[Congressional Record Volume 153, Number 38 (Tuesday, March 6, 2007)]
[Senate]
[Pages S2720-S2721]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DODD (for himself and Mr. Lieberman):
  S. 785. A bill to amend title 4 of the United States Code to limit 
the extent to which States may tax the compensation earned by 
nonresident telecommuters; to the Committee on Finance.
  Mr. DODD. Mr. President, I rise today, together with my colleague 
Senator Lieberman, to introduce the Telecommuter Tax Fairness Act of 
2007.
  The Telecommuter Tax Fairness Act of 2007 will end an outdated legal 
doctrine that unfairly penalizes thousands of workers in Connecticut 
and across the country whose only offense is that they sometimes work 
from home.
  Technology continues to transform the way business is conducted in 
America and all over the world. Telecommunications advances such as 
cell phones, email, the Internet, and mobile networking have not only 
made Americans more productive, they have also given people greater 
flexibility in where they can work without compromising productivity. 
As a result, more Americans now have the freedom to work from home or 
other alternative offices when their physical presence is not required 
at their primary place of work.
  This option to telecommute offers tremendous benefits for businesses, 
families, and communities. It helps employers lower costs and raise 
worker productivity, and individuals better manage the demands of work 
and family. It also reduces congestion on our roads and rails, and in 
so doing, lowers pollution.
  Despite the many benefits of telecommuting, some states continue to 
maintain and enforce outdated laws that unfairly penalize people who 
choose to work from home. New York, in particular, has been among the 
most aggressive.
  Under its so-called ``convenience of the employer'' rule, New York 
requires out-of-State residents who work for an employer in New York to 
pay New York taxes on income earned outside the State, even if the 
State in which the employee is physically present also applies tax to 
the same income. New York only allows exceptions for cases of 
``necessity,'' as opposed to ``convenience,'' and the State has 
determined that telecommuting falls into the latter, taxable category. 
While there are several States that have ``convenience of the 
employer'' rules, no other State applies it with the same rigor as New 
York.
  Under this rule, if a Connecticut resident who normally works in New 
York--as thousands of Connecticut residents do--chooses to work from 
home some days, New York forces her to pay taxes for income earned on 
those days not only to Connecticut, the state in which she is 
physically present, but also to New York. This rule unfairly subjects 
the many workers who telecommute from their homes or other sites 
outside of New York to a double tax on the part of their 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 who are at risk.
  Thomas Huckaby is a Tennessee-based computer programmer that 
telecommuted for a firm in Queens, New York. 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 its ``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. The Supreme Court declined 
to hear his appeal.
  A similar story involves Arthur Gray, a New Hampshire resident who 
worked for the New York office of 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 its ``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, lack the time, money, or energy to take their case to court.
  This potential for double taxation is not only unfair, it also 
discourages people 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 does--
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

[[Page S2721]]

having other States provide a tax credit to those telecommuters. 
However, why should Connecticut, or any other 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 that deals with a small group of citizens 
from one small state.
  Rather, this is an issue that affects workers all over the country. 
It will only grow more pressing as people and businesses continue to 
seek to take advantage of new technologies that influence 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 text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 785

       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 2007''.

     SEC. 2. LIMITATION ON STATE TAXATION OF COMPENSATION EARNED 
                   BY NONRESIDENT 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. Limitation on State taxation of compensation 
       earned by nonresident telecommuters

       ``(a) In General.--In applying its income tax laws to the 
     compensation of a nonresident individual, a State may deem 
     such nonresident individual to be present in or working in 
     such State for any period of time only if such nonresident 
     individual is physically present in such State for such 
     period and such State may not impose nonresident income taxes 
     on such compensation with respect to any period of time when 
     such nonresident individual is physically present in another 
     State.
       ``(b) 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--
       ``(1) such nonresident individual is present at or working 
     at home for convenience, or
       ``(2) such nonresident individual's work at home or office 
     at home fails any convenience of the employer test or any 
     similar test.
       ``(c) Determination of Periods of Time With Respect to 
     Which Compensation Is Paid.--For purposes of determining the 
     periods of time with respect to which compensation is paid, 
     no State may deem a period of time during which a nonresident 
     individual is physically present in another State and 
     performing certain tasks in such other State to be--
       ``(1) time that is not normal work time unless such 
     individual's employer deems such period to be time that is 
     not normal work time,
       ``(2) nonworking time unless such individual's employer 
     deems such period to be nonworking time, or
       ``(3) time with respect to which no compensation is paid 
     unless such individual's employer deems such period to be 
     time with respect to which no compensation is paid.
       ``(d) Definitions.--As used in this section--
       ``(1) State.--The term `State' means each of the several 
     States (or any subdivision thereof), the District of 
     Columbia, and any territory or possession 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) Employee.--The term `employee' means an employee as 
     defined by the State in which the nonresident individual is 
     physically present and performing personal services for 
     compensation.
       ``(6) Employer.--The term `employer' means the person 
     having control of the payment of an individual's 
     compensation.
       ``(7) Compensation.--The term `compensation' means the 
     salary, wages, or other remuneration earned by an individual 
     for personal services performed as an employee or as an 
     independent contractor.
       ``(e) 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. Limitation on State taxation of compensation earned by 
              nonresident telecommuters.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.
                                 ______