[Congressional Record Volume 142, Number 34 (Wednesday, March 13, 1996)]
[Senate]
[Pages S1970-S1974]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BOND (for himself, Mr. Nickles, Mr. Dole, Mr. D'Amato, Mr. 
        Murkowski, Mr. Inhofe, Mr. Lott, Mr. Gramm, and Mr. Frist):
  S. 1610. A bill to amend the Internal Revenue Code of 1986 to clarify 
the standards used for determining whether individuals are not 
employees; to the Committee on Finance.


       The Independent Contractor Tax Simplification Act of 1996

  Mr. BOND. Mr. President, determining worker classification is one of 
the most important tax issues facing small business today. Indeed, and 
in fact, it was rated No. 1 by the delegates to the White House 
Conference on Small Business. They said this is something that must be 
dealt with because the ambiguity in the current law makes it extremely 
difficult for business owners to determine whether a worker is an 
independent contractor or an employee. Today I will be introducing the 
Independent Contractor Tax Simplification Act on behalf of myself, 
Senator Nickles, Senator Dole, Senator D'Amato, Senator Murkowski and 
Senator Lott.
  For years, now, the Internal Revenue Service has used a 20-factor 
common law test to determine worker status. Frankly, the test is a 
nightmare of subjectivity and unpredictability for small business 
owners who often get their tutorial on the subtleties of the issue 
during an IRS audit--certainly an unfortunate time to be learning how 
tricky the law is.
  IRS agents are required to consider 20 different factors to determine 
whether an employer/employee relationship exists. The problem is that 
the small business taxpayer is not able to predict which of the 20 
factors is going to be more important to a particular IRS agent, and 
finding a certain number of these factors present in a case does not 
always determine the result.
  Inevitably, what has been happening is that agents are resolving far 
too many cases in favor of the IRS and its tendency to find the 
existence of an employment relationship at the expense and disruption 
of bona fide independent contractor arrangements.
  Let me make perfectly clear, the IRS has every right to obtain 
information on payments, whether they are made to an employee or to an 
independent contractor. It is our position that simplifying IRS 
collection does not warrant the IRS going beyond tax law to determine 
business organization, so long as the organizations are legitimate 
structures and the IRS has the information on payments so they may 
collect appropriate taxes.
  This lack of a clear standard in existing law has made some small 
business owners reluctant to hire independent contractors and put 
others in great concern and risk of being pursued for back taxes.
  In some cases, the concern is so great that it stifles business 
expansion. As I indicated earlier, the depth of the problem was made 
clear last summer when the White Conference on Small Business, a 
nationwide group of almost 2,000 small business delegates, voted the 
independent contractor issue first on its list for recommended changes.
  Today, together with Senator Nickles and the other Senators whom I 
mentioned, Senator Nickles having been a long and consistent supporter 
of small business legislation, we introduce a bill that solves this 
problem. Our bill provides a short list of simple, clear objective 
standards that will allow all taxpayers to understand what the law says 
about who is an employee and who is an independent contractor. When 
this law is enacted, IRS agents will have clear direction, small 
business will have clear direction, but the IRS will no longer have the 
upper hand in today's confusing independent contractor law, which gives 
the IRS agent, when they deal with our country's small business 
taxpayers, advantage in determining their business organization.

