    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

     THE SHARING ECONOMY: A TAXING EXPERIENCE FOR NEW ENTREPRENEURS, PART I

    =======================================================================

                                    HEARING

                                   before the

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  HEARING HELD
                                  MAY 24, 2016

                                   __________

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                Small Business Committee Document Number 114-062
                  Available via the GPO Website: www.fdsys.gov

                                _________

                    U.S. GOVERNMENT PUBLISHING OFFICE

     20-199                  WASHINGTON : 2017
    ____________________________________________________________________
     For sale by the Superintendent of Documents, U.S. Government Publishing Office,
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                       HOUSE COMMITTEE ON SMALL BUSINESS

                          STEVE CHABOT, Ohio, Chairman
                                STEVE KING, Iowa
                          BLAINE LUETKEMEYER, Missouri
                            RICHARD HANNA, New York
                             TIM HUELSKAMP, Kansas
                             CHRIS GIBSON, New York
                              DAVE BRAT, Virginia
                 AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                            STEVE KNIGHT, California
                            CARLOS CURBELO, Florida
                             CRESENT HARDY, Nevada
                   NYDIA VELAZQUEZ, New York, Ranking Member
                             YVETTE CLARK, New York
                              JUDY CHU, California
                            JANICE HAHN, California
                         DONALD PAYNE, JR., New Jersey
                              GRACE MENG, New York
                           BRENDA LAWRENCE, Michigan
                           ALMA ADAMS, North Carolina
                          SETH MOULTON, Massachusetts
                               MARK TAKAI, Hawaii

                       Kevin Fitzpatrick, Staff Director
                           Jan Oliver, Chief Counsel
                      Michael Day, Minority Staff Director

                                C O N T E N T S

                               OPENING STATEMENTS

                                                                       Page
    Hon. Steve Chabot................................................     1
    Hon. Nydia Velazquez.............................................     2

                                   WITNESSES

    Ms. Caroline Bruckner, Executive-in-Residence, Accounting and
      Taxation, Managing Director, Kogod Tax Policy Center,
      Washington, DC.................................................     4
    Mr. Rob Willey, VP Marketing, TaskRabbit, San Francisco, CA......     6
    Mr. Morgan Reed, Executive Director, ACT/The App Association,
      Washington, DC.................................................     7
    Mr. Joe Kennedy, Senior Fellow, Information Technology and
      Innovation Foundation, Washington, DC..........................     9

                                    APPENDIX

    Prepared Statements:
        Ms. Caroline Bruckner, Executive-in-Residence, Accounting and
          Taxation, Managing Director, Kogod Tax Policy Center,
          Washington, DC.............................................    22
        Mr. Rob Willey, VP Marketing, TaskRabbit, San Francisco, CA..    54
        Mr. Morgan Reed, Executive Director, ACT/The App Association,
          Washington, DC.............................................    59
        Mr. Joe Kennedy, Senior Fellow, Information Technology and
          Innovation Foundation, Washington, DC......................    73
    Questions for the Record:
        None.
    Answers for the Record:
        None.
    Additional Material for the Record:
        CEETA - Coalition for Effective and Efficient Tax
          Administration.............................................    80
        Coalition to Promote Independent Entrepreneurs...............    82

                         THE SHARING ECONOMY: A TAXING
                    EXPERIENCE FOR NEW ENTREPRENEURS, PART I

                                  ----------

                             TUESDAY, MAY 24, 2016

                      House of Representatives,
                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 11:00 a.m., in Room
    2360, Rayburn House Office Building, Hon. Steve Chabot
    [chairman of the Committee] presiding.
        Present: Representatives Chabot, Luetkemeyer, Hanna,
    Gibson, Brat, Radewagen, Knight, Curbelo, Kelly, Velazquez,
    Clarke, Chu, Hahn, Meng, and Adams.
        Chairman CHABOT. The Committee will come to order. Good
    morning. We want to thank everyone for being here, and a
    special thanks to our witnesses who have taken time away from
    their busy schedules to be here with us today. We are really
    looking forward to their testimony.
        We are here to examine an exciting new phenomenon in our
    society, the sharing economy. This new economy goes by many
    names--app, gig, on-demand, peer-to-peer, online platform, and
    collaborative. We have even heard it called the ``Uber
    economy.'' Some of you may have even taken Uber or Lyft to get
    to this hearing today. No matter what you call it, the sharing
    economy is changing the face of American entrepreneurship and
    small businesses before our very eyes. The dizzying pace of
    this change has presented many new opportunities and new
    challenges for the millions of Americans who participate in it.
    These new platforms have dramatically changed the ways
    companies provide goods and services, giving their workers
    unprecedented freedom and independence. This new generation of
    workers wants to set their own hours and decide which jobs to
    take. They may work with one on-demand platform or multiple
    platforms. They may work alone or pool their resources with
    others. This is the essence of economic liberty and a testament
    to the power of the free market.
        However, in their enthusiasm, these entrepreneurs are
    running smackdab into the buzz saw of an outmoded tax code that
    is not designed to accommodate them.
        The tax compliance challenges they face have gone largely
    unacknowledged so far, but as we are hearing from a growing
    chorus of entrepreneurs, these tax challenges present new and
    unnecessary obstacles for our small businesses. Some of these
    new entrepreneurs fail to file their taxes altogether and, when
    they do, they often pay too much. They do not know that they
    can deduct certain expenses or they do not have the records to
    back up their deductions, putting them at risk for an audit.
        Unfortunately, the IRS has not been part of the solution
    for entrepreneurs in navigating this new sharing economy. Too
    often, it has been part of the problem. Our current tax system
    is not working for these new small businesses. In many ways, it
    is working against them. We can do better. We must do better.
        Today, we will explore some of these problems and discuss
    some potential solutions with this distinguished panel. We are
    very much looking forward to hearing from the panel here today,
    and I would now like to yield to the Ranking Member, Ms.
    Velazquez from New York, for the purpose of her opening
    statement.
        Ms. VELAZQUEZ. Thank you, Mr. Chairman.
        Technology has long been a catalyst for entrepreneurship.
    In keeping with this trend, development of the sharing economy
    has created new challenges for entrepreneurs to sell goods and
    services. Innovators are harnessing the web to create platforms
    and markets that allow the selling, renting, and trading of
    everything from apartment space, to transportation, to artisan
    craft goods. The numbers strongly suggest that this new sharing
    economy is here to stay. More than 1.5 million internet users
    have used TaskRabbit to hire people for odd jobs. As of
    September 2015, the Uber app was available in 60 countries and
    300 cities worldwide, and it is estimated to fulfill one
    million rides daily.
        One reason for this sector's rapid growth may be rooted in
    broader economic struggles. With job growth still sluggish,
    enterprising Americans and dislocated workers are seeking new
    ways to replace revenue. Others seek more flexibility and work-
    life balance. Renting out rooms and providing lifts in their
    car have all become ways for ordinary Americans to experiment
    with entrepreneurship.
        While the explosive growth of these networks has created
    new opportunities, the rapid rise raises questions. While many
    of the workers in the shared economy enjoy flexibility, they
    must be protected from unscrupulous business practices. Most of
    the businesses operating in the shared economy classify their
    workers as independent contractors, not employees. Such a
    classification saves businesses money through reduced benefits
    and tax withholdings. Business and courts have long struggled
    with trying to determine whether certain workers are employees
    or independent contractors. The courts are currently
    overflowing with lawsuits over whether companies have
    misclassified employees and they are prevalent in the sharing
    economy. As always, the challenge is ensuring businesses and
    employees are protected without questioning and discouraging
    promising innovation.
        Control is a critical factor to this question. If the
    employer controls the worker, how can the worker be truly
    independent? With the rise of the sharing economy, this
    question has become harder to answer as workers are connected
    to consumers through online intermediaries. Our current
    approach to answering this question seems to be failing at the
    expense of hardworking Americans and our nation's tax revenues.
    One study estimates it costs the United States $54 billion in
    underpayment of employment taxes and $15 billion in unpaid FICA
    and unemployment taxes.
        It is important that as this technological revolution
    advances, government policy keeps pace. It is also important
    this committee fully understands what is happening in the new
    sharing economy and has a grasp on how we can minimize risk for
    employees while maximizing growth and productivity for small
    businesses. Today's hearing will give us that opportunity.
        I would like to thank all of our witnesses for taking the
    time to be here. Your perspectives will add significant value
    as the committee seeks to learn more about the sharing economy.
        With that, Mr. Chairman, I yield back.
        Chairman CHABOT. Thank you very much.
        Ms. VELAZQUEZ. Thank you.
        Chairman CHABOT. She yields back.
        If Committee members have opening statements prepared, I
    would ask that they be submitted for the record.
        Now I will take just a moment to explain our timing system,
    how it works. It is pretty simple. You get 5 minutes each, and
    then we will ask questions for 5 minutes. There is a lighting
    system on your table there to assist you in that. A green light
    will be on for 4 minutes, and then the yellow light will come
    on to let you know that you have about a minute to wrap up. The
    red light will come on and we will ask you to stop. You do not
    have to stop midsentence, but if you could wrap up we would
    appreciate it.
        I would now like to introduce our distinguished panel here
    this morning. I will introduce all four of the witnesses before
    we get started.
        Our first witness is Caroline Bruckner, Executive in
    Residence of Accounting and Taxation and Managing Director at
    Kogod Tax Policy Center at American University here in
    Washington, D.C. In that capacity, she directs a team of small
    business tax policy experts, economists, and researchers. Ms.
    Bruckner previously served as chief counsel for the U.S. Senate
    Committee for Small Business and Entrepreneurship from 2009 to
    2014. We welcome you here this morning.
        Our second witness will be Rob Willey, who is Vice
    President of Marketing at TaskRabbit in San Francisco,
    California. TaskRabbit connects users who want to outsource
    errands to anyone willing to complete them for a fee. The
    company started in 2008 and currently operates in 18 cities in
    the U.S. as well as London. With over 15 years of experience in
    marketing, Mr. Willey has created marketing campaigns for
    several global clients, including Nike, Cadillac, and Nokia. We
    also welcome you here this morning.
        Our third witness will be Morgan Reed, who is Executive
    Director at ACT, the App Association where he specializes in
    application development issues. In addition to testifying to
    the Subcommittee on Health and Technology last year, Mr. Reed
    has also testified before the U.S. Senate and has written
    several white papers on app development. He also serves on the
    Advisory Council of the Mobile Health Information Management
    Systems Society. I will now like to yield to the Ranking
    Member, Ms. Velazquez, to introduce our fourth and final
    witness.
        Ms. VELAZQUEZ. Thank you, Mr. Chairman. It is my pleasure
    to introduce Mr. Joe Kennedy, Senior Fellow at the Information
    Technology and Innovation Foundation. For almost 3 decades, he
    has provided legal and economic advice to senior officials in
    the public and private sector involving technology,
    competitiveness, and the social contract. Mr. Kennedy
    previously served as the Chief Economist for the U.S.
    Department of Commerce and as the Senior Economist for the
    Joint Economic Committee. He holds a law degree and a master's
    degree in Agriculture and Applied Economics from the University
    of Minnesota, and a Ph.D. in Economics from George Washington
    University. Welcome to the committee. Thank you.
        Chairman CHABOT. Thank you very much.
        Ms. Bruckner, you are recognized for 5 minutes.

