II 

111TH CONGRESS 

2D SESSION S. 3430 

To amend the Internal Revenue Code of 1986 to expand the tip tax credit 

to employers of cosmetologists and to promote tax compliance in the 

cosmetology sector. 

IN THE SENATE OF THE UNITED STATES 

MAY 26, 2010 

Ms. SNOWE (for herself and Ms. LANDRIEU) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to expand 

the tip tax credit to employers of cosmetologists and 

to promote tax compliance in the cosmetology sector. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Small Business Tax 

5 Equalization and Compliance Act of 2010’’. 


tjames on DSKG8SOYB1PROD with BILLS
2 

•S 3430 IS

1 SEC. 2. EXPANSION OF CREDIT FOR PORTION OF SOCIAL 

2 SECURITY TAXES PAID WITH RESPECT TO 

3 EMPLOYEE TIPS. 

4 (a) EXPANSION OF CREDIT TO OTHER LINES OF

5 BUSINESS.—Paragraph (2) of section 45B(b) of the Inter6 nal Revenue Code of 1986 is amended to read as follows: 

7 ‘‘(2) APPLICATION ONLY TO CERTAIN LINES OF

8 BUSINESS.—In applying paragraph (1), there shall 

9 be taken into account only tips received from cus10 tomers or clients in connection with— 

11 ‘‘(A) the providing, delivering, or serving 

12 of food or beverages for consumption if the tip13 ping of employees delivering or serving food or 

14 beverages by customers is customary, or 

15 ‘‘(B) the providing of any cosmetology 

16 service for customers or clients at a facility li17 censed to provide such service if the tipping of 

18 employees providing such service is customary.’’ 

19 (b) DEFINITION OF COSMETOLOGY SERVICE.—Sec20 tion 45B of the Internal Revenue Code of 1986 is amend21 ed by redesignating subsections (c) and (d) as subsections 

22 (d) and (e), respectively, and by inserting after subsection 

23 (b) the following new subsection: 

24 ‘‘(c) COSMETOLOGY SERVICE.—For purposes of this 

25 section, the term ‘cosmetology service’ means— 

26 ‘‘(1) hairdressing, 


tjames on DSKG8SOYB1PROD with BILLS
3 

•S 3430 IS

1 ‘‘(2) haircutting, 

2 ‘‘(3) manicures and pedicures, 

3 ‘‘(4) body waxing, facials, mud packs, wraps, 

4 and other similar skin treatments, and 

5 ‘‘(5) any other beauty-related service provided 

6 at a facility at which a majority of the services pro7 vided (as determined on the basis of gross revenue) 

8 are described in paragraphs (1) through (4).’’ 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to tips received for services per11 formed after December 31, 2009. 

12 SEC. 3. INFORMATION REPORTING AND TAXPAYER EDU13 CATION FOR PROVIDERS OF COSMETOLOGY 

14 SERVICES. 

15 (a) IN GENERAL.—Subpart B of part III of sub16 chapter A of chapter 61 of the Internal Revenue Code of 

17 1986 is amended by adding after section 6050W the fol18 lowing new section: 

19 ‘‘SEC. 6050X. RETURNS RELATING TO COSMETOLOGY SERV20 ICES AND INFORMATION TO BE PROVIDED TO 

21 COSMETOLOGISTS. 

22 ‘‘(a) IN GENERAL.—Every person (referred to in this 

23 section as a ‘reporting person’) who— 

24 ‘‘(1) employs 1 or more cosmetologists to pro25 vide any cosmetology service, 


tjames on DSKG8SOYB1PROD with BILLS
4 

•S 3430 IS

1 ‘‘(2) rents a chair to 1 or more cosmetologists 

2 to provide any cosmetology service on at least 5 cal3 endar days during a calendar year, or 

4 ‘‘(3) in connection with its trade or business or 

5 rental activity, otherwise receives compensation 

6 from, or pays compensation to, 1 or more cosmetolo7 gists for the right to provide cosmetology services to, 

8 or for cosmetology services provided to, third-party 

9 patrons, 

10 shall comply with the return requirements of subsection 

11 (b) and the taxpayer education requirements of subsection 

12 (c). 

13 ‘‘(b) RETURN REQUIREMENTS.—The return require14 ments of this subsection are met by a reporting person 

15 if the requirements of each of the following paragraphs 

16 applicable to such person are met. 

17 ‘‘(1) EMPLOYEES.—In the case of a reporting 

18 person who employs 1 or more cosmetologists to pro19 vide cosmetology services, the requirements of this 

20 paragraph are met if such person meets the require21 ments of sections 6051 (relating to receipts for em22 ployees) and 6053(b) (relating to tip reporting) with 

23 respect to each such employee. 

24 ‘‘(2) INDEPENDENT CONTRACTORS.—In the 

25 case of a reporting person who pays compensation to 


tjames on DSKG8SOYB1PROD with BILLS
5 

•S 3430 IS

1 1 or more cosmetologists (other than as employees) 

2 for cosmetology services provided to third-party pa3 trons, the requirements of this paragraph are met if 

4 such person meets the applicable requirements of 

5 section 6041 (relating to returns filed by persons 

6 making payments of $600 or more in the course of 

7 a trade or business), section 6041A (relating to re8 turns to be filed by service-recipients who pay more 

9 than $600 in a calendar year for services from a 

10 service provider), and each other provision of this 

11 subpart that may be applicable to such compensa12 tion. 