  I especially thank Senator Nickles for his willingness to allow us to 
work on this bill together. Last September at a hearing, I held in the 
Small Business Committee, Senator Nickles testified about his personal 
experience with this issue dating back to the small business that he 
began while he was a college student. For Senator Nickles' company, 
like many startup companies and small businesses, it seemed to make 
perfect sense to hire independent contractors in certain situations. 
More established, larger businesses also need to hire independent 
contractors to accomplish specific tasks that may require specialized 
skill. In fact, many of America's entrepreneurs are in business as 
independent contractors whose livelihood is dependent upon the fact 
that other companies need their service and expertise. These 
entrepreneurs have no desire, nor do they have any need, to become 
employees of the businesses who purchase their services.
  Others in our Small Business Committee hearing testified about their 
experiences with IRS agents regarding worker status, telling us about 
receiving IRS penalties as high as a quarter of a million dollars. 
Between these outrageously high penalties and the complexity of the 20-
factor test, this issue, understandably, infuriates many small business 
taxpayers.
  Mr. President, the Commissioner of Internal Revenue, the Honorable 
Margaret Richardson, in a speech to last summer's small business 
conference delegates, told them the IRS does not care whether someone 
is an employee or independent contractor, as long as they properly 
report their income, and that is as it should be. Yet, the IRS 
continues to pursue this issue fiercely during its audits. It has been 
reported that in a recent 4-year span, the IRS reclassified 338,000 
workers as employees. The same report indicates the IRS prevails in 9 
out of 10 worker classification audits. Little wonder when they have 
the upper hand with a very confusing, very complex 20-factor test.
  Just last week, I received a copy of the ``Revised Internal Revenue 
Service Worker Classification Training Materials.'' This was 
distributed by Commissioner Richardson. In her memo accompanying the 
document, she describes the purchase of the document as an attempt to 
identify, simplify and clarify the factors that should be applied in 
order to accurately determine worker classification.
  There could be no more compelling justification for the importance of 
our immediate passage of the legislation than this document. We commend 
Commissioner Richardson for seeking to simplify, but this document is 
over 100 pages long. If it takes that much paper and that much ink to 
instruct IRS agents on how to simplify and clarify a small business tax 
issue, I think we can be pretty sure how simple and clear it is going 
to seem to the taxpayer sitting across the desk from an IRS agent 
during an audit.
  As those who follow this issue know, what makes this problem 
especially frustrating is that unlike most interpretive actions of the 
IRS where they must determine the proper amount of income or deductions 
so Treasury can collect the amount of tax legally due to it, the 
independent contractor issue is not about how much tax the Government 
receives. The classification decision does not alter aggregate tax 
liability to the Government at all. This problem exists because of 
IRS's apparent desire to recast economic relationships between private 
parties that these parties have already determined for themselves. The 
Independent Contractor Tax Simplification Act will help move the IRS 
out of its de facto role of setting employment policy and back into its 
role of revenue collection.

  Our bill sets out three simple questions to be asked in determining 
whether a person providing services is an employee or independent 
contractor.

[[Page S1971]]

  First, is there a written agreement between the parties?
  Second, does it appear the worker has made some investment, such as 
incurring substantial unreimbursed expenses or being paid primarily on 
a commission basis?
  Third, does the worker appear to have some independence, such as 
having his or her own place of business?
  In other words, under this bill, if there is a written contract 
between the parties and if basic investment and independence criteria 
are met, then the worker is an independent contractor. Plain, simple, 
predictable. Fine. To take advantage of this simple rule, the party 
must properly report payments above $600 to the IRS just like under 
current law. This ensures all taxes properly due to the Treasury can be 
collected.
  The legislation is written to provide immediate clarification and 
relief to taxpayers undergoing IRS examinations currently. The change, 
no doubt, would save many businesses from a protracted and expensive 
battle with IRS. For some, it may even save the business.
  When we in Congress find an opportunity to take action in a tax area 
so strongly supported by many small businesses, and when it is one that 
does not involve any loss to the Federal Treasury, we should act 
without delay. I am confident the Finance Committee can find an 
acceptable revenue offset for this worthy purpose to the extent that 
any revenue is lost. The revenue estimate for the bill should be fairly 
simple, reflecting the bill's provisions that assure continued 
collection of all taxes due the Federal Government.
  Small businesses cannot afford to wait any longer for resolution of 
this problem, and they should not be expected to do so. They have 
waited for decades. We now have a bill that will solve the problem.
  The companion bill has been introduced in the other body. I am told 
it has over 200 cosponsors. It is time Congress steps up to the plate 
and delivers for small business. I urge members of the Finance 
Committee to work with Senator Nickles and others to report out a bill 
that provides this much-needed change.
  Mr. President, I ask unanimous consent to have printed in the Record 
a copy of the bill, a section-by-section analysis and copies of some 
letters of support for the bill we have received.
  I also ask unanimous consent that Senators Dole, D'Amato, Lott, 
Murkowski, and Inhofe be shown as original cosponsors.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1610

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Independent Contractor Tax 
     Simplification Act of 1996''.

     SEC. 2. FINDINGS.

       The Congress finds that:
       (1) Simplifying the tax rules with respect to independent 
     contractors was the top vote-getter at the 1995 White House 
     Conference on Small Business. Conference delegates 
     recommended that Congress ``should recognize the legitimacy 
     of an independent contractor''. The Conference found that the 
     current common law is ``too subjective'' and called upon the 
     Congress to establish ``realistic and consistent 
     guidelines''.
       (2) It is in the best interests of taxpayers and the 
     Federal Government to have fair and objective rules for 
     determining who is an employee and who is an independent 
     contractor.

     SEC. 3. STANDARDS FOR DETERMINING WHETHER INDIVIDUALS ARE NOT 
                   EMPLOYEES.

