One of the biggest shifts in the small business marketplace is in workplace locations, which are rapidly moving from office buildings to home offices. 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. 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.

On November 1, 2007 the Internet Tax Fairness Act will expire. This law prevents states and localities from imposing new taxes on Internet access and forbids all multiple and discriminatory taxes on electronic commerce. On behalf of American homeowners we urge you to support a clean bill to extend the Internet Tax Moratorium.

The Internet also has a significant and growing impact on those among the 75 million U.S. homeowners who do not use it in their work. The majority of American homeowners have Internet access and use the Internet to buy products and services, as an educational and research tool, for personal and social needs, and, increasingly, in telemedicine. Homeowners, home based business owners, telecommuters, and our society would be adversely affected if the moratorium was allowed to expire: 

Public opinion surveys show very little public support for any form of taxation of Internet access or services or products sold through the Internet. Bipartisan legislation extending the moratorium has been introduced in both the House and Senate. We especially want to commend many members of the House of Representatives and Senate for their cosponsorship of legislation to create a permanent ban.

Given the pressing expiration date, time is of the essence. We very much appreciate the Small Business Committee’s efforts to draw attention to the need to act swiftly. We would also ask individual members of this committee to do all they can to support early action on the extension of a clean Internet Tax Moratorium bill, free of any amendments that, however deserving, might prevent or delay the extension of the Internet Tax Moratorium.

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. AHGA believes that the U.S. needs to develop a coordinated set of policies to accelerate the adoption of teleworking and the use of Internet commerce. 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.

For that reason we suggest that the committee hold additional hearings to examine ways that could accelerate the rapid growth in Internet commerce and home-based business creation, especially those with technology based business models. The first step would be to draw attention to other proposals that would have the adverse consequences as a failure to extend the Internet tax moratorium.

Associations representing state government interests have been promoting federal legislation to require Internet sellers to collect and remit sales taxes for state and local governments in every other state. There are thousands of local governments, all with different tax rates and this would be a burdensome on the huge number of small home-based Internet vendors. It would also be an impossible task for the millions more homeowners who hold their yard sales on eBay and craigslist.

At one time there was one sound argument for the need to increase taxpayers’ voluntary compliance with their state and local sales tax obligations through consumer education or other programs by the state and local governments. In the early days of Internet commerce, traditional brick and mortar retailers, who at the time did not have Internet business models, had a legitimate concern about the advantages held by Internet vendors because many of their customers were either unaware of their obligation to pay the sales taxes to their state and local governments, or else chose to ignore that obligation. Today the cost of creating a basic ecommerce Internet site is miniscule. Internet service companies provide websites along with software to create an ecommerce business for as little as $10 a month. As a result almost all brick and mortar retailers, large and small, have their own robust ecommerce sites, and their ecommerce operations compete on equal terms with Internet-only vendors.

Today almost all businesses, and their customers and the environment, are reaping the benefits of Internet Commerce. Even without additional sales tax revenues from Internet sales, tax and other revenues at the state and local level have risen faster than inflation in recent years (thanks in no small part to home appreciation and commensurate growth in real estate tax revenues).

For these reasons AHGA believes its time to for state and local governments to stop trying to extract more taxes from Internet commerce. The Streamlined Sales Tax Initiative should be abandoned and they instead should look for new ways to encourage Internet commerce and teleworking.

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 states to enact a permanent Internet sales tax holiday. Savings on the maintenance and expansion of the state’s 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. We urge members of this committee to support this measure, either separately or as a worthy amendment to any energy legislation Congress considers in the future.

The federal government offers 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 Alliance appreciates the opportunity to provide these comments in support of the extension of the moratorium and to suggest related future avenues of pursuit.