[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
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
CRESENT HARDY, Nevada
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Jan Oliver, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Steve Chabot................................................ 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Ms. Caroline Bruckner, Executive-in-Residence, Accounting and
Taxation, Managing Director, Kogod Tax Policy Center,
Washington, DC................................................. 4
Mr. Rob Willey, VP Marketing, TaskRabbit, San Francisco, CA...... 6
Mr. Morgan Reed, Executive Director, ACT/The App Association,
Washington, DC................................................. 7
Mr. Joe Kennedy, Senior Fellow, Information Technology and
Innovation Foundation, Washington, DC.......................... 9
APPENDIX
Prepared Statements:
Ms. Caroline Bruckner, Executive-in-Residence, Accounting and
Taxation, Managing Director, Kogod Tax Policy Center,
Washington, DC............................................. 22
Mr. Rob Willey, VP Marketing, TaskRabbit, San Francisco, CA.. 54
Mr. Morgan Reed, Executive Director, ACT/The App Association,
Washington, DC............................................. 59
Mr. Joe Kennedy, Senior Fellow, Information Technology and
Innovation Foundation, Washington, DC...................... 73
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
CEETA - Coalition for Effective and Efficient Tax
Administration............................................. 80
Coalition to Promote Independent Entrepreneurs............... 82
THE SHARING ECONOMY: A TAXING
EXPERIENCE FOR NEW ENTREPRENEURS, PART I
----------
TUESDAY, MAY 24, 2016
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 11:00 a.m., in Room
2360, Rayburn House Office Building, Hon. Steve Chabot
[chairman of the Committee] presiding.
Present: Representatives Chabot, Luetkemeyer, Hanna,
Gibson, Brat, Radewagen, Knight, Curbelo, Kelly, Velazquez,
Clarke, Chu, Hahn, Meng, and Adams.
Chairman CHABOT. The Committee will come to order. Good
morning. We want to thank everyone for being here, and a
special thanks to our witnesses who have taken time away from
their busy schedules to be here with us today. We are really
looking forward to their testimony.
We are here to examine an exciting new phenomenon in our
society, the sharing economy. This new economy goes by many
names--app, gig, on-demand, peer-to-peer, online platform, and
collaborative. We have even heard it called the ``Uber
economy.'' Some of you may have even taken Uber or Lyft to get
to this hearing today. No matter what you call it, the sharing
economy is changing the face of American entrepreneurship and
small businesses before our very eyes. The dizzying pace of
this change has presented many new opportunities and new
challenges for the millions of Americans who participate in it.
These new platforms have dramatically changed the ways
companies provide goods and services, giving their workers
unprecedented freedom and independence. This new generation of
workers wants to set their own hours and decide which jobs to
take. They may work with one on-demand platform or multiple
platforms. They may work alone or pool their resources with
others. This is the essence of economic liberty and a testament
to the power of the free market.
However, in their enthusiasm, these entrepreneurs are
running smackdab into the buzz saw of an outmoded tax code that
is not designed to accommodate them.
The tax compliance challenges they face have gone largely
unacknowledged so far, but as we are hearing from a growing
chorus of entrepreneurs, these tax challenges present new and
unnecessary obstacles for our small businesses. Some of these
new entrepreneurs fail to file their taxes altogether and, when
they do, they often pay too much. They do not know that they
can deduct certain expenses or they do not have the records to
back up their deductions, putting them at risk for an audit.
Unfortunately, the IRS has not been part of the solution
for entrepreneurs in navigating this new sharing economy. Too
often, it has been part of the problem. Our current tax system
is not working for these new small businesses. In many ways, it
is working against them. We can do better. We must do better.
Today, we will explore some of these problems and discuss
some potential solutions with this distinguished panel. We are
very much looking forward to hearing from the panel here today,
and I would now like to yield to the Ranking Member, Ms.
Velazquez from New York, for the purpose of her opening
statement.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Technology has long been a catalyst for entrepreneurship.
