[Congressional Record Volume 151, Number 69 (Monday, May 23, 2005)]
[Senate]
[Pages S5781-S5782]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DODD (for himself and Mr. Lieberman):
  S. 1097. A bill to amend title 4 of the United States Code to 
prohibit the double taxation of telecommuters and others who work from 
home; to the Committee on Finance.
  Mr. DODD. Mr. President. I am pleased to rise today, together with my 
colleague Senator Lieberman, to introduce The Telecommuter Tax Fairness 
Act of 2005.
  The Telecommuter Tax Fairness Act of 2005 will put an end to legal 
doctrine that unfairly penalizes thousands of workers in Connecticut 
and in other States throughout the country whose only offense is that 
they sometimes work from home or from a local office of their employer.
  Technology has changed the way business is conducted in America. With 
the use of cell phones, lap-top computers, email, the Internet, mobile 
networking, and many other telecommunication advancements of the 21st 
century, Americans have a greater flexibility in where they can work, 
without compromising productivity. Many citizens now choose to work 
from home or alternative offices when their physical presence is not 
necessary at their primary place of work.
  Telecommuting provides enormous benefits for businesses, families, 
and communities. It helps businesses lower costs and raise worker 
productivity. It reduces congestion on our roads and rails, and in so 
doing it lowers pollution. It helps workers better manage the demands 
of work and family. And last but not least, it can mean lower income 
taxes for working men and women.
  Yet, the many benefits to workers of telecommuting are today placed 
in jeopardy because of current law in New York and a few other States. 
Today, New York State requires that workers pay income tax on income 
even if it is not earned in the State through their ``convenience of 
the employer'' rule. While there are several States that have the 
``convenience of the employer'' rule, no other State applies it with 
the same rigor as New York.
  New York's ``convenience of the employer'' rule requires that by 
working for a New York employer, all income earned from that employer 
must be declared in New York so long as the worker ``could'' perform 
his or her duties in New York. A worker for a New York employer who 
works part-time from home in Connecticut or another State is still 
subject to taxation by New York on 100 percent of his or her income. At 
the same time, the work done by that worker in a State outside New York 
is subject to taxation by that State.
  This unfairly subjects many workers who telecommute from their homes 
or from satellite offices outside of New York to a double tax on that 
part of the income earned from home. According to Connecticut's 
Attorney General, thousands of Connecticut residents alone are affected 
by this unfair double taxation.
  However, it isn't only Connecticut residents that are affected.
  Thomas Huckaby is a Tennessee-based computer programmer that 
telecommuted for a firm in Queens, NY. In 1994 and 1995, Mr. Huckaby 
spent 75 percent of his time working in Tennessee and the remaining 25 
percent working in the Queens office and attempted to apportion his 
income accordingly. New York, however, sought to tax 100 percent of his 
income and was successful due to it's ``convenience of employer'' rule. 
On March 29, 2005 the New York Court of Appeals upheld New York's rule 
in a 4 to 3 decision. Currently, Mr. Huckaby is in the process of 
petitioning the Supreme Court.
  A similar story involves Arthur Gray, a New Hampshire resident who 
worked for the New York Company Cowen & Co. as an investment counselor 
from 1976 through 1996, and paid New York State income taxes during 
that time. In 1997, Arthur Gray, per his employer's request, opened and 
managed an office from his home in New Hampshire. Several times during 
the year, Mr. Gray worked in New York, but most of his days were spent 
in New Hampshire. When paying his taxes during this time, he paid New 
York State income taxes for the days he was in New York, but not for 
the days he worked in New Hampshire. New York, however, sought to tax 
100 percent of his income and was successful due to this ``convenience 
of the employer'' rule.
  These are only two examples of the far-reaching consequences of this 
``convenience of employer'' rule. There are thousands of individuals 
across the country who are adversely impacted by this rule. Most, 
however, but most lack the time, money, or energy to take their case to 
court.
  This potential for double taxation is not only unfair, it also 
discourages workers from telecommuting when we should be doing the 
opposite.
  Legislation is needed to protect these honest workers who deserve 
fair and equitable treatment under the law. The Telecommuter Tax 
Fairness Act of 2005 accomplishes this by specifically preventing a 
State from engaging in the current fiction of deeming a nonresident to 
be in the taxing State when the nonresident is actually working in 
another State. In doing so, it will eliminate the possibility that 
citizens will be double-taxed when telecommuting.
  Establishing a ``physical presence'' test--as this legislation would 
do--is the most logical basis for determining tax status. If a worker 
is in a State, and taking advantage of that State's infrastructure, the 
worker should pay taxes in that State.
  Some suggest that the double-taxation quandary can easily be fixed by 
having other States provide a tax credit to those telecommuters. 
However, why should Connecticut, or any other