       (a) In General.--Chapter 25 of the Internal Revenue Code of 
     1986 (general provisions relating to employment taxes) is 
     amended by adding after section 3510 the following new 
     section:

     ``SEC. 3511. STANDARDS FOR DETERMINING WHETHER INDIVIDUALS 
                   ARE NOT EMPLOYEES.

       ``(a) General Rule.--For purposes of this title, and 
     notwithstanding any provision of this title to the contrary, 
     if the requirements of subsections (b), (c), and (d) are met 
     with respect to any service performed by any individual, then 
     with respect to such service--
       ``(1) the service provider shall not be treated as an 
     employee,
       ``(2) the service recipient shall not be treated as an 
     employer,
       ``(3) the payor shall not be treated as an employer, and
       ``(4) compensation paid or received for such service shall 
     not be treated as paid or received with respect to 
     employment.
       ``(b) Service Provider Requirements With Regard to Service 
     Recipient.--For the purposes of subsection (a), the 
     requirements of this subsection are met if the service 
     provider, in connection with performing the service--
       ``(1) has a significant investment in assets, training, or 
     both,
       ``(2) incurs significant unreimbursed expenses,
       ``(3) agrees to perform the service for a particular amount 
     of time or to complete a specific result and is liable for 
     damages for early termination without cause,
       ``(4) is paid primarily on a commissioned basis or per unit 
     basis, or
       ``(5) purchases products for resale.
       ``(c) Additional Service Provider Requirements With Regard 
     to Others.--For the purposes of subsection (a), the 
     requirements of this subsection are met if--
       ``(1) the service provider--
       ``(A) has a principal place of business,
       ``(B) does not primarily provide the service at the service 
     recipient's facilities,
       ``(C) pays a fair market rent for use of the service 
     recipient's facilities, or
       ``(D) operates primarily from equipment not supplied by the 
     service recipient; or
       ``(2) the service provider--
       ``(A) is not required to perform service exclusively for 
     the service recipient, and
       ``(B) in the year involved, or in the preceding or 
     subsequent year--
       ``(i) has performed a significant amount of service for 
     other persons,
       ``(ii) has offered to perform service for other persons 
     through--
       ``(I) advertising,
       ``(II) individual written or oral solicitations,
       ``(III) listing with registries, agencies, brokers, and 
     other persons in the business of providing referrals to other 
     service recipients, or
       ``(IV) other similar activities, or
       ``(iii) provides service under a business name which is 
     registered with (or for which a license has been obtained 
     from) a State, a political subdivision of a State, or any 
     agency or instrumentality of 1 or more States or political 
     subdivisions.
       ``(d) Written Document Requirements.--For purposes of 
     subsection (a), the requirements of this subsection are met 
     if the services performed by the individual are performed 
     pursuant to a written contract between such individual and 
     the person for whom the services are performed, or the payor, 
     and such contract provides that the individual will not be 
     treated as an employee with respect to such services for 
     purposes of this subtitle.
       ``(e) Special Rules.--For purposes of this section--
       ``(1) Failure to meet reporting requirements.--If for any 
     taxable year any service recipient or payor fails to meet the 
     applicable reporting requirements of section 6041(a), 
     6041A(a), or 6051 with respect to a service provider, then, 
     unless such failure is due to reasonable cause and not 
     willful neglect, this section shall not apply in determining 
     whether such service provider shall not be treated as an 
     employee of such serviced recipient or payor for such year.
       ``(2) Related entities.--If the service provider is 
     performing services through an entity owned in whole or in 
     part by such service provider, then the references to 
     `service provider' in subsections (b) through (d) may include 
     such entity, provided that the written contract referred to 
     in paragraph (1) of subsection (d) may be with either the 
     service provider or such entity and need not be with both.
       ``(f) Definitions.--For the purposes of this section--
       ``(1) Service provider.--The term `service provider' means 
     any individual who performs service for another person.
       ``(2) Service recipient.--Except as provided in paragraph 
     (5), the term `service recipient' means the person for whom 
     the service provider performs such service.
       ``(3) Payor.--Except as provided in paragraph (5), the term 
     `payor' means the person who pays the service provider for 
     the performance of such service in the event that the service 
     recipients do not pay the service provider.
       ``(4) In connection with performing the service.--The term 
     `in connection with performing the service' means in 
     connection or related to--
       ``(A) the actual service performed by the service provider 
     for the service recipients or for other persons for whom the 
     service provider has performed similar service, or
       ``(B) the operation of the service provider's trade or 
     business.
       ``(5) Exceptions.--The terms `service recipient' and 
     `payor' do not include any entity which is owned in whole or 
     in part by the service provider.''
       (b) Clerical Amendment.--The table of sections for chapter 
     25 of such Code is amended by adding at the end the following 
     new item:

``Sec. 3511. Standards for determining whether individuals are not 
              employees.''