In keeping with this trend, development of the sharing economy
has created new challenges for entrepreneurs to sell goods and
services. Innovators are harnessing the web to create platforms
and markets that allow the selling, renting, and trading of
everything from apartment space, to transportation, to artisan
craft goods. The numbers strongly suggest that this new sharing
economy is here to stay. More than 1.5 million internet users
have used TaskRabbit to hire people for odd jobs. As of
September 2015, the Uber app was available in 60 countries and
300 cities worldwide, and it is estimated to fulfill one
million rides daily.
One reason for this sector's rapid growth may be rooted in
broader economic struggles. With job growth still sluggish,
enterprising Americans and dislocated workers are seeking new
ways to replace revenue. Others seek more flexibility and work-
life balance. Renting out rooms and providing lifts in their
car have all become ways for ordinary Americans to experiment
with entrepreneurship.
While the explosive growth of these networks has created
new opportunities, the rapid rise raises questions. While many
of the workers in the shared economy enjoy flexibility, they
must be protected from unscrupulous business practices. Most of
the businesses operating in the shared economy classify their
workers as independent contractors, not employees. Such a
classification saves businesses money through reduced benefits
and tax withholdings. Business and courts have long struggled
with trying to determine whether certain workers are employees
or independent contractors. The courts are currently
overflowing with lawsuits over whether companies have
misclassified employees and they are prevalent in the sharing
economy. As always, the challenge is ensuring businesses and
employees are protected without questioning and discouraging
promising innovation.
Control is a critical factor to this question. If the
employer controls the worker, how can the worker be truly
independent? With the rise of the sharing economy, this
question has become harder to answer as workers are connected
to consumers through online intermediaries. Our current
approach to answering this question seems to be failing at the
expense of hardworking Americans and our nation's tax revenues.
One study estimates it costs the United States $54 billion in
underpayment of employment taxes and $15 billion in unpaid FICA
and unemployment taxes.
It is important that as this technological revolution
advances, government policy keeps pace. It is also important
this committee fully understands what is happening in the new
sharing economy and has a grasp on how we can minimize risk for
employees while maximizing growth and productivity for small
businesses. Today's hearing will give us that opportunity.
I would like to thank all of our witnesses for taking the
time to be here. Your perspectives will add significant value
as the committee seeks to learn more about the sharing economy.
With that, Mr. Chairman, I yield back.
Chairman CHABOT. Thank you very much.
Ms. VELAZQUEZ. Thank you.
Chairman CHABOT. She yields back.
If Committee members have opening statements prepared, I
would ask that they be submitted for the record.
Now I will take just a moment to explain our timing system,
how it works. It is pretty simple. You get 5 minutes each, and
then we will ask questions for 5 minutes. There is a lighting
system on your table there to assist you in that. A green light
will be on for 4 minutes, and then the yellow light will come
on to let you know that you have about a minute to wrap up. The
red light will come on and we will ask you to stop. You do not
have to stop midsentence, but if you could wrap up we would
appreciate it.
I would now like to introduce our distinguished panel here
this morning. I will introduce all four of the witnesses before
we get started.
Our first witness is Caroline Bruckner, Executive in
Residence of Accounting and Taxation and Managing Director at
Kogod Tax Policy Center at American University here in
Washington, D.C. In that capacity, she directs a team of small
business tax policy experts, economists, and researchers. Ms.
Bruckner previously served as chief counsel for the U.S. Senate
Committee for Small Business and Entrepreneurship from 2009 to
2014. We welcome you here this morning.
Our second witness will be Rob Willey, who is Vice
President of Marketing at TaskRabbit in San Francisco,
California. TaskRabbit connects users who want to outsource
errands to anyone willing to complete them for a fee. The
company started in 2008 and currently operates in 18 cities in
the U.S. as well as London. With over 15 years of experience in
marketing, Mr. Willey has created marketing campaigns for
several global clients, including Nike, Cadillac, and Nokia. We
also welcome you here this morning.
