Opinion: Salons and barbershops are being taxed unfairly

The defining question in any presidential election is “Are you better off today than you were four years ago?” Sadly, many salons, barbershops and spas are not.

The beauty industry, where we both work, was hit hard by the pandemic. We were the first to be shut down and last allowed to reopen. Too many of our fellow small business owners didn’t survive, and those of us still going face continued challenges.

Responding to the hurdles created by the pandemic is challenging enough, but salons, barbershops and spas continue to wrestle with additional tax burdens that aren’t faced by other industries whose employees receive tips.

In 1993, Congress passed legislation allowing restaurants to claim a dollar-for-dollar tip tax credit on the required employer portion of FICA taxes on the tip amounts that employees receive from customers. Just behind restaurants, the beauty industry is the second-highest tipped industry, yet we continue to be treated unequally in the tax code.

We and our fellow small business owners are keenly watching this year’s election as politicians trot out campaign slogans like “no taxes on tips.” Capitol Hill will no doubt debate the merits of such a policy next year, especially as addressing expiring tax cuts is one of the few guaranteed pieces of legislation to be voted on. Meanwhile, salon, barbershop and spa owners continue to scratch their heads as to why members of Congress aren’t acting on an existing bill that would make a real difference for tens of thousands of small businesses across the country.

The Small Business Tax Fairness and Compliance Simplification Act is bipartisan legislation that directly helps women, minorities and small business owners while shrinking the tax gap and increasing compliance in tip reporting. It would finally put the beauty industry on equal tax footing with restaurants. We are proud that our members of Congress, Rep. Darin LaHood (R-Ill.) and Rep. Lloyd Smucker (R-Pa.), are strong advocates for righting this 30-year wrong, as they understand the importance of the beauty industry to the economy and to our communities.

While it may not seem like much at first, this additional tax burden adds up quickly. For example, a $20 tip for a haircut will end up costing the salon owner an additional $2 after federal payroll tax (7.65 percent) and state unemployment taxes are applied and credit card fees accounted for. Those taxes and fees are on income that the business never receives, as the tips are paid to the employees.

Multiply the additional dollars paid by the salon owner by thousands of haircuts each year, and you can see the unfair burden placed by the current policy on the more than 100,000 salons, barbershops and spas nationwide, of which more than 80 percent employ under 10 workers.

Fixing this unfair exclusion for salons, barbershops and spas puts money back into their accounts and allows them to hire more people, provide benefits like 401Ks, buy new equipment or make improvements to their businesses.

The beauty industry is a vital engine for economic activity and we are a special part of our communities. We employ 1.3 million professionals, of which 85 percent are women and 40 percent are Black, Hispanic or Asian. In addition to the skilled stylists, barbers, cosmetologists, nail technicians, estheticians and massage therapists, what makes our industry special are the life-long relationships and personal bonds that are created with clients over years of service and the many stages of life.

While we greatly appreciate the leadership of LaHood and Smucker and more than 50 cosponsors of this legislation in the House and Senate, we need all members to stand up for small businesses. We are not asking for special treatment — just the same treatment as the restaurant industry.

In today’s political climate, bipartisan wins are few and far between. It is time for Congress to treat tip-based industries fairly by passing the Small Business Tax Fairness and Compliance Simplification Act.

Paola Hinton is the owner of Five Senses Spa, Salon & Barbershop in Peoria, Ill. Bill Riiff is a team leader with Sports Clips in East Petersburg, Pa.

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