       (c) Effective Date.--The amendments made by this Act shall 
     apply to services performed before, on, or after the date of 
     the enactment of this Act.
                                                                    ____


      Summary of the Independent Contractor Tax Simplification Act

       For too long now, businesses have been forced to rely upon 
     complicated and ambiguous IRS guidelines for classifying 
     individual

[[Page S1972]]

     workers as employees or independent contractors. IRS audit 
     determinations of misclassification often result in heavy tax 
     penalties. Clarifying independent contractor rules was 
     considered the top small business priority by conference 
     delegates at the 1995 White House Conference on Small 
     Business.
       Instead of trying to define who is an employee (the common 
     law 20-point test), this legislation creates a simple 
     definition of who is not an employee.


                              General Rule

       If this legislation's requirements are met with respect to 
     any service performed by any individual, then the service 
     provider shall not be treated as an employee, the service 
     recipient shall not be treated as an employer, the payor 
     shall not be treated as an employer, and the compensation 
     paid shall not be treated as paid with respect to employment.


                        investment/training/risk

       With regard to the service being performed, the service 
     provider must--
       (1) have a significant investment in assets and/or 
     training, or
       (2) incur significant unreimbursed expenses, or
       (3) agree to perform the service for a particular amount of 
     time or to complete a specific result and is liable for 
     damages for early termination without cause, or
       (4) be paid primarily on a commissioned or per-unit basis, 
     or
       (5) purchase products for resale.


                principal place of business/advertising

       With regard to other parties, the service provider must--
       (1) have a principal place of business, or
       (2) not primarily provide the service in the recipient's 
     facilities unless the provider is paying a fair market rent 
     for this use, or
       (3) operate primarily from equipment not supplied by the 
     service recipient, or
       (4) not be required to perform service exclusively for the 
     service recipient, and
       (a) have recently performed a significant amount of service 
     for other persons, or
       (b) have offered to perform service for persons through 
     advertising, individual solicitations, listing with 
     registries, etc, or other similar activities, or
       (c) have provided service under a registered or licensed 
     business name.


                     written document requirements

       The services of a provider must be performed pursuant to a 
     written contract between such individual and the service 
     recipient stating that the provider will not be treated as an 
     employee.


                             special rules

       If any service recipient fails to meet the applicable IRS 
     reporting requirements with respect to a service provider, 
     then they may not rely upon these simplified independent 
     contractor guidelines and are subject to the existing 20-
     point common law test.
                                                                    ____

                                            National Federation of
                                             Independent Business,
                                   Washington, DC, March 12, 1996.
     Hon. Kit Bond,
     U.S. Senate,
     Washington, DC.
       Dear Senator Bond: On behalf of the more than 600,000 
     members of the National Federation of Independent Business 
     (NFIB), I am writing to offer our strong support of the 
     Independent Contractor Simplification Act. The independent 
     contractor issue has been confusing and burdensome for small 
     business owners for decades. As you know, the independent 
     contractor issue was the top recommendation of the 1995 White 
     House Conference on Small Business.
       Small businesses are put in a lose-lose situation with the 
     Internal Revenue Service. Under the current law, they are 
     required to classify individuals as independent contractors 
     or employees based on extremely vague and ambiguous IRS 
     guidelines. When a small business owner mistakenly 
     misclassifies a worker based on these vague criteria, the IRS 
     audits the business and levies back tax penalties. Even if 
     the employer fully reported all payments to the independent 
     contractor and the mistake was unintentional, these penalties 
     are still levied. This misunderstanding can put the employer 
     out of business. For small businesses, misinterpreting these 
     nebulous IRS guidelines can be financially devastating.
       The Independent Contractor Simplification Act sets forth an 
     alternate set of clear and distinct criteria for businesses 
     to follow when classifying their workers. It solves the 
     independent contractor problem by defining who is not an 
     employee. Most importantly, the legislation puts forth 
     safeguards against abusing this classification by prohibiting 
     both independent contractor and employer from relying on 
     these new rules if all payments for service are not properly 
     reported to the IRS.
       We commend you on your legislation which sends much needed 
     relief to our nation's small business owners and the million 
     of budding entrepreneurs who have an interest in being an 
     independent contractor. We look forward to working with you 
     to move the Independent Contractor Simplification Act through 
     the Senate.
           Sincerely,

                                             Donald A. Danner,

                                                   Vice President,
     Federal Governmental Relations.
                                                                    ____

