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I am writing to urge you to enact The Telecommuter Tax Fairness Act of 2004 being sponsored by Senator Christopher Dodd. This important legislation would allow your constituents to work from home for employers located in other states without fear that they will owe income taxes to multiple states because they telecommute. Specifically, the legislation would prohibit states from applying a tax rule known as the ‘convenience of the employer’ rule, which subjects interstate telecommuters to undue taxation and threatens the growth of telework throughout the United States. The need for such legislation arises because of the U.S. Supreme Court’s refusal in Zelinsky v. Tax Appeals Tribunal of New York to review New York State’s policy of applying this rule.
Under the ‘convenience of the employer’ rule as New York applies it,non-New Yorkers who work for New York employers and choose to telecommute some or most of the time must pay New York taxes on the income they earn while working in their home states. Because a telecommuter’s state of residence may also tax the income the telecommuter earns at home without providing a credit for the taxes New York imposed, the interstate teleworker risks double taxation simply because he or she teleworks. Although New York is willing to forego taxation of income earned out-of-state if the telework arrangement was an employer “necessity,” employees have little hope of persuading New York that telework was necessary. Even if the employer mandated that a worker telecommute, the state may conclude that telecommuting was not necessary if performing the work in New York would have been feasible.
The convenience rule affects telecommuters nationwide. First, New York may tax the income nonresidents earn outside New York regardless of whether the telecommuter lives close to New York and commutes often or lives across the country and works in New York only a few days a year. Second, New York is not the only state to have included the convenience of the employer rule in its tax policies. Third, by refusing to hear the Zelinsky case, the U.S. Supreme Court effectively authorized all states to apply a similar anti-telework policy.
By deterring telework, the rule prevents businesses across the country from maximizing the bottom line benefits telework can offer and contributing to the growth of our national economy. These benefits include increased productivity, reduced overhead costs, and reduced recruitment and turnover costs. By discouraging telework, the convenience rule may also increase oil consumption and gasoline prices, air pollution and traffic congestion. And it contributes to wasteful government spending on transportation infrastructure. For these reasons, Congress must ban the rule.
Congress must also dismantle the rule because it jeopardizes homeland security. If the government wants to continue functioning – and wants other employers to continue functioning – when terror is threatened or catastrophes occur, American workers must have the telework skills that come with experience. If individual states discourage interstate telework by taxing it, the country will not have a workforce prepared to weather emergencies. The events of September 11, the anthrax and ricin scares, the SARS epidemic, and the international power outages of summer 2003 all underscore why a tax policy that threatens decentralized work threatens our ability to survive disaster.
The rule also obstructs the federal government’s ability to comply with P.L. 106-346, which requires the government to make telework available to 100% of the eligible federal workforce. If a federal agency is located in a state applying the convenience rule, an agency employee who is eligible to telework from his home in a neighboring state may be subject to double taxation for participating in the federal telework program. If the employee cannot afford the extra tax, the state applying the convenience rule has effectively rendered the telework program unavailable to this employee. Congress must prohibit states from interfering with the federal government’s capacity to satisfy federal law.
The convenience rule also jeopardizes President Bush’s objective, as set forth in his New Freedom Initiative, to facilitate the full integration of disabled individuals into mainstream American life. As the President recently highlighted in the 2004 Progress Report on this initiative, telework is crucial to empowering disabled people to join the American workforce. Similarly, the EEOC has asserted that telecommuting may be a reasonable accommodation under the Americans with Disabilities Act and that employers may be required to offer it to certain disabled workers. States should not be allowed to subject disabled nonresidents to double taxation simply for exercising their federal right to contribute to the American economy.
Finally, the federal government must bar states from applying the convenience rule because the rule impedes rural economic development and promotes the loss of American jobs to offshore sites. President Bush has emphasized the need to secure access to broadband technology for rural communities throughout the U.S. He has supported legislation that would make broadband access permanently tax-free. A tax on interstate telecommuting is essentially a tax on the use of broadband and other communications technology for distance working. A state’s unilateral choice to tax interstate telework violates the federal plan to maximize the growth potential these technologies offer. It also violates the spirit of P.L. 107-171, which envisions federal support for private businesses that employ telecommuters in rural areas.
Among the workers the convenience rule threatens are home-based call center agents. The bottom line benefits of ‘Virtual Call Centers’ are very compelling for American businesses, and their wider use would help stem the loss of jobs to offshore regions. By enacting The Telecommuter Tax Fairness Act of 2004 and barring states’ application of the convenience rule, you would help preserve American jobs for American workers.
In sum, the convenience rule is extremely harmful to workers and businesses, alike. To prevent states from slowing or halting the growth of telework nationally, Congress must pass The Telecommuter Tax Fairness Act of 2004 and prohibit states from applying the rule.