       STATEMENTS OF CAROLINE BRUCKNER, EXECUTIVE-IN-RESIDENCE,
     ACCOUNTING AND TAXATION, MANAGING DIRECTOR, KOGOD TAX POLICY
      CENTER; ROB WILLEY, VP MARKETING, TASKRABBIT; MORGAN REED,
       EXECUTIVE DIRECTOR, ACT THE APP ASSOCIATION; JOE KENNEDY,
    SENIOR FELLOW, INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION

                     STATEMENT OF CAROLINE BRUCKNER

        Ms. BRUCKNER. Thank you for the invitation to join you
    today to discuss the tax compliance challenges of small
    businesses driving a sharing economy. My name is Caroline
    Bruckner. I am on the faculty at American University Kogod
    School of Business. I am also the Managing Director of the
    Kogod Tax Policy Center which conducts nonpartisan research on
    tax and compliance issues specific to small businesses and
    entrepreneurs.
        At Kogod, we are currently focused on the tax and
    compliance issues impacting America's latest iteration of small
    business owners who are renting rooms, providing ridesharing
    services, running errands, and selling goods to consumers and
    business transactions coordinated online and through ad-based
    platforms developed by companies such as Airbnb, Etsy, Uber,
    Lyft, TaskRabbit, Instacart, and others.
        We released our research yesterday in a report titled
    ``Shortchanged: The Tax Compliance Challenges of Small Business
    Operators Driving the On-Demand Platform Economy'' to shed
    light on these issues as Congress moves forward with tax
    reform.
        Having spent more than a year investigating these growing
    problems, we report on what the existing debate has yet to
    acknowledge: that for tax purposes, on-demand platform economy
    service providers and sellers are, in fact, small business
    owners, and there are millions of them working and earning
    income in ways that are not readily identifiable by existing
    government research or publicly-available taxpayer filing data.
    We argue that these issues should be considered by Congress and
    the IRS, not only because millions of American taxpayers are
    needlessly burdened trying to comply with an antiquated,
    outdated tax system, but also because inaction has very real
    implications on Treasury and IRS' ability to fairly and
    efficiently collect taxes.
        A number of findings we reviewed and included in our
    research are particularly relevant to today's discussion,
    including, first, more than 2.5 million Americans are earning
    income in the on-demand platform economy as small business
    owners every month. This reflects the explosive growth of the
    on-demand platform economy but is just the latest example of a
    66.5 percent increase in alternative work arrangements for U.S.
    workers from 2005 to 2015.
        Second, although people do cycle in and out of the on-
    demand platform economy, during months in which people are
    actively using platforms to earn income, average monthly income
    ranges from $533 to $314 per month.
        Third, by and large, the majority of individuals in the on-
    demand platform economy work less than 15 hours per week.
        As part of our research, we spoke with dozens of
    individuals currently participating in the on-demand economy
    and initiated a survey of the members of the National
    Association of Self-Employed (NASE). Our objective was to
    assess whether tax compliance challenges exist even among a
    group of taxpayers who by their own self-selection as members
    of NASE are experienced, self-employed small business owners.
    Their responses indicate a significant lack of understanding of
    the information available regarding self-employed tax filing
    obligations. Specifically, our survey revealed that among
    respondents who had earned income with an on-demand platform
    company in 2015, which was approximately 22 percent of all of
    our respondents, approximately one-third did not know whether
    or not they were required to file quarterly estimated payments
    with the IRS on their on-demand platform economy income; 43
    percent were unaware as to how much they would owe in taxes and
    did not set aside any money for taxes on that income; and
    almost half did not know about any tax deductions, expenses, or
    credits that could be claimed related to their on-demand
    platform earnings.
        As a result, a significant percentage of these taxpayers
    could face potential audit and penalty exposure for failing to
    comply with filing rules that are triggered by relatively low
    amounts of earned income. Costs to taxpayers can also be
    quantified in terms of time spent preparing returns and chasing
    down questions to complex tax questions from the IRS. But we
    heard time and again from taxpayers, on-demand platform
    companies, and tax preparers that the small businesses
    operating in the on-demand economy generally want to be honest
    and pay what they owe, but that the tools and resources do not
    exist. Indeed, more than 60 percent of our survey respondents
    who worked for an on-demand platform company in 2015, reported
    that they did not receive a Form 1099-K or 1099-MISC from their
    on-demand platform, which likely means the IRS did not either.
    This is not surprising given that it is entirely consistent
    with both the Form 1099-MISC filing instructions and the
    statutory requirements for filing a Form 1099-K.
        The current tax administration system is not working for a
    significant percentage of on-demand platform small business
    operators or Treasury or IRS. At the root of this problem is a
    lack of information and understanding of tax filing
    obligations, which is compounded by an information reporting
    regime that results in widespread confusion, and these tax
    challenges are only going to continue to grow to impact more
    and more self-employed small business owners. Our assessment of
    the general confusion state of play when it comes to filing
    taxes on that income earned from on-demand platform work was
    consistently reinforced by interviews with tax preparers,
    industry experts, and our own survey. Everyone is losing under
    the current rules. Both the on-demand economy players and the
    IRS deserve greater efficiency and less hassle. We can do
    better.
        Again, I thank you for the opportunity to join today's
    discussion and for the work you do on behalf of America's small
    businesses.
        Chairman CHABOT. Thank you very much.
        Mr. Willey, you are recognized for 5 minutes.