                                                   The Independent


                                         Contractor Coalition,

                                                   Washington, DC.
     Hon. Kit Bond,
     U.S. Senate,
     Washington, DC.
       Dear Senator Bond: We the undersigned, representing a 
     cross-section of close to one million businesses and 
     individuals, are writing to offer our strong support for the 
     Independent Contractor Tax Simplification Act.
       This legislation will bring much needed relief to millions 
     of businesses and budding entrepreneurs in addressing 
     ambiguities in the IRS guidelines for determining independent 
     contractor status.
       At a minimum, the current system by which the IRS enforces 
     laws and regulations governing an individual's employment tax 
     status promotes uncertainty and inhibits entry of aspiring 
     entrepreneurs into the free market system as independent 
     contractors. At its worst, the current system is unfairly 
     biased against the use of independent contractors and 
     constrains economic expansion of our nation's free market 
     system.
       The Bond/Nickles bill will settle many of the problems 
     associated with the current system. By setting forth a clear 
     set of alternate criteria, this legislation will resolve many 
     of the long standing complaints businesses and individuals 
     have had with the vague and often subjective guidelines the 
     IRS uses to classify workers as employees or independent 
     contractors.
       As the leading coalition of businesses and individuals 
     working to clarify independent contractor status, we commend 
     you on your effort and look forward to working with you to 
     move this legislation through the Senate.
       Allow the free enterprise system to work for the benefit of 
     our economy.
           Sincerely,
                                                  Nelson Litterst,
                                                   NFIB, Co-Chair.
                                                     John Satagaj,
                                                   SBLC, Co-Chair.


 THE BOND/NICKLES INDEPENDENT CONTRACTOR LEGISLATION--Endorsement List

       Agricultural & Industrial Manuf. (AIMRA).
       Air Courier Conference of America.
       Alliance of Independent Store Owners & Professionals.
       American Animal Hospital Association.
       American Association of Equine Practitioners.
       American Association of Meat Processors.
       American Association for Medical Transcription.
       American Association of Nurserymen.
       American Consulting Engineers Councils.
       American Council of Independent Laboratories.
       American Rental Association.
       American Society of Interior Designers.
       Associated Builders & Contractors.
       Associated Landscape Contractors of America.
       American Society of Travel Agents.
       American Warehouse Association.
       Bureau of Wholesale Sales Representatives.
       Business Advertising Council, Inc.
       Computer Software Industry Association.
       Council of Growing Companies.
       Direct Selling Association.
       Electronics Representatives Association.
       Expedited Package Independent Contractor Council.
       FTD Association.
       Health Industry Representatives Association.
       Helicopter Association International.
       Home Food Service of Colorado.
       Independent Computer Consultants Association.
       Independent Distributors Association.
       Independent Medical Distributors Association.
       Institute of Electrical and Electronics Engineers-U.S. 
     Activities.
       International Association for Financial Planning.
       International Taxi Cab and Livery Association.
       International Television Association Inc.
       Marine Retailers Association of America.
       McNair Law Firm.
       Messenger Courier Association of the Americas.
       Metal Treating Institute.
       National Association of Computer Consultant Businesses.
       National Association of Orchestra Leaders.
       National Association of the Remodeling Industry.
       National Association for the Self-Employed.
       National Electrical Manufacturers Representative 
     Association.
       National Federation of Independent Business.
       National Fire Sprinkler Association.
       National Home Furnishings Association.
       National Moving & Storage Association.
       National Restaurant Association.
       National Tooling & Machining Association.
       National Tour Association.
       Nurse Brokers and Contractors of America.
       Power-Motion Technology Representative Association.
       Promotional Products Association International.
       Rich Plan Corporation.
       Securities Industry Association.
       Small Business Legislative Council.
       SMC Business Councils.
       Society of American Florists.
       The Management Association of Illinois.
       World Floor Covering Association.
                                                                    ____


[[Page S1973]]