Our third witness will be Morgan Reed, who is Executive
Director at ACT, the App Association where he specializes in
application development issues. In addition to testifying to
the Subcommittee on Health and Technology last year, Mr. Reed
has also testified before the U.S. Senate and has written
several white papers on app development. He also serves on the
Advisory Council of the Mobile Health Information Management
Systems Society. I will now like to yield to the Ranking
Member, Ms. Velazquez, to introduce our fourth and final
witness.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. It is my pleasure
to introduce Mr. Joe Kennedy, Senior Fellow at the Information
Technology and Innovation Foundation. For almost 3 decades, he
has provided legal and economic advice to senior officials in
the public and private sector involving technology,
competitiveness, and the social contract. Mr. Kennedy
previously served as the Chief Economist for the U.S.
Department of Commerce and as the Senior Economist for the
Joint Economic Committee. He holds a law degree and a master's
degree in Agriculture and Applied Economics from the University
of Minnesota, and a Ph.D. in Economics from George Washington
University. Welcome to the committee. Thank you.
Chairman CHABOT. Thank you very much.
Ms. Bruckner, you are recognized for 5 minutes.
STATEMENTS OF CAROLINE BRUCKNER, EXECUTIVE-IN-RESIDENCE,
ACCOUNTING AND TAXATION, MANAGING DIRECTOR, KOGOD TAX POLICY
CENTER; ROB WILLEY, VP MARKETING, TASKRABBIT; MORGAN REED,
EXECUTIVE DIRECTOR, ACT THE APP ASSOCIATION; JOE KENNEDY,
SENIOR FELLOW, INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION
STATEMENT OF CAROLINE BRUCKNER
Ms. BRUCKNER. Thank you for the invitation to join you
today to discuss the tax compliance challenges of small
businesses driving a sharing economy. My name is Caroline
Bruckner. I am on the faculty at American University Kogod
School of Business. I am also the Managing Director of the
Kogod Tax Policy Center which conducts nonpartisan research on
tax and compliance issues specific to small businesses and
entrepreneurs.
At Kogod, we are currently focused on the tax and
compliance issues impacting America's latest iteration of small
business owners who are renting rooms, providing ridesharing
services, running errands, and selling goods to consumers and
business transactions coordinated online and through ad-based
platforms developed by companies such as Airbnb, Etsy, Uber,
Lyft, TaskRabbit, Instacart, and others.
We released our research yesterday in a report titled
``Shortchanged: The Tax Compliance Challenges of Small Business
Operators Driving the On-Demand Platform Economy'' to shed
light on these issues as Congress moves forward with tax
reform.
Having spent more than a year investigating these growing
problems, we report on what the existing debate has yet to
acknowledge: that for tax purposes, on-demand platform economy
service providers and sellers are, in fact, small business
owners, and there are millions of them working and earning
income in ways that are not readily identifiable by existing
government research or publicly-available taxpayer filing data.
We argue that these issues should be considered by Congress and
the IRS, not only because millions of American taxpayers are
needlessly burdened trying to comply with an antiquated,
outdated tax system, but also because inaction has very real
implications on Treasury and IRS' ability to fairly and
efficiently collect taxes.
A number of findings we reviewed and included in our
research are particularly relevant to today's discussion,
including, first, more than 2.5 million Americans are earning
income in the on-demand platform economy as small business
owners every month. This reflects the explosive growth of the
on-demand platform economy but is just the latest example of a
66.5 percent increase in alternative work arrangements for U.S.
workers from 2005 to 2015.
Second, although people do cycle in and out of the on-
demand platform economy, during months in which people are
actively using platforms to earn income, average monthly income
ranges from $533 to $314 per month.
Third, by and large, the majority of individuals in the on-
demand platform economy work less than 15 hours per week.
As part of our research, we spoke with dozens of
individuals currently participating in the on-demand economy
and initiated a survey of the members of the National
Association of Self-Employed (NASE). Our objective was to
assess whether tax compliance challenges exist even among a
group of taxpayers who by their own self-selection as members
of NASE are experienced, self-employed small business owners.