                        STATEMENT OF ROB WILLEY

        Mr. WILLEY. Mr. Chairman, Ranking Member Velazquez, and
    members of the House Small Business Committee, I am Rob Willey,
    Vice President of TaskRabbit. Thank you for the invitation to
    testify today. More importantly, thank you for the interest in
    the topic that captures the legal, regulatory, and public
    policy challenges that confront millions of individuals that
    look to platforms like ours to improve their daily lives.
        Founded in 2008, by Leah Busque, our founding member, we
    set out to revolutionize every day work. Now, most of us have
    probably figured out one day or another that we needed a time
    to have someone help us with yardwork, fix a shelf in our
    house, paint a room, or possibly mow our lawns, and today we
    have recognized and realized that opportunity. With New York
    being our largest market and London being our fastest growing
    market, we today have over 50,000 taskers with 5,000 active at
    any given time, helping everyday people accomplish these
    everyday types of tasks.
        Now, with that said, we are looking to change the face of
    the industries by consistently representing our taskers and
    their everyday needs. With that, we have promoted and
    consistently support our taskers with flexible prices, with
    flexible hours, in flexible locations, on an average of $35 an
    hour. This is what we call everyday work for everyday people.
        With that said, only 10 percent of our taskers work full-
    time. Overall though, the average monthly income for taskers
    should triple year over year. This part-time flexible nature of
    our work done by our taskers is consistent with the larger
    platform economy.
        A February 2016 study by the JPMorgan Chase Institute found
    that the overwhelming majority of an estimated 2.5 million
    Americans who earned income as small business owners using
    platforms like ours did so to supplement their incomes and
    better support themselves and their families.
        With little to no barriers to entry, the on-demand platform
    economy has become an important option at a time when income
    volatility continues to change individuals and families. On-
    demand platforms like ours create a new earning option that is
    accessible to millions of Americans. Of course, the emergence
    of the platform economy has sparked an intense debate on the
    classifications of workers versus independent contractors. The
    current classification system was defined around a much
    different economic and technological era and has been shaped
    mostly by decades of regulations and court cases. As a result,
    it fuels uncertainty about what we can or cannot do to support
    our taskers while preserving their flexibility and independence
    in accessing our platform.
        As Professor Caroline Bruckner noted, many platform economy
    participants either do not know or are not fully aware of both
    their tax obligations and tax benefits as a result of earning
    income on platforms like TaskRabbit.
        We at TaskRabbit have no reason to doubt that significant
    numbers of taskers are facing these types of challenges. For
    many of our taskers, when they sign up to join our platform,
    they are making their first forays into the world of self-
    employment. Some may understand that earning a certain level of
    income triggers that quarterly estimated payment filing
    requirements but many do not.
        It is in TaskRabbit's interest to see our taskers gain a
    better understanding of tax compliance and planning. Greater
    flexibility and transparency with respect to tax planning would
    help maximize return on tasker participation in our networks.
    It is their freedom as entrepreneurs.
        Today's topic is just one of many where our taskers could
    benefit from better training. Our taskers are also looking for
    direction on how to better market themselves and their
    services, access health care, and plan for retirement. We at
    TaskRabbit would like to be a resource, a partner, and a
    collaborator for them. We urge Congress and relevant government
    agencies to look at innovative approaches to support their
    participation in this emerging platform marketplace.
        As a pioneer of this emerging market, TaskRabbit welcomes
    the opportunity to work with policymakers as our company grows
    and matures. We consider this engagement rewarding on many
    levels. Just last month, for example, we became the first
    technology company to announce we would follow the diversity
    principles outlined by the Congressional Black Caucus in its
    TECH 2020 initiative.
        Mr. Chairman and Ranking Member Velazquez, we thank you for
    you and your Committee's interest in taking the time to
    understand our business and how it is changing what we call the
    future of work. We appreciate the bipartisan interest in the
    platform economy, most notably by the Sharing Economy Caucus,
    co-chaired by California Congressmen Darrell Issa and Eric
    Swalwell.
        We hope we can channel this bipartisan energy towards
    constructive policy solutions that will further enable
    TaskRabbit and the platform economy to continue to innovate and
    grow and further empower small business owners and
    entrepreneurs to efficiently and effectively provide services
    across the country. Thank you.
        Chairman CHABOT. Thank you very much.
        Mr. Reed, you are recognized for 5 minutes.

                        STATEMENT OF MORGAN REED

        Mr. REED. Chairman Chabot, Ranking Member Velazquez, and
    distinguished members of the Committee. My name is Morgan Reed,
    and I am the Executive Director of ACT the App Association.
    Thank you for holding this important hearing.
        The App Association represents more than 5,000 small
    business app makers and connected device companies across the
    United States. Our member companies have enabled the rise of
    the sharing economy by leveraging the connectivity of smart
    devices.
        Sharing economy companies have grown rapidly over the past
    decade because they allow instantaneous communication, secure
    transactions, and personalized relevance to consumers.
    Moreover, these same factors allow small businesses and tens of
    millions of Americans to earn more for their families with
    flexibility and autonomy, all powered by the smartphone in your
    pocket. But these opportunities will cease to exist if Federal
    regulations hinder the continued growth of the sharing economy.
        I want to highlight three tax policy actions that affect
    our members. First, Congress and the Internal Revenue Service
    should take great care to ensure the federal tax code enables,
    rather than stifles the sharing economy, specifically, the
    treatment of all sharing economy workers as employees under the
    federal tax code would be detrimental, especially to small
    businesses.
        Second, small businesses need certainty and transparency in
    the tax resolution process, including the ability to settle
    disputes with the IRS in an effective and efficient manner.
    Legislation like that proposed by Senator Rob Portman can help
    ensure that outcome.
        Finally, Congress should ensure fairness by guaranteeing
    that Internet sales taxes are based on the seller's location.
    We call on Congress to reject proposals that would force
    businesses to become tax experts for thousands of state and
    local jurisdictions across the United States.
        But beyond specific policy requests and legislative
    language, I would like to take a moment to illustrate how the
    move to the sharing economy is far more than a repackaging of
    existing services. The popular media tends to describe the
    sharing economy in terms of companies that displace or disrupt
    an existing business model. eBay replacing the classifieds or
    the yard sale, UberX replacing the taxi, and VRBO replacing
    hotels. But this is a false, or at least limited, dichotomy.
        The sharing economy not only replaces but also creates new
    concepts in how people engage and interact. For example, our
    member, NomFul, a Chicago-based small business utilizes a
    sharing platform to connect nutrition coaches from across the
    country to consumers seeking a healthier lifestyle. Using
    NomFul's service, dedicated coaches answer questions, set
    benchmarks, and help consumers meet their health goals, but
    they do not merely connect you to a nutrition expert. NomFul
    fundamentally switches the paradigm by getting users to change
    bad habits through ongoing relationships, not just the once a
    month meeting you would receive with traditional care. Users
    can take pictures of the food they are eating, share it with
    their coach, and get real-time feedback and reinforcement.
    Coaches get insight about the existing habits of the user so
    that they can step in before a bad decision is made, actively
    working to prevent diabetes and other health problems. In
    short, creating healthy habits is relationship dependent.
        NomFul does not exist without the tools that create our
    modern sharing economy. You would merely have individual
    nutrition coaches trying to change years of bad habits with
    static information given in isolated 60-minute sessions, and
    there is no possible way that every nutrition coach and
    registered dietician would provide their own software to
    provide these new tools, nor could a company writing the
    software afford to hire an army of nutrition coaches and then
    hope to create a user base. The only way it works is through a
    sharing platform, one that allows users to find the help they
    need and for the coaches to be able to take as many or as few
    clients as they want. So as you see, NomFul replaces no
    existing industry.
        There is a story like NomFul's in every single district in
    America. Each one of you received a packet of baseball cards
    with companies from your district. Now, not all of them are
    sharing economy businesses but they are all part of the
    revolution taking place, one that is moving hi-tech beyond just
    big companies. In fact, our most recent study showed that 82
    percent of the top app companies are small businesses, most of
    which bail from places other than Silicon Valley.
        The companies that you have in hand are looking to grow and
    succeed, each with their own vision of what success looks like.
    But the success of the sharing economy is predicated on an
    empowered workforce, one that can choose to drive for Uber and
    for Lyft, to open up a bricks and mortar location and provide
    products or services online, and for platforms to be able to
    attract users through better training, tools, and clients
    without triggering a change in tax status.
        We urge Congress to ensure that the rules we follow make
    sense in an age where the neighborhood yard sale is now
    nationwide and where a daily client may not live in the same
    country. The app ecosystem enables the sharing economy and
    offers incredible benefits to each and every American, and I
    look forward to working with you to help advance measures that
    empower innovation.
        Chairman CHABOT. Thank you very much.
        Mr. Kennedy, you are recognized for 5 minutes.