                           Small Business Legislative Council,

                                    Washington, DC, March 4, 1996.
     Hon. Christopher Bond,
     Hon. Don Nickles,
     U.S. Senate,
     Washington, DC.
       Dear Senators Bond and Nickles: On behalf of the Small 
     Business Legislative Council (SBLC), I wish to express our 
     strong support for your legislation to establish clear and 
     objective rules for the purposes of determining whether an 
     individual is an independent contractor or employee.
       This is a long-time concern of the SBLC. Indeed, one of the 
     founding principles of the organization, when it was 
     established in the mid-1970s, was to work to encourage 
     individuals to pursue the American Dream--owning and managing 
     their own business. Becoming an independent contractor is 
     both the means and the end to that goal.
       As you know, the delegates to the 1995 White House 
     Conference on Small Business made this one of their priority 
     recommendations. Indeed, while there was no official ranking, 
     this was the top vote-getter in the final balloting.
       Congratulations on this initiative! We look forward to 
     working with you towards the passage and enactment.
       The Small Business Legislative Council (SBLC) is a 
     permanent, independent coalition of nearly one hundred trade 
     and professional associations that share a common commitment 
     to the future of small business. Our members represent the 
     interests of small businesses in such diverse economic 
     sectors as manufacturing, retailing, distribution, 
     professional and technical services, construction, 
     transportation and agriculture. Our policies are developed 
     through a consensus among our membership. Individual 
     associations may express their own views. For your 
     information, a list of our members is enclosed.
           Sincerely,
                                                    Gary F. Petty,
     Chairman of the Board.
                                                                    ____



           members of the small business legislative council

       Air Conditioning Contractors of America.
       Alliance for Affordable Health Care.
       Alliance for American Innovation.
       Alliance of Independent Store Owners and Professionals.
       American Animal Hospital Association.
       American Association of Equine Practitioners.
       American Association of Nurserymen.
       American Bus Association.
       American Consulting Engineers Council.
       American Council of Independent Laboratories.
       American Gear Manufacturers Association.
       American Machine Tool Distributors Association.
       American Road & Transportation Builders Association.
       American Society of Interior Designers.
       American Society of Travel Agents, Inc.
       American Subcontractors Association.
       American Textile Machinery Association.
       American Trucking Associations, Inc.
       American Warehouse Association.
       AMT-The Association for Manufacturing Technology.
       Architectural Precast Association.
       Associated Builders & Contractors.
       Associated Equipment Distributors.
       Associated Landscape Contractors of America.
       Association of Small Business Development Centers.
       Automotive Service Association.
       Automotive Recyclers Association.
       Bowling Proprietors Association of America.
       Building Service Contractors Association International.
       Business Advertising Council.
       Christian Booksellers Association.
       Council of Fleet Specialists.
       Council of Growing Companies.
       Direct Selling Association.
       Electronics Representatives Association.
       Florists' Transworld Delivery Association.
       Health Industry Representatives Association.
       Helicopter Association International.
       Independent Bankers Association of America.
       Independent Medical Distributors Association.
       International Association of Refrigerated Warehouses.
       International Communications Industries Association.
       International Formalwear Association.
       International Franchise Association.
       International Television Association.
       Machinery Dealers National Association.
       Mail Advertising Service Association.
       Manufacturers Agents National Association.
       Manufacturers Representatives of America, Inc.
       Mechanical Contractors Association of America, Inc.
       National Association for the Self-Employed.
       National Association of Catalog Showroom Merchandisers.
       National Association of Home Builders.
       National Association of Investment Companies.
       National Association of Plumbing-Heating-Cooling 
     Contractors.
       National Association of Private Enterprise.
       National Association of Realtors.
       National Association of RV Parks and Campgrounds.
       National Association of Small Business Investment 
     Companies.
       National Association of the Remodeling Industry.
       National Chimney Sweep Guild.
       National Electrical Contractors Association.
       National Electrical Manufacturers Representatives 
     Association.
       National Food Brokers Association.
       National Independent Flag Dealers Association.
       National Knitwear & Sportswear Association.
       National Lumber & Building Material Dealers Association.
       National Moving and Storage Association.
       National Ornamental & Miscellaneous Metals Association.
       National Paperbox Association.
       National Shoe Retailers Association.
       National Society of Public Accountants.
       National Tire Dealers & Retreaders Association.
       National Tooling and Machining Association.
       National Tour Association.
       National Wood Flooring Association.
       NATSO, Inc.
       Opticians Association of America.
       Organization for the Protection and Advancement of Small 
     Telephone Companies.
       Petroleum Marketers Association of America.
       Power Transmission Representatives Association.
       Printing Industries of America, Inc.
       Professional Lawn Care Association of America.
       Promotional Products Association International.
       The Retailer's Bakery Association.
       Small Business Council of America, Inc.
       Small Business Exporters Association.
       SMC Business Councils.
       Society of American Florists.
       Turfgrass Producers International.
                                                                    ____