Their responses indicate a significant lack of understanding of
the information available regarding self-employed tax filing
obligations. Specifically, our survey revealed that among
respondents who had earned income with an on-demand platform
company in 2015, which was approximately 22 percent of all of
our respondents, approximately one-third did not know whether
or not they were required to file quarterly estimated payments
with the IRS on their on-demand platform economy income; 43
percent were unaware as to how much they would owe in taxes and
did not set aside any money for taxes on that income; and
almost half did not know about any tax deductions, expenses, or
credits that could be claimed related to their on-demand
platform earnings.
As a result, a significant percentage of these taxpayers
could face potential audit and penalty exposure for failing to
comply with filing rules that are triggered by relatively low
amounts of earned income. Costs to taxpayers can also be
quantified in terms of time spent preparing returns and chasing
down questions to complex tax questions from the IRS. But we
heard time and again from taxpayers, on-demand platform
companies, and tax preparers that the small businesses
operating in the on-demand economy generally want to be honest
and pay what they owe, but that the tools and resources do not
exist. Indeed, more than 60 percent of our survey respondents
who worked for an on-demand platform company in 2015, reported
that they did not receive a Form 1099-K or 1099-MISC from their
on-demand platform, which likely means the IRS did not either.
This is not surprising given that it is entirely consistent
with both the Form 1099-MISC filing instructions and the
statutory requirements for filing a Form 1099-K.
The current tax administration system is not working for a
significant percentage of on-demand platform small business
operators or Treasury or IRS. At the root of this problem is a
lack of information and understanding of tax filing
obligations, which is compounded by an information reporting
regime that results in widespread confusion, and these tax
challenges are only going to continue to grow to impact more
and more self-employed small business owners. Our assessment of
the general confusion state of play when it comes to filing
taxes on that income earned from on-demand platform work was
consistently reinforced by interviews with tax preparers,
industry experts, and our own survey. Everyone is losing under
the current rules. Both the on-demand economy players and the
IRS deserve greater efficiency and less hassle. We can do
better.
Again, I thank you for the opportunity to join today's
discussion and for the work you do on behalf of America's small
businesses.
Chairman CHABOT. Thank you very much.
Mr. Willey, you are recognized for 5 minutes.
STATEMENT OF ROB WILLEY
Mr. WILLEY. Mr. Chairman, Ranking Member Velazquez, and
members of the House Small Business Committee, I am Rob Willey,
Vice President of TaskRabbit. Thank you for the invitation to
testify today. More importantly, thank you for the interest in
the topic that captures the legal, regulatory, and public
policy challenges that confront millions of individuals that
look to platforms like ours to improve their daily lives.
Founded in 2008, by Leah Busque, our founding member, we
set out to revolutionize every day work. Now, most of us have
probably figured out one day or another that we needed a time
to have someone help us with yardwork, fix a shelf in our
house, paint a room, or possibly mow our lawns, and today we
have recognized and realized that opportunity. With New York
being our largest market and London being our fastest growing
market, we today have over 50,000 taskers with 5,000 active at
any given time, helping everyday people accomplish these
everyday types of tasks.
Now, with that said, we are looking to change the face of
the industries by consistently representing our taskers and
their everyday needs. With that, we have promoted and
consistently support our taskers with flexible prices, with
flexible hours, in flexible locations, on an average of $35 an
hour. This is what we call everyday work for everyday people.
With that said, only 10 percent of our taskers work full-
time. Overall though, the average monthly income for taskers
should triple year over year. This part-time flexible nature of
our work done by our taskers is consistent with the larger
platform economy.
A February 2016 study by the JPMorgan Chase Institute found
that the overwhelming majority of an estimated 2.5 million
Americans who earned income as small business owners using
platforms like ours did so to supplement their incomes and
better support themselves and their families.
With little to no barriers to entry, the on-demand platform
economy has become an important option at a time when income
volatility continues to change individuals and families. On-
demand platforms like ours create a new earning option that is
accessible to millions of Americans. Of course, the emergence
of the platform economy has sparked an intense debate on the
classifications of workers versus independent contractors. The
current classification system was defined around a much
different economic and technological era and has been shaped
mostly by decades of regulations and court cases. As a result,
it fuels uncertainty about what we can or cannot do to support
our taskers while preserving their flexibility and independence
in accessing our platform.
