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For more information contact Bruce Hahn, 571-214-1013
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Homeowners Call
for End to Internet Taxes
End of Discriminatory Business
Activity Tax is the first step
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Washington DC, February 14,
2008. In testimony submitted to the House Small Business Committee
today, the American Homeowners Grassroots Alliance (AHGA) commended the
Committee for holding this morning’s hearing on the business activity
tax. AHGA is an independent consumer advocacy organization which focuses
on policy issues that have a significant economic impact on the nation’s
75 million homeowners.
According to AHGA, one of the biggest shifts in the small business
marketplace is in workplace locations, which are rapidly moving to
American homes. According to IDC, a national research firm, there are
between 34.3 million and 36.6 million home office households in the
United States alone. At least 18 million are home-based businesses
according to U.S. Census figures. They include millions of service
businesses such as website designers and other consultants, as well as
Internet-centric businesses, such as the millions of eBay Power Sellers
who derive all or most of their income from Internet commerce. The
balance are telecommuting employees of businesses of all sizes or
governments at all levels. A recent survey of members of the American
Institute of Architects revealed that home offices are the most popular
special function room of home buyers for the third year in a row.
AHGA believes that the use of economic nexus theories to justify
imposing income and/or franchise taxes on non-resident businesses poses
a significant challenge to the growing number of home based businesses.
More than a dozen states have enacted laws or regulations establishing
an economic nexus without a physical presence, and others have
effectively established the same policies through administrative or
judicial decisions. It is obviously beyond the physical capability of
home-based micro-businesses to keep up with and comply with such laws.
These laws also adversely affect the millions of other homeowners who
are the customers of those companies.
In addition, the growing expansion of ill-considered business activity
taxes is undermining substantial benefits resulting from the growth of
home-based businesses:
1. The slowdown in the growth of home-based businesses and telecommuting
resulting from the expansion of BAT/Nexus would undermine the
environmental and economic benefits of teleworking. Because they do not
drive to work, these homeowners are helping to reduce rush hour traffic
jams and defer the need for state and federal transportation
infrastructure investments, both for expansion and maintenance. The
shift to home-based teleworking is helping reduce environmental
pollution and global warming. A recent study by TIAX LLC determined that
a full time telecommuter who lives 22 miles from his business would save
320 gallons of gasoline and reduce CO2 emissions by 4.5 to 6 tons per
year. At $3.00 per gallon gasoline prices they would also save
homeowners about $1,000 in cash, not including savings in automobile
maintenance costs and depreciation resulting from the extra 10,000+
miles they run up annually commuting in the vehicle.
2. Similar benefits result when smart homeowners shop online. A click of
the mouse uses a lot less gas than a trip to the mall, and the mail
carrier and FedEx/UPS trucks delivering the goods will be coming down
your street anyway. Americans work more hours than any other society.
Both online shopping and teleworking also save a lot of time, a precious
commodity for all of us in our society where long working hours leaves
too little time for personal relationships and other interests.
3. Because home based business owners and telecommuters are heavy
broadband consumers, they provide a revenue base that facilitates
broadband expansion to rural areas and underserved markets. The
collective additional costs of unfair business activity taxes on
Internet commerce would discourage the deployment of broadband access,
which is a prerequisite in most circumstances for most teleworkers and
home-based businesses.
For those reasons AHGA urged Congress to protect the Commerce Clause of
the Constitution and support the Business Activity Tax Simplification
Act, H.R. 5627. The Act prohibits states from taxing home-based
businesses that have no presence in the state. AHGA applauded the House
Internet Caucus cochairs, Representatives Boucher and Goodlatte, for
introducing this important legislation.
AHGA believes that enacting this legislation is the first step to a
number of policies needed to help home-based businesses and protect the
environment. Because of all the benefits of Internet use, it is
important that all federal, state and local government policies
contribute to the expansion of its use in our society. While the federal
government has adopted worthy policies to encourage teleworking (7% of
federal workers now telecommute), the few proposals to encourage the
same thing in the private sector are receiving scant attention. Even
worse, some proposals are discouraging both teleworking and Internet
commerce.
Associations representing state government interests have been promoting
federal legislation that would require Internet sellers to collect and
remit sales taxes for state and local governments in other states.
“There are thousands of local governments, all with different tax rates
and this would be burdensome on the huge number of small home-based
Internet vendors” according to AHGA President Bruce Hahn. “It would also
be an impossible task for the millions more homeowners who hold their
yard sales on eBay and craigslist.” he added.
AHGA also supports a permanent Internet Sales Tax Holiday. Many state
and local governments offer sales tax holidays for back-to-school
expenses. They exempt from taxation some types of purchases, such as
prescription drugs, and tax other goods and services at lower rates.
Because of the aforementioned benefits, an appropriate next step would
be for the federal government and/or the states to enact a permanent
Internet sales tax holidays. Savings on the maintenance and expansion of
state transportation infrastructure and lower healthcare costs resulting
from a cleaner environment would offset the reduction in sales tax
revenues. Such legislation would also reflect the sentiments of most
constituent homeowners and other consumers, who in public opinion
surveys consistently oppose Internet taxes.
States are also discouraging teleworking as a result of the state tax
rule known as the "convenience of the employer" rule - a rule that
unfairly punishes Americans who work for out-of-state employers and
sometimes work from home. This rule is on the books in a number of
states. Under New York's “convenience of the employer” rule, for
example, nonresidents who sometimes telecommute to their New York
employers may be forced to pay New York taxes on 100% of their income,
even though they earn part of that income at home, in a different state.
Because the telecommuter's state of residence can also tax the income
earned at home, the telecommuter may be taxed twice on that income.
The Telecommuter Tax Fairness Act (H.R. 1360; S. 785) has been
introduced to address this problem. It would eliminate the "convenience
of the employer" rule, which unfairly punishes Americans who work for
out-of-state employers and sometimes work from home. AHGA urged members
of the Small Business committee to support this measure, either
separately or as a worthy amendment to any energy legislation Congress
considers in the future.
The federal government has offered tax credits for the purchase of
energy efficient hybrid vehicles, for energy efficient new homes and for
spending to make existing homes more energy efficient. Many states offer
similar incentives. Congress could further help the environment and
accelerate the other benefits of teleworking by enacting legislation to
encourage the creation of more Internet-centric home-based businesses
and more telecommuting by employees of both small and large businesses.
Tax credits provided to employers and workers for such things as
broadband expenses and computer/telecom hardware and software would
encourage the creation of more home-based businesses and defray the
costs of establishing teleworking programs. Incentives and subsidies to
expand broadband access to unserved rural and underserved urban
communities would also accelerate that process. They would also open up
educational and telemedicine opportunities to many of those homeowners
and other consumers.
The American Homeowners Grassroots Alliance is a nonprofit consumer
advocacy organization dedicated to assisting homeowners better
understand the significant economic issues affecting their home and
their lifestyle, and empowering them to make their voices heard by state
and federal officials.
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