Beauty salons like ours are unfairly taxed by the Feds. The new Congress must fix it | Opinion

Small businesses are the engine that drives our economy — employing nearly half of the American workforce. When we let small businesses serve their communities, it benefits everyone.

Someone needs to tell Congress. Right now, too many small businesses — like hair salons and barbershops — are being held back because of a broken tax code.

We opened our first Sport Clips in Idaho in 2006. Thanks to our amazing community and our dedicated employees, we have been able to reinvest in our business over the past 18 years and expand to 24 locations — 13 in Idaho and 11 in Utah. We are still growing, and we plan to open our 25th location in January. We have truly lived the American dream — and it all started with a small hair salon with fewer than 10 employees.

We are grateful to have created nearly 200 jobs in Idaho. These are good jobs located across our communities, close to where many of our employees live. Our stylists typically make about $28 per hour plus benefits, and we offer full- and part-time work. We promote from within, so our store managers, who typically make over $75,000 per year, usually start as stylists and are promoted based on performance. We are proud to be able to provide paid time off, retirement with employer match, subsidized health benefits and flexible work schedules.

These are highly competitive benefits, but we wish we could do more for both our employees and for our customers.

Our company generates significant tax revenue for our federal, state and local governments. We estimate that, excluding income taxes, our stores generate over $1.8 million in total tax revenue. Well over 90% of that is sent to Washington, D.C. in the form of payroll taxes, or about $70,000 per store per year. Essentially, the revenues from the first 3,000 haircuts are sent to Washington before anyone else is paid.

One of the reasons why our payroll tax burden is so high is because of Washington’s unequal federal tax code. Unlike other tip-heavy industries, such as restaurants, hair salons like ours are forced to pay FICA taxes on tips our stylists receive from customers. That’s right: we pay federal taxes on income that we never received in the first place. Only in Washington, DC does this make any sense.

Across our 24 franchises, this adds up to about $282,000 in FICA taxes every year on our employees’ tips alone. This is an enormous amount of money that we would be using to invest in our employees and franchises.

For that amount of money, we could increase pay, hire more staff, offer more employees maternity/paternity pay, or even open an entirely new location and hire 12 more employees. This money could also be used to avoid future price increases that are becoming necessary due to the prolonged cost inflation we have experienced since 2021. Instead, we are sending the money to the federal government and out of our communities.

Thirty years ago, a bipartisan Congress recognized this problem and gave restaurants a tax credit for their portion of FICA taxes paid on employees’ tips so that they could afford to create more jobs and invest in their businesses, like we want to do. This tax credit has been a great benefit to the restaurant industry and their employees ever since. Meanwhile, barber shops and hair salons like ours remain stuck with a huge tax bill. We are not asking for special treatment—we are asking for equal treatment.

Fortunately, there are some key members of Congress who recognize that this discrepancy makes no sense and holds back thousands of small businesses from creating jobs and opportunity. Legislation in the House and Senate called the Small Business Tax Fairness and Compliance Simplification Act would fix this problem and treat hair salon tips the same way we treat restaurant tips.

Support for the bill is completely bipartisan, with 30 House Democrats and 20 House Republicans supporting it from all across the country. Likewise, support in the Senate is equally split among the parties. We strongly encourage Idaho Sens. Mike Crapo, who is the top Republican on the Senate Finance Committee with jurisdiction over this bill, and Jim Risch, along with Reps. Russ Fulcher and Mike Simpson, to support this bill. We believe they recognize what small businesses could accomplish if we were not being held back by these unfair taxes.

Four out of five barbershops and hair salons are small businesses with fewer than 10 employees. But the beauty industry has created more than 1 million jobs across America. Tax relief could have a significant impact on the lives of these employees and create even more jobs.

As we prepare for a new president and a new Congress, we have a tip for leaders in Washington: give hair salons tax relief so we can create more jobs and invest in our communities.