Telecommute Taxes On The Table

Rep Jim Hines.jpg

The Obama Administration has recently been shining a spotlight on the need to eliminate barriers to telework and its growth. Now Congress has legislation before it that would abolish one of telework's greatest obstacles, the risk of double taxation Americans face if they telecommute across state lines. The Telecommuter Tax Fairness Act (H.R. 2600)would remove the double tax risk.

H.R. 2600 can and should be enacted as a stand-alone measure. However, Washington is also currently developing or considering a variety of other legislative packages, any one of which would be significantly strengthened if the provisions of H.R. 2600 were added to it. These packages include energy/climate legislation (expected to be unveiled later this month), transportation legislation and small business legislation. Each of these packages, we have been told, would double as a jobs bill.

Telework is a critical component of any plan to create jobs, as well as any plan to improve our energy security, slow climate change, ease traffic congestion, reduce transportation infrastructure costs and boost small businesses. Congress must not miss the important opportunity that H.R. 2600 and these emerging packages provide to get rid of the tax barrier to telework.

The Obama Administration’s Focus on Removing Obstacles
On March 31, the White House hosted a first-of-its kind forum on workplace flexibility, bringing together businesses, employees, advocates, labor leaders and experts to talk about the importance of expanding the use of telework and other practices that enable workers to meet the competing demands of job and family. Obama identified workplace flexibility as an issue that affects “the success of our businesses [and] the strength of our economy - whether we’ll create the workplaces and jobs of the future we need to compete in today’s global economy.” Discussing a new effort within the federal government to increase the number of federal teleworkers, the President said,

"…this isn’t just about providing a better work experience for our employees, it’s about providing better, more efficient service for the American people - even in the face of snowstorms and other crises that keep folks from getting to the office…. It’s about attracting and retaining top talent in the federal workforce and empowering them to do their jobs, and judging their success by the results that they get - not by how many meetings they attend, or how much face-time they log, or how many hours are spent on airplanes. It’s about creating a culture where, as [the Administrator of the General Services Administration] puts it, “Work is what you do, not where you are.”

The Federal Communications Commission (FCC) is also urging greater reliance on telework. In the National Broadband Plan delivered to Congress on March 16, the FCC reported that “[m]aking telework a more widespread option would potentially open up opportunities for 17.5 million individuals.” For example, the FCC said, telework can spur job growth among Americans living in rural areas, disabled Americans and retirees. To make the telework option more available, the FCC recommended that Congress “consider eliminating tax and regulatory barriers to telework.”

What regulatory barrier did the FCC target? The “convenience of the employer” rule - the state tax doctrine that subjects interstate telecommuters to the risk of double taxation. Specifically, a state with a “convenience of the employer” rule can tax nonresidents who telecommute part-time to an employer within that state on the wages they earn at home, even though their home states can tax the same income.

For many people, the threat of owing taxes to two states can put a long-distance job out of reach. By making telework unaffordable for workers, the tax penalty also thwarts businesses and government agencies trying to tap the cost-saving and other economic benefits telework offers.

The Telecommuter Tax Fairness Act would bar states from taxing the income nonresidents earn in their home states, and it would prohibit them from applying a “convenience of the employer” rule. Congress should follow the FCC’s counsel to “consider addressing this double taxation issue that is preventing telework from becoming more widespread.”

Congressional Opportunities to Remove the Tax Barrier
As noted above, H.R. 2600 can and should be passed as a stand-alone bill. However, Congress could also seize the opportunity to include the provisions of H.R. 2600 in the energy/climate package, the transportation package, or the small business package that lawmakers are working on, and, in the process, make that package more effective.

How would telecommuter tax fairness strengthen energy and climate legislation? By substituting the use of broadband for the use of cars and mass transit, telecommuters conserve fuel and reduce greenhouse gas emissions. The National Broadband Plan reported that “[e]very additional teleworker reduces annual CO2 emissions by an estimated 2.6-3.6 metric tons per year. [Further, replacing] 10% of business air travel with videoconferencing would reduce carbon emissions by an estimated 36.3 million tons annually.” How can Congress enact an energy bill that does not include such savings?

The same kind of fairness is a necessary addition to any transportation bill, because broader use of telework can slash transportation costs. By decreasing the demand for roads and rails, telework minimizes wear and tear on existing infrastructure and reduces the need to build more. As a result, telework limits the expense of repairs, maintenance and expansion. The new transportation funding bill should focus more on creating jobs laying broadband conduits and less on jobs laying asphalt. The transportation bill would also benefit from the addition of telecommuter tax fairness, because, by decreasing traffic congestion, telework decreases the hobbling cost of lost productivity.

Small business legislation? Telework can help small firms hire new people at lower cost: Employers can increase staff without increasing real estate, energy and other overhead expenses. They can also select the most qualified applicants from the broadest geographic area while spending less on recruitment. Telework can increase company efficiency and, as President Obama noted at the workplace flexibility forum, help employers assure continuity of operations when emergencies arise. These are bottom line benefits Washington can offer small businesses without adding to the federal deficit.

Finally, the success of any legislation designed to jumpstart hiring should include telecommuter tax fairness. It would enable the unemployed — especially those who cannot relocate because their homes are unsalable — to widen the area where they can look for work.

The Telecommuter Tax Fairness Act was introduced by Representatives Jim Himes (D-CT) and Frank Wolf (R-VA). It has bi-partisan support from lawmakers all around the country. Stakeholders endorsing it include the Telework Coalition, the National Taxpayers Union, the American Homeowners Grassroots Alliance and the Small Business & Entrepreneurship Council, along with the Association for Commuter Transportation and Take Back Your Time. Workplace Flexibility 2010, a public policy initiative at Georgetown University Law Center, has also recommended the elimination of the telecommuter tax penalty.

Telework is an important part of the solution to the nation’s most urgent problems, including unemployment, foreign oil dependence, climate change, clogged and crumbling travel arteries and the struggle workers face to meet their responsibilities as employees, family members and members of their communities. As federal lawmakers tackle these challenges, they should consider the Administration’s focus on getting rid of regulatory roadblocks to telework. They should heed the FCC’s call to take up the issue of the telework tax penalty, and they should finally enact the Himes-Wolf bill.

Photo: Representative Jim Himes (D-CT)

Nicole Belson Goluboff is a lawyer in New York who writes extensively on the legal consequences of telework. She is the author of The Law of Telecommuting (ALI-ABA 2001 with 2004 Supplement), Telecommuting for Lawyers (ABA 1998) and numerous articles on telework. She is also an Advisory Board member of the Telework Coalition.