13 ‘‘(3) CHAIR RENTERS.— 

14 ‘‘(A) IN GENERAL.—In the case of a re15 porting person who receives rent or other fees 

16 or compensation from 1 or more cosmetologists 

17 for use of a chair or for rights to provide any 

18 cosmetology service at a salon or other similar 

19 facility for more than 5 days in a calendar year, 

20 the requirements of this paragraph are met if 

21 such person— 

22 ‘‘(i) makes a return, according to the 

23 forms or regulations prescribed by the Sec24 retary, setting forth the name, address, 

25 and TIN of each such cosmetologist and 


tjames on DSKG8SOYB1PROD with BILLS
6 

•S 3430 IS

1 the amount received from each such cos2 metologist, and 

3 ‘‘(ii) furnishes to each cosmetologist 

4 whose name is required to be set forth on 

5 such return a written statement showing— 

6 ‘‘(I) the name, address, and 

7 phone number of the information con8 tact of the reporting person, 

9 ‘‘(II) the amount received from 

10 such cosmetologist, and 

11 ‘‘(III) a statement informing 

12 such cosmetologist that (as required 

13 by this section), the reporting person 

14 has advised the Internal Revenue 

15 Service that the cosmetologist pro16 vided cosmetology services during the 

17 calendar year to which the statement 

18 relates. 

19 ‘‘(B) METHOD AND TIME FOR PROVIDING

20 STATEMENT.—The written statement required 

21 by clause (ii) of subparagraph (A) shall be fur22 nished (either in person or by first-class mail 

23 which includes adequate notice that the state24 ment or information is enclosed) to the person 

25 on or before January 31 of the year following 


tjames on DSKG8SOYB1PROD with BILLS
7 

•S 3430 IS

1 the calendar year for which the return under 

2 clause (i) of subparagraph (A) is to be made. 

3 ‘‘(c) TAXPAYER EDUCATION REQUIREMENTS.—In 

4 the case of a reporting person who is required to provide 

5 a statement pursuant to subsection (b), the requirements 

6 of this subsection are met if such person provides to each 

7 such cosmetologist annually a publication, as designated 

8 by the Secretary, describing— 

9 ‘‘(1) in the case of an employee, the tax and tip 

10 reporting obligations of employees, and 

11 ‘‘(2) in the case of a cosmetologist who is not 

12 an employee of the reporting person, the tax obliga13 tions of independent contractors or proprietorships. 

14 The publications shall be furnished either in person or by 

15 first-class mail which includes adequate notice that the 

16 publication is enclosed. 

17 ‘‘(d) DEFINITIONS.—For purposes of this section— 

18 ‘‘(1) COSMETOLOGIST.— 

19 ‘‘(A) IN GENERAL.—The term ‘cosmetolo20 gist’ means an individual who provides any cos21 metology service. 

22 ‘‘(B) ANTI-AVOIDANCE RULE.—The Sec23 retary may by regulation or ruling expand the 

24 term ‘cosmetologist’ to include any entity or ar25 rangement if the Secretary determines that enVerDate Mar 15 2010 00:05 May 27, 2010 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S3430.IS S3430

tjames on DSKG8SOYB1PROD with BILLS
8 

•S 3430 IS

1 tities are being formed to circumvent the re2 porting requirements of this section. 

3 ‘‘(2) COSMETOLOGY SERVICE.—The term ‘cos4 metology service’ has the meaning given to such 

5 term by section 45B(c). 

6 ‘‘(3) CHAIR.—The term ‘chair’ includes a chair, 

7 booth, or other furniture or equipment from which 

8 an individual provides a cosmetology service (deter9 mined without regard to whether the cosmetologist 

10 is entitled to use a specific chair, booth, or other 

11 similar furniture or equipment or has an exclusive 

12 right to use any such chair, booth, or other similar 

13 furniture or equipment). 

14 ‘‘(e) EXCEPTIONS FOR CERTAIN EMPLOYEES.—Sub15 section (c) shall not apply to a reporting person with re16 spect to an employee who is employed in a capacity for 

17 which tipping (or sharing tips) is not customary.’’. 

18 (b) CONFORMING AMENDMENTS.— 

19 (1) Section 6724(d)(1)(B) of the Internal Rev20 enue Code of 1986 (relating to the definition of in21 formation returns) is amended by striking ‘‘or’’ at 

22 the end of clause (xxiv), by striking ‘‘and’’ at the 

23 end of clause (xxv) and inserting ‘‘or’’, and by add24 ing after clause (xxv) the following new clause: 


tjames on DSKG8SOYB1PROD with BILLS
9 

•S 3430 IS

1 ‘‘(xxvi) section 6050X(a) (relating to 

2 returns by cosmetology service providers), 

3 and’’. 

4 (2) Section 6724(d)(2) of such Code is amend5 ed by striking ‘‘or’’ at the end of subparagraph 

6 (GG), by striking the period at the end of subpara7 graph (HH) and inserting ‘‘, or’’, and by inserting 

8 after subparagraph (HH) the following new subpara9 graph: 

10 ‘‘(II) subsections (b)(3)(A)(ii) and (c) of 

11 section 6050X (relating to cosmetology service 

12 providers) even if the recipient is not a payee.’’. 

13 (3) The table of sections for subpart B of part 

14 III of subchapter A of chapter 61 of such Code is 

15 amended by adding after the item relating to section 

16 6050W the following new item: 

‘‘Sec. 6050X. Returns relating to cosmetology services and information to be 

provided to cosmetologists.’’. 

17 (c) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to calendar years after 2009. 

Æ 


tjames on DSKG8SOYB1PROD with BILLS