[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,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
  Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001     
              
              
              
              
              
              
                   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


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    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.
    
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]