                        STATEMENT OF JOE KENNEDY

        Mr. KENNEDY. Thank you for the opportunity to testify
    before you on the subject of taxes and the sharing economy.
        ITIF's approach to this topic is driven by three
    considerations. The first is that while the sharing economy is
    growing rapidly, it still represents only a small fraction of
    an increasingly diverse labor market.
        Second, internet platforms are delivering tremendous value
    to both consumers and workers. In a survey of over 4,600
    workers from 11 platform companies, only 7 percent said they
    were dissatisfied with their experience. Workers earned an
    average of $7,900 over the previous 12 months, which accounted
    for 22 percent of their total household income. The average
    hourly earnings was $28.
        The third consideration is that the traditional employee/
    independent contractor distinction no longer serves much
    purpose for a growing share of today's labor market. Largely by
    default, the common law test has become the basis for
    determining whether all of the major Federal and state labor
    laws apply. The result is a large amount of uncertainty and
    litigation which discourages companies from supporting gig
    economy workers and consumers in a variety of ways.
        Some of the ways that companies have said that they would
    like to support their independent contractors include training
    and access to business and financial advice. Such efforts could
    be enormously valuable to workers who are, after all, for all
    intents and purposes, running their own businesses. Within the
    tax field, help with tax advice, recordkeeping and withholding
    would be especially important. The tax laws are enormously
    complex. Workers need to make a number of important decisions,
    including what form of business to create, whether to set up a
    new savings plan, and what salary to pay themselves. They need
    to determine what expenses are deductible and begin keeping the
    necessary records, and they need to complete their tax filings
    in a timely manner. In a survey, 20 percent of online workers
    listed understanding tax and legal obligations as one of their
    top challenges. In addition, these platform companies could add
    value to both workers and consumers by setting prices, handling
    transactions, letting parties rate each other, and conducting
    background checks. Yet, such activities are often used as
    evidence of an employer-employee relationship.
        Public policy should encourage companies to support their
    workers' careers, irrespective of the work relationship. If a
    company offers withholding to all workers, or pays for access
    to tax or business advice, or extends benefits to independent
    contractors, why would we want to discourage that by insisting
    that it must also be subject to minimum wage, collective
    bargaining, and unemployment insurance legislation?
        In a recent ITIF report, I argue that there are three
    approaches that Congress can take to begin modernizing the
    nation's labor laws. The best option would be for Congress to
    amend each federal labor law by replacing the common law test
    with a clearer one specific to that particular piece of
    legislation. The second approach would be to define a third
    category of workers somewhere between an employee and an
    independent contractor. Finally, Congress could give platforms
    devoted to personal services a temporary exemption from most
    labor laws. The worker of many of these platforms are clearly
    independent contractors anyway under the common law test. The
    small size of the gig economy and the temporary nature of the
    exemption reduce any risk to the broader labor markets.
        The world around us is rapidly changing. Work arrangements
    will continue to diversify as companies respond. Congress
    cannot dictate the shape of future work arrangements. It can,
    however, play a large role in helping workers get the kind of
    support they need to have good careers that fit into their
    increasingly complicated lives.
        Thank you again for the opportunity to appear before you.
        Chairman CHABOT. Thank you very much. We appreciate the
    testimony from all the panelists here this morning, and now we
    will ask questions. I recognize myself for 5 minutes.
        Ms. Bruckner, you testified that more than 60 percent of
    your survey respondents did not receive a Form 1099-K or a Form
    1099-MISC. What changes would you suggest to improve reporting
    to benefit both workers and the IRS?
        Ms. BRUCKNER. I think that the first thing that we should
    do is recognize that the instructions for the Form 1099-MISC
    directs people to use the Form 1099-K for credit card reporting
    or payments made by credit card, and that creates a tax
    reporting loophole for income that is earned that is less than
    $20,000, because there are certain income thresholds for using
    the Form 1099-K. The IRS should immediately reconsider those
    instructions on the Form 1099-MISC and see if it can be used
    for credit card payments less than the income threshold for
    $20,000.
        Chairman CHABOT. Okay. Do you have a sense of how many
    folks are not complying with the tax code because it is too
    complicated--in the shared economy I am talking about--that it
    is too complicated and too cumbersome versus, ``I am not going
    to pay my taxes''?
        Ms. BRUCKNER. That is a good question. I do not have a hard
    number on that, but I can tell you anecdotally from when we
    talk to folks that are in the sharing economy or when we talk
    to tax preparers that specialize in advising folks who earned
    income with platform-related work, they were immediately
    confused as to whether or not they had to pay taxes on their
    income earned because in many instances they did not get any
    1099 at all.
        Chairman CHABOT. Okay. Very good. Thank you.
        Mr. Willey, I will move to you now. We have heard a lot
    today about the tremendous projected growth of the sharing
    economy in the coming years. What are TaskRabbit's own
    estimates of the growth that you might expect to see in your
    company and what areas do you see as having the best growth
    potential?
        Mr. WILLEY. If history is any indication of the future,
    which we believe it is, year over year to date we are growing
    at 4X on a revenue basis. We are also growing our task--we have
    15,000 organic applications from our taskers on a month-to-
    month basis. Both of those indicate that, one, we are still in
    the very early days of what the sharing economy could look
    like; and two, TaskRabbit is well-positioned to be a figurehead
    of growth.
        Chairman CHABOT. Thank you.
        Mr. Reed, I will move to you at this point. We discussed
    the complexity of all this, how hard it is to get information,
    how to figure out how to comply with the IRS code under
    existing code. Very confusing. Is it possible that there is
    some enterprising entrepreneur out there that could come up
    with an app, form their own company, to solve this problem
    rather than the government figure it out for them?
        Mr. WILLEY. Well, I think that it is a two-pronged test.
    One, yes, absolutely. In fact, there have been some early-to-
    market applications that attempted to make the switch. One of
    the real discoveries that we found is that an application that
    is on your device to help you with taxes is one that you likely
    only turn to at that moment of panic. What really we are seeing
    now is the fact that you have to do an integrated application.
    You need to be able to pull in the information from TaskRabbit
    into your tax preparation software on an ongoing basis so that
    you can keep track of it. And, in fact, that leads to one of
    the confusing elements we have all been discussing. If
    TaskRabbit or NomFul or any of these companies were to provide
    that kind of interactivity and that ongoing information flow
    and training, well, that might trigger the case of them being
    considered employees.
        So on the one hand, it is very hard to put together an
    application that draws the right information, and on the other,
    our platforms are concerned about the liability they may take
    on by providing us the very thing that we need to satisfy the
    first question you asked, how do we get people to pay their
    taxes?
        Chairman CHABOT. Thank you. I have time for one more
    question. Mr. Kennedy, I will turn to you on this one. Even if
    we were able to implement a temporary legislative and
    regulatory moratorium on the sharing economy as you have
    suggested, you correctly point out that there are myriad of
    relevant state and local laws that bear on this sector. How
    would you address inconsistencies between federal action versus
    state and local?
        Mr. KENNEDY. I would say two things to that. The first is I
    think there is room for an increased dialogue between the
    federal government and the states about what the common rule
    should be. We would like, ideally, for there to be consistency
    at the federal and state levels, so encouraging reform at the
    state level that matches reform at the federal level would be
    important. The second is that Congress can, to some extent,
    preempt state laws using the Commerce Clause. There is room for
    debate about where that line is, but I think there is scope for
    preempting a lot of the state legislation now.
        Chairman CHABOT. Okay. Thank you very much. My time is
    expired. The Ranking Member is recognized for 5 minutes.
        Ms. VELAZQUEZ. Thank you, Mr. Chairman.
        Mr. Kennedy, in your testimony you touch on this issue but
    I would like to hear more discussion on it. There is a level of
    complexity inherent in operating a business that straddles the
    boundary between wage employment and self-employment. What can
    be done specifically in tax law to overcome these challenges?
    Is it creating a new hybrid definition of an employee or
    amending the IRS Safe Harbor Rule?
        Mr. KENNEDY. My personal inclination would be to amend the
    Safe Harbor Rule to create a brighter line between where a
    particular law applies and where it does not apply so people
    know which side they are on. For people who would only make a
    little bit of money on these platforms, you could raise the
    threshold so that they do not need--they still need to report
    the income and pay taxes on it but they do not need to make,