As Professor Caroline Bruckner noted, many platform economy
participants either do not know or are not fully aware of both
their tax obligations and tax benefits as a result of earning
income on platforms like TaskRabbit.
We at TaskRabbit have no reason to doubt that significant
numbers of taskers are facing these types of challenges. For
many of our taskers, when they sign up to join our platform,
they are making their first forays into the world of self-
employment. Some may understand that earning a certain level of
income triggers that quarterly estimated payment filing
requirements but many do not.
It is in TaskRabbit's interest to see our taskers gain a
better understanding of tax compliance and planning. Greater
flexibility and transparency with respect to tax planning would
help maximize return on tasker participation in our networks.
It is their freedom as entrepreneurs.
Today's topic is just one of many where our taskers could
benefit from better training. Our taskers are also looking for
direction on how to better market themselves and their
services, access health care, and plan for retirement. We at
TaskRabbit would like to be a resource, a partner, and a
collaborator for them. We urge Congress and relevant government
agencies to look at innovative approaches to support their
participation in this emerging platform marketplace.
As a pioneer of this emerging market, TaskRabbit welcomes
the opportunity to work with policymakers as our company grows
and matures. We consider this engagement rewarding on many
levels. Just last month, for example, we became the first
technology company to announce we would follow the diversity
principles outlined by the Congressional Black Caucus in its
TECH 2020 initiative.
Mr. Chairman and Ranking Member Velazquez, we thank you for
you and your Committee's interest in taking the time to
understand our business and how it is changing what we call the
future of work. We appreciate the bipartisan interest in the
platform economy, most notably by the Sharing Economy Caucus,
co-chaired by California Congressmen Darrell Issa and Eric
Swalwell.
We hope we can channel this bipartisan energy towards
constructive policy solutions that will further enable
TaskRabbit and the platform economy to continue to innovate and
grow and further empower small business owners and
entrepreneurs to efficiently and effectively provide services
across the country. Thank you.
Chairman CHABOT. Thank you very much.
Mr. Reed, you are recognized for 5 minutes.
STATEMENT OF MORGAN REED
Mr. REED. Chairman Chabot, Ranking Member Velazquez, and
distinguished members of the Committee. My name is Morgan Reed,
and I am the Executive Director of ACT the App Association.
Thank you for holding this important hearing.
The App Association represents more than 5,000 small
business app makers and connected device companies across the
United States. Our member companies have enabled the rise of
the sharing economy by leveraging the connectivity of smart
devices.
Sharing economy companies have grown rapidly over the past
decade because they allow instantaneous communication, secure
transactions, and personalized relevance to consumers.
Moreover, these same factors allow small businesses and tens of
millions of Americans to earn more for their families with
flexibility and autonomy, all powered by the smartphone in your
pocket. But these opportunities will cease to exist if Federal
regulations hinder the continued growth of the sharing economy.
I want to highlight three tax policy actions that affect
our members. First, Congress and the Internal Revenue Service
should take great care to ensure the federal tax code enables,
rather than stifles the sharing economy, specifically, the
treatment of all sharing economy workers as employees under the
federal tax code would be detrimental, especially to small
businesses.
Second, small businesses need certainty and transparency in
the tax resolution process, including the ability to settle
disputes with the IRS in an effective and efficient manner.
Legislation like that proposed by Senator Rob Portman can help
ensure that outcome.
Finally, Congress should ensure fairness by guaranteeing
that Internet sales taxes are based on the seller's location.
We call on Congress to reject proposals that would force
businesses to become tax experts for thousands of state and
local jurisdictions across the United States.