                                                     National Home


                                      Furnishings Association,

                                    Washington, DC, March 4, 1996.
     Hon. Christopher Bond,
     Hon. Don Nickles,
     U.S. Senate,
     Washington, DC.
       Dear Senators Bond and Nickles: On behalf of the National 
     Home Furnishings Association (NHFA), I would like to offer 
     our endorsement of your bill to establish criteria for the 
     determination of individuals as independent contractors or 
     employees for federal employment tax purposes.
       Our retailers engage independent contractors to provide a 
     variety of services including design, installation, and 
     delivery. This has been a long-standing practice in our 
     industry.
       The unsettled nature of the law in this area has been the 
     cause for concern in our industry and, therefore, we support 
     your efforts.
       The NHFA represents approximately 2,800 retailers of home 
     furnishings throughout the United States.
       We look forward to working with you towards passage of this 
     important legislation.
           Sincerely,
                                                 Patricia Bowling,
     Executive Vice President.
                                                                    ____



                             World Floor Covering Association,

                                    Washington, DC, March 4, 1996.
     Hon. Christopher Bond,
     Hon. Don Nickles,
     U.S. Senate,
     Washington, DC.
       Dear Senators Bond and Nickles: On behalf of the World 
     Floor Covering Association (WFCA), and our member 
     floorcovering retailers, I would like to express our strong 
     support for your bill to establish realistic criteria for the 
     classification of individuals as independent contractors or 
     employees for federal employment tax purposes.
       Our retailers engage independent contractors to provide 
     installation services. This has been a long-standing practice 
     in our industry and is fundamental to the way we do and have 
     done business for many years.
       Over the years, we and our members have discussed this 
     matter with the IRS on numerous occasions. The only thing we 
     can say about the discussions is it is apparent to us that 
     Congress must step in and establish a clear and objective set 
     of rules. That is why we support your bill. We also believe 
     Congress should establish once and for all, that encouraging 
     individuals to become independent contractors is a good thing 
     for the nation and the economy.
       We look forward to working with you towards passage of this 
     important legislation.
           Sincerely,
                                             D. Christopher Davis,
     Chief Executive Officer.
                                                                    ____

                                              Promotional Products


                                    Association International,

                                        Irving, TX, March 4, 1996.
     Hon. Christopher Bond,
     Hon. Don Nickles,
     U.S. Senate,
     Washington, DC.
       Dear Senators Bond and Nickles: On behalf of the 
     Promotional Product Association International (PPA), I would 
     like to offer our support for your bill to establish rules 
     for the classification of individuals as independent 
     contractors or employees.
       Historically, our industry has engaged independent 
     contractors to sell its products

[[Page S1974]]

     and services. We feel our industry practice is the epitome of 
     the American tradition of selling products and services 
     through independent sales representatives.
       We strongly believe clear and objective rules that will put 
     the ongoing battle between the IRS and small business over 
     this issue behind us are needed and welcomed. Therefore, we 
     support your efforts.
       The promotional products industry is the advertising, sales 
     promotion, and motivational medium employing useful articles 
     of merchandise imprinted with an advertiser's name, logo, or 
     message. Our industry sales are over $6 billion and PPA 
     members are manufacturers and distributors of such goods and 
     services.
       We look forward to working with you towards passage of this 
     important legislation.
           Sincerely,
                                                G. Stephen Slagle,
                                                        President.