    say, quarterly payments. There are two hopefully minor reforms
    that would make a difference.
        Ms. VELAZQUEZ. Thank you.
        Ms. Bruckner, there has been some concern from traditional
    brick-and-mortar businesses about the emergence of the sharing
    economy business model and how it affects fairness. While I do
    not advocate one business model over the other, how do we
    ensure that actions taken to foster entrepreneurship through
    new methods do not disadvantage businesses that invested time
    and money to conform to existing regulations when classifying
    their workers?
        Ms. BRUCKNER. The first thing that you can do is promote
    understanding of what your tax filing obligations are because
    people view unfairness when they think that other people are
    not paying their fair share. If we take actions on outreach and
    education on what income you need to pay taxes on and promote
    what your tax filing obligations are, then you are creating an
    opportunity for people to actually pay their fair share and
    creating transparency and making sure that folks, be they in a
    sharing economy or working for a brick-and-mortar business, are
    both paying their fair share.
        Ms. VELAZQUEZ. Mr. Reed, do you have any comments on that?
        Mr. REED. Well, I think what we all have seen, what the
    studies have shown from Ms. Bruckner and Mr. Kennedy is that
    that paradigm of bricks-and-mortar store as a standalone entity
    is almost nonexistent. Sure, there is a corner bodega that
    sells ice cream and sundries that will probably always be very
    isolated, but in nearly every other business, you are going to
    have a mixed economy. I started a bike store when I was
    younger. I still own part of a bike store, well, we sell part
    of our equipment online. We get rid of stuff that we did not
    sell in the year online. We use services like eBay, et cetera.
    What I am finding is even your corner independent bike store is
    probably going to have an interaction in this sharing economy.
    While it is important to preserve the rights and the
    capabilities of those brick-and-mortar stores, we have to
    understand that we are merging into an always connected, always
    online, and candidly, always selling economy.
        Ms. VELAZQUEZ. Mr. Kennedy, your views on that?
        Mr. KENNEDY. I think somebody who has paid a million
    dollars for their medallion in New York probably feels a bit
    aggrieved that Uber is competing, but I think if you look at it
    objectively, Uber is a better model. They are reducing prices.
    They are serving neighborhoods that traditionally have not been
    served so well. The riders seem to think it is a better
    experience. The answer, I think, is not to go backwards into
    the traditional model but to free up the traditional taxicabs
    and brick-and-mortar businesses so that they can participate
    more in the online experience. You see the taxicabs actually
    starting to put out their own apps now. Reforming some of the
    traditional laws and traditional regulation would be a more
    appropriate response.
        Ms. VELAZQUEZ. Thank you.
        Ms. Bruckner, if workers are found to be misclassified,
    what are the current penalties under the tax code? Would they
    then be penalized automatically under other laws, like the Fair
    Labor Standards Act as well?
        Ms. BRUCKNER. Our research did not look at the
    misclassification legal implications. We think that that is a
    part of the debate that impacts a very small segment of the
    overall sharing economy and that there are much larger, broader
    implications for the growing numbers of independent
    contractors, freelancers in general. Our research focuses
    specifically on the existing tax compliance challenges of those
    folks that are operating as self-employed, small business
    owners generally. There is, absolutely, misclassification that
    occurs in every industry at every paygrade and there are
    extensive legal ramifications, but we focus first and foremost
    on the smallest of the small business owners and what their tax
    challenges are.
        Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman.
        Chairman CHABOT. The gentlelady yields back. Thank you.
        The gentleman from New York, Mr. Gibson, is recognized for
    5 minutes, except he is not here. Okay. Who is next on our
    side?
        Okay. The gentleman also from New York, Mr. Hanna, is
    recognized for 5 minutes.
        Mr. HANNA. Thank you. This is a fascinating topic. The
    underground economy, as you know, is growing. Part of this
    whole conversation has to do with noncompliance. You said $2.5
    billion are unreported potential income, and yet there is
    unanimity that the tax code, if not encouraging this, is not
    caught up to the issue. So you have the government's desire to
    eliminate the notion of independent contractors so they all
    fall under the auspices of the companies that are helping them
    open these businesses; right? Yet that does not solve the
    problem, I am interested that there is an issue there. The IRS,
    people are not sending 1099s because they do not require them,
    so who is really breaking the law here? Are they looking at the
    credit card threshold? If they are, how would they even know
    it? I mean, let's face it. People are saying uniformly that
    people are not complying, implying that they are uniformed, but
    we all know that we have to pay taxes. We all know that if we
    have income, we owe somebody something or at least a report
    saying we fell under certain--so I do not buy that people do
    not know that they owe something to someone.
        Ms. Velazquez said that there is a subtle incentive to make
    everybody a private contractor because look at what you avoid,
    the whole FICA issue, the health insurance, all those things.
    So I think it is a really complicated issue. I am interested in
    any response you might have, Ms. Bruckner, because who would
    not want to be like TaskRabbit saying these are all independent
    contractors and we are not responsible for anybody. I mean,
    that would be ideal for you. You just collect your percentage
    and move on, but yet, it is a problem. It is a big problem.
        Mr. Reed?
        Mr. REED. Having been a small business owner and having
    been on both sides of this, I am not sure I would completely
    agree with the concept that everybody would love to have
    independent contractors. As somebody who owned a small
    business, one of the things, one of the reasons I hired people
    to be employees is that I could count on them to be there. As I
    pointed out, lots of drivers drive for both Uber and for Lyft,
    and so you essentially have your employees in a state of
    competition with you; right? You are having to constantly offer
    incentives, find new ways to entice them to stay and not jump
    ship. One of the advantages that you have when you own a
    business and have employees is there is an opportunity cost to
    having them there, but it allows you to do different----
        Mr. HANNA. No, I am not arguing.
        Mr. REED. So I think that we are making that decision on
    kind of an ongoing basis because TaskRabbit has employees, do
    you not?
        Mr. WILLEY. Thank God I am one of them.
        Mr. REED. Exactly.
        Mr. HANNA. But the premise is the same. I agree with you. I
    have had hundreds of employees myself. I am new to this job. So
    I get it. But we have to find a way to disincentivize the
    companies from doing that inappropriately, and at the same time
    find a way to help people pay what they are owed, because the
    IRS cannot run around chasing down everybody who owes them
    $500.
        Mr. WILLEY. I do not argue that we need to create the right
    set of incentives for both companies and for 1099 or taskers,
    as we call them, contractors, to have the right benefits and
    right access to whatever they choose. But legitimately right
    now, our taskers are telling us the one thing they value most
    is flexibility. In order for us to provide that flexibility,
    they need to be 1099 contractors. One of the negating factors
    however, to them filing their taxes or receiving training in
    any other regard--whether that be professional services,
    learning how to be better handymen, understanding how to market
    themselves--is this inability to work directly with them around
    training. That is ultimately one of the barriers, the issue we
    are talking about today, and more broadly around how to
    interact with this workforce in a meaningful way.
        Mr. HANNA. Do you agree with that, Mr. Kennedy?
        Mr. KENNEDY. Yes. I would also add that if you are talking
    about withholding taxes or providing, say, healthcare benefits,
    the economic evidence is that the employee ultimately pays for
    that in reduced take-home pay. So it is not really the employee
    that is bearing the burden; it is possibly the employer.
        One of the reasons I suggested the temporary exemption is
    because there is real scope for the companies to come forward
    in certain areas and have a closer relationship with their
    employees. Tax is one of them because all the records are
    electronic, and so providing the IRS with the information is
    almost costless. But the companies are afraid that this will
    come back to bite them later in the form of a disgruntled
    worker saying they were misclassified or an agency coming and
    saying you did not do this or that.
        Mr. HANNA. Sure. With workman's comp there is a big
    incentive to that.
        Chairman CHABOT. The gentleman's time is expired. The
    gentleman is granted an additional minute to wrap up.
        Mr. HANNA. Oh, thank you. Thank you, Chairman.
        I get all that, but just one last thing. The Affordable
    Care Act. Regardless of how you feel about it, it impacts it in
    an enormous way with people in marginal positions and income,
    the potential to have the cost of that particular health care
    grow is incredible to me, just from what we read all the time.
        So thank you. My time is expired. Thank you.
        Chairman CHABOT. The gentleman's time is expired.
        The gentlelady from California, Ms. Hahn is recognized for
    5 minutes.
        Ms. HAHN. Thank you, Mr. Chairman, Ranking Member Velazquez
    for holding this hearing. I agree with my colleague, Mr. Hanna.
    This is an interesting topic and certainly there are a lot of
    changes underfoot in how small businesses are operating, how
