At a recent hearing before the U.S. House of Representatives Committee on Small Business certain Members and witnesses expressed concern that current tax laws are outdated and burdensome to companies in the “sharing economy.” The hearing, titled, “The Sharing Economy: A Taxing Experience for New Entrepreneurs, Part I” was held on May 24, 2016.
Committee Chairman Steve Chabot (R-OH) observed that “sharing economy” companies are running into an outdated tax law that is working against this segment of the economy. Similarly, Committee Ranking Member Nydia Velazquez (D-NY) characterized the common law test, used to determine worker status, as difficult to administer in the context of the “sharing economy.”
Testifying before the Committee were representatives from TaskRabbit, ACT/The App Association, the Information Technology and Innovation Foundation, and a professor at American University.
The witnesses made similar assessments during their testimony, characterizing current tax laws as having been developed in a different time, being ill-suited to the modern on-demand economy and hindering economic growth.
One witness recommended increasing the consistency between state and federal laws that determine worker status, but also suggested establishing a new third worker classification to better reflect work relationships in the “sharing economy.”
Interestingly, a couple witnesses asserted that current laws make it difficult for “sharing economy” companies to train independent contractors or to advise them on their tax-compliance obligations, and thought the laws should be changed to permit this.
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Several ideas discussed during the hearing would fundamentally change the independent contractor model. The proposed idea of changing the test for determining worker status to permit companies to train independent contractors and advise them on their tax-compliance duties – without jeopardizing their independent-contractor status – runs counter to a bedrock distinction between employees and independent contractors. It seems counter to the notion of self-employment that a self-employed individual should rely on the individual’s clients for training on how to perform the service the individual is in the business or providing or for tax-compliance advice.
Also, the idea of developing a new third category of worker status is one that the Coalition does not support. Click here for more information on reasons why a new third category of worker status is inadvisable.
The proposal to harmonize the tests for purposes of all federal laws is one that the Coalition supports and is working to achieve.
If you have any questions or comments concerning the foregoing, contact us today at [email protected].