[[Page S5782]]

State, be required to allow a credit on income actually earned in the 
State? If a worker is working in Connecticut, he or she is benefiting 
from a range of Services paid for and maintained by Connecticut 
including roads, water, police, fire protection, and communications 
services. It's only fair that Connecticut ask that worker to help 
support the services that he or she uses.
  This is not just an issue which deals with a small group of citizens 
from one small State. Rather, this is an issue which affects workers 
throughout the country. It will only grow more pressing as people and 
businesses continue to seek to take advantage of new technologies that 
affect the way we live and work.
  I hope our colleagues will favorably consider this legislation.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1097

       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 ``Telecommuter Tax Fairness 
     Act of 2005''.

     SEC. 2. PROHIBITION ON DOUBLE TAXATION OF TELECOMMUTERS.

       (a) In General.--Chapter 4 of title 4, United States Code, 
     is amended by adding at the end the following new section:

     ``Sec. 127. Prohibition on double taxation of telecommuters 
       and others who work at home

       ``(a) Physical Presence Required.--
       ``(1) In general.--In applying its income tax laws to the 
     salary of a nonresident individual, a State may only deem 
     such nonresident individual to be present in or working in 
     such State for any period of time if such nonresident 
     individual is physically present in such State for such 
     period and such State may not impose nonresident income taxes 
     on such salary with respect to any period of time when such 
     nonresident individual is physically present in another 
     State.
       ``(2) Determination of physical presence.--For purposes of 
     determining physical presence, no State may deem a 
     nonresident individual to be present in or working in such 
     State on the grounds that such nonresident individual is 
     present at or working at home for the nonresident 
     individual's convenience.
       ``(b) Definitions.--As used in this section--
       ``(1) State.--The term `State' includes any political 
     subdivision of a State, the District of Columbia, and the 
     possessions of the United States.
       ``(2) Income tax.--The term `income tax' has the meaning 
     given such term by section 110(c).
       ``(3) Income tax laws.--The term `income tax laws' includes 
     any statutes, regulations, administrative practices, 
     administrative interpretations, and judicial decisions.
       ``(4) Nonresident individual.--The term `nonresident 
     individual' means an individual who is not a resident of the 
     State applying its income tax laws to such individual.
       ``(5) Salary.--The term `salary' means the compensation, 
     wages, or other remuneration earned by an individual for 
     personal services performed as an employee or as an 
     independent contractor.
       ``(c) No Inference.--Nothing in this section shall be 
     construed as bearing on--
       ``(1) any tax laws other than income tax laws,
       ``(2) the taxation of corporations, partnerships, trusts, 
     estates, limited liability companies, or other entities, 
     organizations, or persons other than nonresident individuals 
     in their capacities as employees or independent contractors,
       ``(3) the taxation of individuals in their capacities as 
     shareholders, partners, trust and estate beneficiaries, 
     members or managers of limited liability companies, or in any 
     similar capacities, and
       ``(4) the income taxation of dividends, interest, 
     annuities, rents, royalties, or other forms of unearned 
     income.''.
       (b) Clerical Amendment.--The table of sections of such 
     chapter 4 is amended by adding at the end the following new 
     item:

``127. Prohibition on double taxation of telecommuters and others who 
              work at home.''.

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of enactment of this Act.
                                 ______