Package deal

Entrepreneur, June, 1997 by Cynthia E. Griffin

Developing bipartisan support for legislation on Capitol Hill is like watching an ant move a crumb - sometimes the going is smooth, and other times even a breeze is a major obstacle. Proponents of two new Congressional bills dealing with homebased business know there's a lot of consensus building ahead, and they hope for smooth sailing.

The Home-Based Business Fairness Act of 1997 (S.460) was introduced in the Senate by Sen. Christopher "Kit" Bond (R-MO), chairman of the Senate Small Business Committee, and Sen. Olympia Snowe (R-ME). An identical bill, HR1145, was sponsored in the House by Rep. Jim Talent (R-MO), chairman of the House Small Business Committee, and Rep. Jo Ann Emerson (R-MO). Both bills tackle three major issues confronting homebased business: They make health insurance premiums 100 percent deductible, restore the home-office deduction, and provide protection against retroactive reclassification of independent contractors. Bundling these three issues makes the bills attractive to supporters, says Kenneth Bricker of the Senate Small Business Committee.

Under the independent contractor safe harbor provision, an individual will be treated as an independent contractor if one of two criteria is met. First, the individual must demonstrate economic and workplace independence. Second, if the individual conducts business through a corporation or limited liability company and does not receive benefits from the business owner, he or she may be considered an independent contractor. In both cases, there must be a written contract.

Debra Schacher, CEO of the Home Office and Business Opportunities Association, wants the independent contractor provision to go further. "One thing is missing: clarifying an independent contractor vs. an employee," Schacher says, and the legislation should simplify or even eliminate the IRS' 20-factor test determining who is or is not an independent contractor.

"We're ready to support [the bills], but I think there need to be some changes," says Beverley Williams, president of the American Association of Home-Based Businesses. "There are places where sole proprietors are excluded and the language needs to be clarified."

Eileen Glick, president of the HomeBased Business Association of Arizona, likes the proposed legislation and thinks restoration of the home-office deduction is long overdue. "There are certainly a lot of cases I know of where people should be entitled to it but don't take it for fear of the IRS disallowing it," she says.

The health-care deduction is a matter of fairness, says David Buchen, of the HomeBased Business Project at the University of Wisconsin, Whitewater's Small Business Development Center. "It's ridiculous that corporations can deduct the cost 100 percent, but home-based businesses can't," he says.

Homebased-business advocates have strong feelings about what it will take to get meaningful legislation passed. One problem to overcome: The bills are, in part, a tax-cutting measure. "We estimate [the bills] will eliminate about $8.3 billion from tax revenues from 1997 to 2001," says Bricker. Consequently, Congress will weigh these cuts against other proposals.

In light of this and other obstacles, passage of this legislation will require grass-roots organization. "It's going to take encouraging our members to write to their Senators," says Glick. "The more they hear from homebased business owners, the better. It's going to take all our voices."