  Mr. NICKLES. Mr. President, one of the most fundamental concepts in 
our free enterprise economy is the ability of any American to use 
talent, intelligence, and hard work to start a business. The small, 
independent business is the engine which drives innovation, job 
creation, and increased economic activity in this country.
  For many small, start-up companies, independent contractor status is 
the best way, and sometimes the only way, they can do business. 
Similarly, many larger, established businesses find that using 
independent contractors is the most effective way of handling projects 
that require special talents. There are five million independent 
contractors in America according to the Small Business Administration, 
and almost one-third of all companies use independent contractors to 
some degree. Independent contractor status gives both the service 
provider and the service recipient the flexibility needed to be 
competitive in today's economic environment.
  Before coming to the U.S. Senate, I had first hand experience with 
these issues; both working as and employing independent contractors. 
The janitorial service I began as a student at Oklahoma State 
University could not have existed if I had been required to work as an 
employee, and it never would have expanded if I could not have hired 
other students as independent contractors to handle specific jobs.
  Despite the obvious importance of independent contractors to our 
economy, Congress has amazingly failed to give workers or businesses 
adequate guidance as to who is an employee and who is an independent 
contractor. Unfortunately, this lack of decisive congressional action 
combined with aggressive dislike of independent contractors by the 
Internal Revenue Service has subjected many businesses to abusive 
audits and unfair penalties. In effect, our Government is killing the 
independent contractor.
  Mr. President, I rise today with my colleague from Missouri, Senator 
Bond, to introduce the Independent Contractor Tax Simplification Act. 
This legislation is the Senate companion of a H.R. 1972, a bill 
introduced last year by Congressman Jon Christensen which now has 215 
cosponsors. Our bill, which is supported by over 50 trade and industry 
associations, cuts through the horrendously complicated and ambiguous 
current law rules and provides relief and confidence to independent 
contractors and service recipients alike.
  Why is congressional action needed, Mr. President? In the mid-1970's, 
the IRS undertook a major initiative to reclassify workers as 
employees. In response to the tremendous outcry from business owners, 
Congress in 1978 enacted what was intended to be a temporary solution, 
the section 530 safe harbor provisions. Section 530 prohibited the IRS 
from reclassifying workers as employees if the employer had a 
reasonable basis for treatment of the workers as independent 
contractors, or if a past IRS audit did not dispute the workers' 
classification.
  So for two decades, independent contractor status has been controlled 
by this temporary solution, related IRS rulings, judicial precedent, 
and legislation targeted at specific industries. Those contractors and 
businesses who are unable to rely upon section 530 are subjected to a 
20-point command law test which attempts to define an employer's 
control over workers. This common law test is the bane of employers and 
workers across the country, and is at the heart of the problems my 
legislation intends to address. The General Accounting Office calls the 
common law test ``unclear and subject to conflicting interpretations''. 
Even the Treasury Department has testified that ``applying the common 
law test in employment tax issues does not yield clear, consistent, or 
even satisfactory answers, and reasonable persons may differ as to the 
correct classification''.
  The horror stories surrounding this issue are numerous and 
disturbing, Mr. President. Last year, ``NBC Nightly News'' ran a story 
on two business owners who are facing hundreds of thousands of dollars 
in back taxes and penalties because the IRS decided to reclassify their 
independent contractors as employees. One of these citizens, who owns a 
travel agency, received a bill for almost $200,000 in back taxes, 
penalties, and interest, despite the fact that his independent 
contractors had already paid their taxes! Mr. President, a $200,000 tax 
bill will close the doors of most small businesses.
  According to the NBC report, the IRS has used these worker 
classification audits to collect more than three-quarters of a billion 
dollars from business owners over the last 7 years in disputed 
employment taxes, even though many of the independent contractors had 
already paid these taxes.
  The Independent Contractor Tax Simplification Act replaces the 
complicated and arbitrary common law test with a simple definition of 
who is not an employee.
  To qualify for independent contractor status, my legislation requires 
the service provider to have a significant investment in assets and/or 
training, or incur significant unreimbursed expenses, or agree to 
perform the service for a particular amount of time or to, complete a 
specific result and is liable for damages for early termination without 
cause, or be paid primarily on a commissioned or per-unit basis, or 
purchase products for resale.
  Further, under my legislation the service provider must have a 
principal place of business, or not primarily provide the service in 
the recipient's facilities unless the provider is paying a fair market 
rent for their use, or operate primarily from equipment not supplied by 
the service recipient or not be required to perform service exclusively 
for the service recipient, and have recently performed a significant 
amount of service for other persons, or have offered to perform service 
for other persons through advertising, individual solicitations, 
listing with registries, et cetera or other similar activities, or have 
provided service under a registered or licensed business name.
  Finally, Mr. President, my legislation requires businesses and 
independent contractors to enter into a written contract and comply 
with all applicable IRS reporting requirements to ensure that payments 
to independent contractors are properly reported in order to prevent 
taxpayer arbitrage.
  I would like to stress, Mr. President, that this legislation is not a 
comprehensive rewrite of all independent contractor law. It is very 
difficult to address all worker classification issues in one bill, 
because there is an unlimited number of employment situations and each 
one presents different challenges. Further, many individuals, 
businesses, and trade associations have resolved their problems with 
the IRS, and they fear that a comprehensive change in the law will 
force them to renew old arguments with the Government or impose 
unwanted conditions on their employment practices, such as tax 
withholding. The Independent Contractor Tax Simplification Act will 
benefit those businesses and contractors who have not resolved their 
status with the IRS, while preserving current law for those who are 
satisfied with it.
  Mr. President, it is not fair to business, nor is it conducive to the 
entrepreneurial spirit of this country, to leave the question of worker 
classification up to the whim of the IRS. The importance and timeliness 
of this issue was made clear last summer when delegates to the White 
House Conference on Small Business made clarifying independent 
contractor rules their No. 1 small business priority. I believe 
Congress should act decisively to recognize the importance of 
independent contractors, and I invite my colleagues to join me in this 
initiative.
                                 ______