriate corporate address for each $600 or more annual transaction.

"I'm going to have to contact every place from Wal-Mart to my neighborhood drug store to ask them where should I send the forms," Staveley told me. Such swapping of taxpayer identification numbers could create privacy headaches.

Staveley predicts she will have to purchase new software to electronically fill out the added 1099s. And she will soon have to decide if the extra burden in cost and time in filling out the forms and tracking down the addresses will force her to hire the bookkeeper full time.

Regardless, the added regulations will mean less time and money available to promote and grow her business.

Rys with NFIB is skeptical that the IRS will have the computer resources and manpower needed to enforce the new paperwork requirement, and increases in IRS manpower could eat up the estimated revenue boost.

This pending 1099 surprise is a prime example of the potential fallout awaiting the nation after lawmakers rushed through a trillion-dollar healthcare bill and declared victory before analysts had time to peel back all of its layers.

Why did Congress include the 1099 provision? To get the estimated healthcare overhaul cost low enough to appease fence-sitting congressional Democrats, staffers writing the bill concocted such tax schemes to squeeze in every last drop of revenue. Now businesses owners will be the ones with less cash and fewer resources.

Tax paperwork already is the most expensive federal burden placed on small businesses. Rys with NFIB told me that tax compliance costs are 66 percent higher for small businesses, which lack the in-house accounting departments of large corporations.

But while big business may have the manpower to more easily digest the new paperwork, even Fortune 500 companies are bracing for an avalanche of 1099 forms based on their high volume of transactions.

That is why more than 70 business organizations of all sizes have signed a letter in support of a new House measure to undo the 1099 rule.

Rep. Dan Lungren, R-Calif., has introduced "The Small Business Paperwork Mandate Elimination Act." Despite its hefty title, the bill simply strikes the added 1099 requirement.

"For a small business which doesn't have the manpower, this is yet another brick on their back," Lungren said.

Those crying out for a repeal of the entire healthcare law face a daunting mountain climb. But Lungren may have caught onto a tactic that has a better chance for success: targeting the law one convoluted regulation at a time. Within weeks of its introduction, Lungren's bill has 57 co-sponsors.

Staveley has called her local House member, Rep. Ann Kirkpatrick, D-Ariz., to ask her to support the removal. But she has not heard back from Kirkpatrick's office.

Facing such an onerous burden, on top of all the other federal regulations the company has to comply with, Staveley admitted to me that she and her husband, Gaylord, who has been a part of Canyoneers for 56 years, are considering the unthinkable: retirement. Email: lpitts@worldmag.com