    they are going to be paying taxes, how they impact the
    consumer. It is really interesting.
        One of the things, I wanted to ask you Professor Bruckner,
    because you noted in your testimony that 22 percent of the
    members of the National Association of the Self-Employed
    responded that they work with an on-demand platform company,
    like Uber or Airbnb, and of that 22 percent, almost half did
    not know about any tax deductions, expenses or credits that
    they could claim related to their on-demand platform income.
    While most of the discussion so far has been whether or not
    they are paying their taxes, in general, what kind of tax
    deductions or credits can be claimed for those in that
    industry? Also what can we do to maybe better educate this
    group on the availability of some of these savings?
        Ms. BRUCKNER. That is a great question. Starting off with
    the most obvious answer is when you drive for a business, in
    many instances you can deduct the miles that you drove. The
    question is do you deduct actual miles that you drive or do you
    deduct using a standard deduction formula that is in the tax
    code? In addition, depending on where you work, if you are
    selling goods online but you produce those goods from outside
    of your home, can you take advantage of the home office tax
    deduction? Are there other startup expenses that you might
    qualify for under the code for being able to expense in
    becoming your own small businesses? It was really surprising to
    us that this experienced, self-identified, self-employed
    population was not aware. At least half of them were not aware
    of these potential deductions and expenses and even tax credits
    that could apply to them, which means that they could be very
    well leaving money on the table when they go to file their
    taxes.
        Ms. HAHN. Thank you.
        I was going to ask Mr. Willey from TaskRabbit, I know we
    are talking about taxes in this session, but, since you are
    here, love the business model, love the concept, you know, if
    only our kids would do their chores we would not have to hire
    taskers. But one of the concerns that some of us have is
    background checks of some of those who are now becoming taskers
    and coming into our homes. Can you walk us through how
    TaskRabbit vets and administers the background checks for these
    taskers?
        Mr. WILLEY. Sure. Trust and safety, holistically, is
    clearly one of our company's biggest priorities, and I think it
    is important to state that as we look at a variety of things
    that happen in the marketplace every day. Clearly us recruiting
    and/or onboarding taskers is something that operationally we
    look at every day to make sure it is the best process possible.
    In doing so, like I mentioned, 15,000 taskers or potential
    taskers apply to work in the marketplace every month. What that
    includes is the submission of a form online with basic contact
    information, which includes their Social Security Number, then
    we do a background check, which currently they pay for. Then,
    based on that process, they come in person for a one-hour
    orientation to learn the processes and procedures of our
    marketplace, as well as how to use the tasker app in order to
    answer for potential work.
        Ms. HAHN. Thank you. Let me also follow up, am running out
    of time. It is fascinating that we are talking about $35 an
    hour. I mean, that is like five times----
        Mr. WILLEY. The federal minimum wage.
        Ms. HAHN.--the federal minimum wage. It is incredible. You
    have stated that thousands of applications are coming to you
    really without any direct recruiting or marketing. I am
    thinking about, particularly in the district that I represent
    in Los Angeles, there are a lot of folks who are looking for
    work. Many of the neighborhoods are low-income neighborhoods.
    How can you reach out to some of those other communities in our
    country who seem to me would be perfect to fill some of these
    jobs? What can you do to help people find some of these good-
    paying jobs?
        Mr. WILLEY. It is a good question actually, and we thank
    you for your support and that of the City of Los Angeles. You
    are one of our largest markets. I think you are right. There is
    more potential and opportunity for us to broaden outreach, to
    have a broader portion of the market or the population find new
    work opportunities, and we consistently support that with, one,
    a livable wage. That is most important to us. Two, is the
    flexibility, because 90 percent of our taskers do not work
    full-time in the marketplace, so they are allowed to create
    other new work opportunities. I would say the third thing,
    which is the most important, is this idea of transferability of
    skills. If we can consistently train those that work as taskers
    in the marketplace with broader skillsets for them to take on
    and in the future then do bigger, broader things, not only does
    our existing marketplace benefit, but as do consumers and what
    we call clients to receive better services.
        Chairman CHABOT. The gentlelady's time has expired.
        Ms. HAHN. Thank you very much, and I yield back.
        Chairman CHABOT. Thank you.
        The gentleman from Mississippi, Mr. Kelly, is recognized
    for 5 minutes.
        Mr. KELLY. Thank you, Mr. Chairman, and I thank the Ranking
    Member, and I thank this distinguished panel. I really
    appreciate you being here today.
        I am going to vary a little bit. People do not like change,
    and governments do not like change, and so I am talking to some
    of the other comments that I have heard. This is a system that
    works but it is different. I see the same thing with overtime
    rules with small businesses. What governments do not
    understand, they try to make fit into their mold, into their
    box, and the net reality is it does not work in that box. They
    have to adapt to the sharing system and to the small businesses
    and not try to adapt them to the rules that apply to everyone
    else. If we do that, if we try to force small businesses or
    sharing economies to be a part of the regular tax process or
    agency process, what happens is you fail because we try to
    insert ourselves. We need to change, not ask you to change.
        What I find interesting is that the sharing economy is very
    tangible. The other thing that I find very interesting is it
    applies to people either as a second job or a supplemental
    income, not as their primary, so a lot of times they are paying
    taxes in a primary job. They have healthcare in their primary
    job. But it is very flexible. I think Mr. Reed, you hit it,
    flexibility is the key. We absolutely have to be flexible
    because most of these people are students. They are retirees.
    They are stay-at-home moms. They are soldiers' wives. They are
    people who may be moving locations or either tied to a location
    and tied to other duties, and so that flexibility is the most
    important. What can we as a Small Business Committee do to make
    it easier to make sure that the people who want to and should
    pay their taxes pay them, but also that we keep open that
    flexibility? I will start with you, Ms. Bruckner.
        Ms. BRUCKNER. I think holding a hearing on this is a good
    start. First and foremost we need to be educating other members
    of Congress about the sharing economy and about the fact that
    it is just not a millennial phenomenon. If you talk to the
    platform companies, some of the fastest growing cohorts that
    they see across the board are baby boomers. This is affecting
    all sectors of our population, and as you point out, generally,
    these are people that are doing this part-time or as a
    secondary source of income. The hassles that they have to face
    complying with their tax code obligations are things that we
    definitely should consider moving forward with. How do we make
    life better for the American taxpayer going into tax reform?
        Mr. KELLY. Any other comments from the panel?
        Mr. REED. I think that one of the key elements that we have
    touched on considerably is ensuring that the IRS allows us to
    provide the training so that we get these people to understand
    their obligations. It is ironic that here we are, having a
    panel about how do we get people to pay their taxes, and yet,
    as Mr. Willey has talked about, and as our members have
    discussed, we are concerned that in order to make it easier for
    them to understand how to pay their taxes we might actually
    destroy the very business model that allows them to have that
    flexibility. If there is one conundrum out there that exists,
    it is the idea that we could find ourselves in the wrong
    classification trying to help the IRS do their job.
        Mr. KELLY. This is one of the things, I think the sharing
    economy is great, just like I think small business is great.
    Sometimes I think people are threatened, and rather than try to
    get better at what they do, and you know, if you are getting
    your tail kicked, you do not make the other team change their
    rules or quit playing; you get better at what they are doing
    and you steal or copy or whatever you want to call it, and you
    get like them.
        I am going to go back. Professor Bruckner, while the
    federal government works to catch up to assist the needs of a
    growing sector of the economy, is there anything that this
    Committee or various agencies involved can do educationally to
    inform taxpayers while we work to make the guidance more clear?
    What should we be doing in the meantime?
        Ms. BRUCKNER. The number one thing that the IRS can do is
    start working through its relationships with third-party
    preparers and with tax preparers, educating them. Because, in
    many instances, they do not even know how to advise customers
    that come in and need help with their taxes related to their
    sharing economy income. Leveraging those third-party
    relationships and increasing outreach and education to even tax
    preparers and folks that are engaged in that industry would be
    a great start.
        Mr. KELLY. Finally, Mr. Reed, I am going to let you comment
    if there is time, but one of the things is sales tax, it is a
    big issue. We cannot just say it is better where it originates
    or better where it ends up because a lot of localities and
    county governments and county municipalities rely on that sales
    tax to have governments and other things that perform functions
