With just hours left before the start of its August recess, Senate Majority Leader Harry Reid (D-Nev.) decided the Senate will wait to wrangle over H.R. 5297, the Small Business Jobs Act, which would provide $12 billion in tax breaks and create a $30 billion lending fund for small businesses, until lawmakers return on Sept. 14.

Senate Democrats tried on several occasions to pass the Small Business Jobs Act after the House managed to pass a similar bill in June, but the bill stalled in the Senate because of a continuing dispute over which amendments could be offered by Republicans.

One such amendment at the center of the discussion would repeal a non-health care tax-reporting requirement provision in the Patient Protection and Affordable Care Act (PPACA) which would increase the required 1099 reporting by all small business. This expanded 1099 reporting requirement is scheduled to go into effect in 2012, and will require businesses to report to the Internal Revenue Service (IRS) any purchase from a vendor of goods or services worth $600 or more annually. It is effective for purchases made in 2012 that will be reported on 1099 forms filed in 2013.

The new 1099 reporting requirement stands to increase the average number of firms for which small-businesses must file a 1099 report from an average of 10 to an average of 86, according to the NSBA 2010 Mid-Year Economic Report. Additionally, this requirement will hamper business-to-business transactions as firms look to ease the new requirement by consolidating business purchases. This will give a huge advantage to big-box companies over small businesses.

On Aug. 5, Reid filed a series of cloture motions to set up votes on the jobs bill, a move designed to convince Sens. George Voinovich (R-Ohio) and George LeMieux (R-Fla.) to join Democrats in moving the bill forward upon return from recess. As part of a compromise agreement—on a procedural vote—Sen. Mike Johanns (R-Neb.) will offer an amendment to repeal the expanded 1099 requirement, and pay for the $19 billion revenue loss by cutting preventative health care services. The Johanns amendment recently gained the support of Sen. Blanche Lincoln (D-Ark.), a member of the Senate Finance Committee.

Democrats, meanwhile, have introduced an alternative bill that includes an amendment by Sen. Ben Bill Nelson (D-Fla.) that would repeal the 1099 filing requirement for all businesses with fewer than 25 employees. For larger businesses, it would hike the threshold for reporting purchased goods, from $600 to $5,000. However, his proposal pays for the bill by raising taxes on oil and gas companies.

Specifically, the Democratic alternative is paid for by repealing tax cuts for the five largest oil companies. It would repeal Section 199 of the tax code, which currently allows these corporations to deduct six percent of their income from oil and gas production from their tax liability, effective December 31, 2010. This repeal would only apply to the five largest corporations with more than $1 billion of before-tax income.

Unfortunately, this alternative provides little relief to small buisnesses. If the Democratic alternative is adopted, 1099 filing requirements would become even more complicated and would drive millions of dollars in sales from small companies to larger companies. Small companies would be incentivized to keep their payrolls below 25 employees to avoid triggering the reporting requirement.

In addition, even with a higher threshold, businesses would still be required to track purchases and collect tax information from their vendors because they would have no way of determining whether that first purchase from a vendor will be the last or if it will eventually aggregate to $5,000 for the year.

Sen. Reid said that the Senate will break on October 8 to campaign for the elections but convene for a post-election, lame duck session on November 12. There is no word yet on the House calendar after the August recess.