Commentary: Congress has a chance to do what makes sense for

Long Island Business News, Jun 24, 2009 by Raymond Keating

Today, business is more dynamic, versatile and mobile than at any other period in history. That's largely due to dramatic leaps ahead in computer and telecommunications technologies brought about by innovators and entrepreneurs in recent times.

Technology has empowered firms of all types and sizes to reach new markets, to boost productivity and to alter how business gets done. But the most obvious benefits have been accrued by small businesses. What was before perhaps a local or regional "mom and pop" shop can now have a national, even global, reach in terms of its customer base, its employees and contractors.

Home offices, telecommuting, Wi-Fi, cell phones and more comprehensive mobile devices, such as the iPhone and the BlackBerry, have changed how and where we do business.

When it comes to public policy, is government hampering or helping this process? Well, what do you think? There are three pieces of legislation worth noting, however, that would clear away some of the governmental costs and obstacles to business mobility.

The first is the right response to a recent foray by the Internal Revenue Service. Earlier this month, the IRS issued proposals on how businesses might comply with a 1989 law requiring that firms track personal use of company mobile phones so employees can pay federal income taxes for such usage. The backlash from the business community and employees to this outdated nuisance tax that would jack up compliance costs was immediate and loud.

Interestingly, IRS Commissioner Doug Shulman quickly issued a statement that, in part, said: "The passage of time, advances in technology and the nature of communication in the modern workplace have rendered this law obsolete." The statement also noted that Shulman and Treasury Secretary Tim Geithner are now asking Congress to repeal the 1989 law. Repeal passed the House of Representatives last year, and legislation has been introduced this year in both the House and Senate (S.144 and H.R.690).

The second piece of legislation would simplify the tax deduction for a home office. Regarding the home office business deduction, the U.S. Small Business Administration's Office of Advocacy has noted: "The requirements to qualify for and calculate the deduction are confusing for taxpayers and do not account for changes in technology that affect the way business is conducted. Consequently, many at- home workers do not take advantage of the home office business deduction."

The Office of Advocacy suggested that taxpayers be provided a choice between the current system and a standard home office deduction.

Legislation proposed in the House, titled the "Home Office Deduction Simplification Act" (H.R.1509), would offer taxpayers a standard tax deduction of $1,500 (indexed to inflation going forward) or a deduction equal to the gross income derived from the business, whichever is less.

That's simple, straightforward and makes sense.

Finally, a third piece of legislation deals with the unfair taxation by some states of telecommuters and the businesses for which they work. Currently, if an employee lives in one state and telecommutes for an employer in another state, the employer's state can tax the entire income of that employee - even for work done while telecommuting from his home office in his home state.

That's costly for both the employee and the business, and ranks as obviously and outrageously unfair. It is merely a case of state officials trying to grab revenue wherever they can.

The "Telecommuter Tax Fairness Act" (H.R.2600) would remedy this glaring tax injustice. The legislation clearly declares: "In applying its income tax laws to the compensation of a nonresident individual, a state may deem such nonresident individual to be present in or working in such state for any period of time only if such nonresident individual is physically present in such state for such period and such state may not impose nonresident income taxes on such compensation with respect to any period of time when such nonresident individual is physically present in another state."

Again, basic fairness and common sense.

Will Congress successfully kill the silly cell phone tax, simplify the home office tax deduction and assure tax fairness for telecommuting? Of course, these are far from done deals, as Congress has a long track record of failing to do what makes sense. But there is real hope.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He can be reached at rkeating@sbecouncil.org.