    and service their people for services, police and fire
    department. We need to have a healthy discussion on that to
    determine what the best answer is. With that, I yield back, Mr.
    Chairman.
        Chairman CHABOT. Thank you. The gentleman yields back.
        The chair would be remiss if I did not mention an irony of
    this. We are talking about the IRS here this morning, what we
    need to do to adjust, and the Committee that I left to come
    here, currently, the topic there is whether or not we should
    impeach the IRS commissioner right now. It kind of boggles your
    mind. But that being said, for the record, we will now
    recognize the gentlelady from North Carolina, Ms. Adams, who is
    the Ranking Member of the Investigations, Oversight, and
    Regulations Subcommittee for 5 minutes.
        Ms. ADAMS. Thank you, Mr. Chair, and thank you, Ranking
    Member Velazquez for hosting the hearing, and thank you, also,
    to the participants today.
        The sharing economy is certainly a new aspect of our
    economic system that we must pay close attention to in order to
    properly provide effective oversight with regard to worker
    classification.
        Ms. Bruckner, to start, worker classification is nothing
    new in labor law. In fact, last year, Utah and Arizona forced
    construction companies who were labeling workers as independent
    contractors instead of employees to pay more than $700,000 in
    back wages and damages. What makes the sharing economy harder
    to regulate than the traditional workforce?
        Ms. BRUCKNER. I think what is different and unique about
    the sharing economy is that when you look at it for tax policy
    purposes, you are not just looking at companies like TaskRabbit
    or Lyft or Uber, who raised some of those issues, or that is
    where the debate has been. We also look at it in terms of Etsy
    or Airbnb, folks who generally you would not even think to put
    in the same sentence as a misclassification debate. It is much
    bigger when you look at how these people are earning income and
    file or are obligated to file for U.S. tax purposes. It is a
    different question and that is what our research endeavors to
    point out.
        Ms. ADAMS. Okay. There are quite a few federal and state
    laws that define the employer-employee relationship and that of
    an independent contractor. Is it possible that a worker could
    be deemed an employee under one law and an independent
    contractor under another?
        Ms. BRUCKNER. That possibly could happen, but I think that
    misclassification happens in all different kinds of industries
    and in all different types of circumstances. Those are issues
    that we do not address specifically in our research. We focus
    really on how the existing tax code is not working for American
    taxpayers that are just trying to earn some income in the
    sharing economy.
        Ms. ADAMS. Thank you. Would you know if there would be tax
    implications for situations like that?
        Ms. BRUCKNER. I venture to guess that there are tax
    implications, but I by no means cover that in either my
    testimony or in the report that we put out.
        Ms. ADAMS. Okay. What role does technology play in blurring
    the line between an employee and an independent contractor do
    you think? Mr. Reed? What about you?
        Mr. REED. It is safe to say, and I have a suspicion that
    all of us would agree, that the technology that we have is what
    empowers the sharing economy. Let's use location as the most
    obvious example. Without the ability to know the location,
    TaskRabbit cannot figure out who to assign, who can get there
    quickly, how long will it take them? The entire function of the
    sharing economy works because I can take up those spaces in
    between your other job, your other task, when you drop the kids
    off for daycare, and I can make it work both in space and time.
    Without the power that our smartphone provides, we do not have
    the sharing economy.
        Ms. ADAMS. Would anyone? Mr. Willey?
        Mr. WILLEY. I completely agree with that. I think
    TaskRabbit was founded in 2008, which was the first year that
    the iPhone 1 launched. I do not think there is any luck in that
    planning. I think technology certainly empowers us both from
    matching taskers with what we call clients or consumers, but
    also building supply and demand in order to do this in a real-
    time, high-quality experience. Both of those things are simply
    empowered by mobile technology.
        Ms. ADAMS. Thank you. Mr. Reed, the sharing economy model
    relies on the infrastructure of their platform. What should
    these businesses do to ensure that their infrastructures'
    growth keeps pace with that other company?
        Mr. REED. Well, we would always encourage the companies to
    figure out ways to make it more enticing for the people
    providing the service to be part of it, and that gets down to
    training, providing easy access to the client that you need to
    find. I thought it was interesting that Ms. Bruckner brought up
    eBay, Etsy, this entire universe of physical goods and the sale
    of physical goods. The key elements that platforms need to
    provide are, first, easy access to a customer who wants their
    service. The second thing is a trustworthy space. If there is
    one thing that drives our ecosystem to success or failure it is
    the trust the client places in it. We hear it over and over. Do
    I trust the person giving me a ride? How do I know the tasker
    coming to my house should be let in the front door? Building a
    platform that enables trustworthiness and the ability to get
    those two merged together is a critical, critical element.
        Ms. ADAMS. Thank you very much. Mr. Chair, I yield back.
        Chairman CHABOT. Thank you. The gentlelady's time is
    expired.
        I want to thank the witnesses for being here today, and I
    just have one final question. Mr. Willey, I would like to ask
    you this. I noted that you have an office in London, and I
    happen to be on the Foreign Affairs Committee. I am wondering
    how is the U.S. doing compared to the rest of the world on the
    shared economy? Are we ahead of the game? Are we behind? Are we
    about where we would want to be? If you want to comment on how
    things are going around the globe.
        Mr. WILLEY. Sure. I can comment for the U.K. and for
    London, specifically. As it relates to our business, there is
    no doubt that the United States is a head of where the rest of
    the world is in terms of the sharing economy and its adoption
    of its services. That said, the fastest growing emerging
    markets in the world in the sharing economy are not in the
    United States. Specifically for us, London is our fastest
    growing market. There are different dynamics in these markets,
    whether it be around taxes or health care, that create nuances
    as to how companies go to market and how do they work with
    their taskers within their marketplace that create actually new
    opportunities for companies like TaskRabbit. Expansion is a
    very interesting and I think new opportunity for companies like
    TaskRabbit. It will be done, at least by us, very carefully as
    we understand the marketplace dynamics.
        Chairman CHABOT. Where is the cutting edge around the
    world? Is there one or a couple countries that are particularly
    ahead of the game?
        Mr. WILLEY. I think when you look at population density you
    have to very clearly see that those markets have obvious
    opportunities simply based on the fact that sharing economy
    companies need to match supply and demand in ideally very high
    population cities. Those cities, China, India, are areas where
    I think the cutting edge of the sharing economy is clearly
    looking to grow. Like I mentioned, those nuances for those
    cities and for those countries are very different than the U.S.
        Chairman CHABOT. The Ranking Member is recognized.
        Ms. VELAZQUEZ. Thank you. I would like to ask a follow-up
    question. When you mentioned health care and taxes, it is
    related to London or just other countries? And why?
        Mr. WILLEY. It is related to other countries, specifically
    in London. Forgive me, I am not an expert in U.K., and I am not
    a lawyer. But, I know when we look at our marketplace in
    London, even our services, or what we call our mix, are
    different. Our number one service in London is handyman
    services, which is a different number one service than say we
    have in Los Angeles, or that we have in San Francisco. Part of
    that is based on, one, the city dynamics, two, that is also
    based on those that are available and willing and wanting to
    work in that capacity. A lot of it has to do with health care
    and the availability of it. It also has to do with general sort
    of city service behavior. We see lots of nuances between these
    cities, which is why when we look at deploying TaskRabbit
    globally, those are very cautious and careful decisions that we
    need to work in partnership with federal and state or country
    governments to do so with always the benefit and the welfare of
    our taskers in mind.
        Ms. VELAZQUEZ. Thank you.
        Chairman CHABOT. Thank you. The gentlelady yields back.
        In closing, I would just comment that we have heard a lot
    of evidence here regarding the current tax law and outdated IRS
    policies that are ill-suited to the burgeoning sharing economy
    and the companies and workers who are directly participating.
    It seems clear that we need to figure this out and adjust
    accordingly. I am pleased that our distinguished panel has
    undertaken the task of researching and identifying many of the
    challenges presented as well as suggesting some possible
    solutions. The rise of the sharing economy is a very exciting
    development, and we need to ensure that our outmoded legal
    system does not strangle this new engine for growth in its
    infancy. We look forward to working with all of you to
    modernize our system, to boost the economy, and increase
    employment opportunities for many Americans.
        I ask unanimous consent that members have 5 legislative
    days to submit statements and supporting materials for the
    record.
        Without objection, so ordered. If there is no further
    business to come before the Committee, we are adjourned. Thank
    you.
        [Whereupon, at 12:12 p.m., the Committee was adjourned.]
                                A P P E N D I X

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        Mr. Chairman, Ranking Member Velazquez, and members of the
    House Small Business Committee, I am Rob Willey, Vice President
    of Marketing for TaskRabbit. Thank you for the invitation to
    testify today, but more important, thank you for holding
    today's hearing on a topic that captures the legal, regulatory,
    and public policy challenges that confront platform companies,
    as well as the millions of individuals that look to platforms
    like ours to improve their daily lives.

        Our Founder and Executive Chairwoman, Leah Busque, launched
    TaskRabbit in 2008 as a way to help people connect and get more
    done every day. We are a pioneer in the on-demand service
    platform industry, operating in 18 major U.S. cities--with New
    York City being our largest domestic market--and abroad in
    London, which is our fastest growing market.

        We're a two-sided marketplace connecting Taskers with
    Clients across a variety of categories, such as cleaning,
    handyman services, delivery, moving, and much more.
    TaskRabbit's vision is to allow you to be your most productive
    self, and we're changing the face of work by aligning and
    meeting a consumer's daily needs across multiple categories,
    offsetting the demands of their normal lives with consistent
    and high quality services.

        Roughly 60 percent of our Taskers are millennials--young
    people who see TaskRabbit as a way to earn income while
    pursuing a college degree, or to supplement the income they are
    earning from a full-time job. Our community is diverse with a
    broad set of needs, which is why we have a contractual
    relationship with our Taskers. By utilizing our platform--
    largely through a mobile app but also on the web--Taskers can
    directly engage with their clients. We have more than 50,000
    registered Taskers on our platform, and see more than 15,000
    applications per month with little direct recruiting or
    marketing. Interest in our platform is largely driven by
    flexible scheduling and the ability to earn livable wages.
    Taskers have the freedom to decide when, where, and how they
    work, and set their own hourly rates.

        Flexibility--the ability to work when and where they want,
    and at the hourly rate they want--has and continues to be the
    #1 reason. Taskers are on our platform. They set their prices,
    their hours, and their location, and are able to make livable
    wages around a lifestyle that works for them. The importance of
    our two-sided marketplace is that both the customer that seeks
    a specific service and the Tasker that can provide it, both
    choose to opt-in to this on-demand platform.

        Today's Tasker earns an average of $35 per hour--five times
    the federal minimum wage. The overwhelming majority of our
    Taskers utilize the platform for part-time work to supplement
    their incomes, less than 10% ``task'' full-time. Overall, the
    average monthly income for Taskers tripled year over year.

        It is fitting that today's hearing is in the House Small
    Business Committee. Whether called ``solopreneurs'' or ``micro-
    entrepreneurs,'' our Taskers are in fact, independent, self-
    employed, small business owners.

        The part-time, flexible nature of the work done by our
    Taskers is consistent with the larger app-based platform
    economy, and those characteristics, and the factors that gave
    rise to the platform economy, are important to note given
    today's hearing. A February 2016 study by the JP Morgan Chase
    Institute found that the overwhelming majority of the estimated
    2.5 million Americans people who earned income as small
    business owners using platforms like ours did so to supplement
    their incomes and better support themselves and their families.

        With little to no barriers to entry, the on-demand platform
    economy has become an important option at a time when income
    volatility continues to challenge individuals and families.
    Typically, significant fluctuations in take-home pay, work
    hours, or availability of optimal job opportunities put
    pressure on individuals to reduce their household spending or
    take on more debt. The creation of on-demand platforms like
    ours has made new income-earning opportunities accessible and
    feasible to millions of Americans.

        Of course, the emergence of the platform economy has
    sparked an, at times, intense debate on the classification of
    workers as ``employees'' or ``independent contractors,'' and
    the costs and benefits associated with either classification.
    We know the current legal worker classification structure was
    designed around a much different economic and technological
    era. In addition, today's classification structure has been
    shaped mostly by decades of regulations and court cases at the
    federal and state levels, which have fueled uncertainty across
    our sector--uncertainty about what we can or cannot do to
    support our Taskers while preserving their flexibility and
    independence in accessing our platform.

        The result: we face very limited choices when it comes to
    the services and level of collaboration we can provide for our
    Taskers. With the increase in alternative work arrangements in
    addition to the emergence of the platform economy, we're
    currently in an era where there's no typical freelancer.
    There's no ``Joe the Plumber,''--rather, we see multiple
    different work models and work cases.

        An example of that inability to collaborate and provide
    support services for our Taskers is in the tax arena. As
    Professor Caroline Bruckner ably highlighted in her report
    released just yesterday, self-employed participants in the
    platform economy have difficulties with both tax compliance and
    tax benefits. Professor Bruckner's survey data revealed that
    significant percentages of respondents did not know what their
    obligations were with respect to tax filings or taxes owed.
    They also were not fully aware of the deductions or credits
    they could claim on income earned on platforms like TaskRabbit.

        We at TaskRabbit have no reason to doubt that significant
    numbers of Taskers are facing or are simply unaware of the tax
    compliance challenges or the tax benefits that confront them.
    For many of our Taskers, when they sign up to join our
    platform, they are making their first forays into the world of
    small business and self-employment. Some may understand that
    earning a certain level of income triggers the quarterly
    estimated payment filing requirement. Many may not.

        It's in TaskRabbit's interest to see that our Taskers gain
    a better understanding of what's required with respect to tax
    compliance, and what's available with respect to tax benefits.
    What we want to avoid is a situation in which the burdens of
    tax compliance become so great that it forces Taskers to scale
    back on their tasks, if not compel them to leave the network
    altogether. What we hope to ensure are situations in which tax
    compliance is not burdensome, and full utilization of tax
    benefits helps maximize return on Tasker participation in the
    network.

        Tax compliance is just one area of many where our Taskers
    could benefit from better training. Our Taskers also are
    looking for direction on how to better market themselves and
    their services, access health care, and plan for retirement. We
    at TaskRabbit would like to be a resource, a partner, and a
    collaborator for that training--it is one of our main areas of
    focus in determining what types of services we can provide
    simply because the threat of litigation and the risks tied to
    worker classification laws and regulations at the federal and
    state level are real.

        I agree with the recommendations of my fellow witnesses
    that these issues should be considered by Congress and relevant
    government agencies, such as the U.S. Department of Labor and
    the Internal Revenue Service. It is certainly worth Congress
    considering the notion of a legal and regulatory timeout
    suggested by Dr. Joe Kennedy with the Information Technology
    Industry Foundation. There is precedent for that kind of
    action.

        In the early years of the Internet, Congress imposed a
    moratorium on federal and state taxation of Internet
    transactions. Doing so helped a young, nascent sector of the
    economy develop and provide real benefits for consumers. A
    limited period of legal and regulatory relief would enable
    platform economy companies to pursue innovative ways to develop
    and provide services and benefits to those small business
    owners and entrepreneurs who utilize platform services.

        If a broad timeout like the one I just described will take
    time for Congress to consider, perhaps a narrow timeout tied to
    a specific set of issues, including tax compliance,
    preparation, and benefits, could serve as an initial pilot
    project to demonstrate feasibility and effectiveness, while
    providing real value to those who provide on-demand services in
    the platform economy. In addition, we urge both Congress and
    the Internal Revenue Service to consider ways to bring greater
    flexibility in tax preparation and compliance for small
    businesses and the self-employed.

        Though TaskRabbit pioneered this industry, this space is
    still very early and emerging. We absolutely want to continue
    working with governments to engage with policymakers as our
    company and industry grows and matures. We consider this
    engagement rewarding on many levels. Just last month, for
    example, we announced our intent to follow the diversity
    principles outlined by the Congressional Black Caucus in its
    TECH 2020 initiative, and we're proud to have been the first
    technology company to adopt these principles.

        Mr. Chairman and Ranking Member Velazquez, we appreciate
    today's hearing, and your and the Committee's interest in
    taking the time to understand our business and how it's
    changing the face of work, and how public policies can impede
    or further that advancement. There is already bipartisan
    interest in the platform economy, as evidenced by last year's
    formation of the Sharing Economy Caucus, co-chaired by
    California Congressmen Darrell Issa and Eric Swalwell. We also
    applaud the House Republican and Democratic leaders, Kevin
    McCarthy and Nancy Pelosi, for taking a closer look at the
    public policies impacting the platform economy.

        We hope we can channel this bipartisan energy toward
    constructive policy solutions that will further enable
    TaskRabbit and the platform economy to continue to innovate and
    grow, and further empower small business owners and
    entrepreneurs to efficiently and effectively provide important
    services across the country.

        Thank you.

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