But beyond specific policy requests and legislative
language, I would like to take a moment to illustrate how the
move to the sharing economy is far more than a repackaging of
existing services. The popular media tends to describe the
sharing economy in terms of companies that displace or disrupt
an existing business model. eBay replacing the classifieds or
the yard sale, UberX replacing the taxi, and VRBO replacing
hotels. But this is a false, or at least limited, dichotomy.
The sharing economy not only replaces but also creates new
concepts in how people engage and interact. For example, our
member, NomFul, a Chicago-based small business utilizes a
sharing platform to connect nutrition coaches from across the
country to consumers seeking a healthier lifestyle. Using
NomFul's service, dedicated coaches answer questions, set
benchmarks, and help consumers meet their health goals, but
they do not merely connect you to a nutrition expert. NomFul
fundamentally switches the paradigm by getting users to change
bad habits through ongoing relationships, not just the once a
month meeting you would receive with traditional care. Users
can take pictures of the food they are eating, share it with
their coach, and get real-time feedback and reinforcement.
Coaches get insight about the existing habits of the user so
that they can step in before a bad decision is made, actively
working to prevent diabetes and other health problems. In
short, creating healthy habits is relationship dependent.
NomFul does not exist without the tools that create our
modern sharing economy. You would merely have individual
nutrition coaches trying to change years of bad habits with
static information given in isolated 60-minute sessions, and
there is no possible way that every nutrition coach and
registered dietician would provide their own software to
provide these new tools, nor could a company writing the
software afford to hire an army of nutrition coaches and then
hope to create a user base. The only way it works is through a
sharing platform, one that allows users to find the help they
need and for the coaches to be able to take as many or as few
clients as they want. So as you see, NomFul replaces no
existing industry.
There is a story like NomFul's in every single district in
America. Each one of you received a packet of baseball cards
with companies from your district. Now, not all of them are
sharing economy businesses but they are all part of the
revolution taking place, one that is moving hi-tech beyond just
big companies. In fact, our most recent study showed that 82
percent of the top app companies are small businesses, most of
which bail from places other than Silicon Valley.
The companies that you have in hand are looking to grow and
succeed, each with their own vision of what success looks like.
But the success of the sharing economy is predicated on an
empowered workforce, one that can choose to drive for Uber and
for Lyft, to open up a bricks and mortar location and provide
products or services online, and for platforms to be able to
attract users through better training, tools, and clients
without triggering a change in tax status.
We urge Congress to ensure that the rules we follow make
sense in an age where the neighborhood yard sale is now
nationwide and where a daily client may not live in the same
country. The app ecosystem enables the sharing economy and
offers incredible benefits to each and every American, and I
look forward to working with you to help advance measures that
empower innovation.
Chairman CHABOT. Thank you very much.
Mr. Kennedy, you are recognized for 5 minutes.
STATEMENT OF JOE KENNEDY
Mr. KENNEDY. Thank you for the opportunity to testify
before you on the subject of taxes and the sharing economy.
ITIF's approach to this topic is driven by three
considerations. The first is that while the sharing economy is
growing rapidly, it still represents only a small fraction of
an increasingly diverse labor market.
Second, internet platforms are delivering tremendous value
to both consumers and workers. In a survey of over 4,600
workers from 11 platform companies, only 7 percent said they
were dissatisfied with their experience. Workers earned an
average of $7,900 over the previous 12 months, which accounted
for 22 percent of their total household income. The average
hourly earnings was $28.
The third consideration is that the traditional employee/
independent contractor distinction no longer serves much
purpose for a growing share of today's labor market. Largely by
default, the common law test has become the basis for
determining whether all of the major Federal and state labor
laws apply. The result is a large amount of uncertainty and
litigation which discourages companies from supporting gig
economy workers and consumers in a variety of ways.
Some of the ways that companies have said that they would
like to support their independent contractors include training
and access to business and financial advice. Such efforts could
be enormously valuable to workers who are, after all, for all
intents and purposes, running their own businesses. Within the
tax field, help with tax advice, recordkeeping and withholding
would be especially important. The tax laws are enormously
complex. Workers need to make a number of important decisions,
including what form of business to create, whether to set up a
new savings plan, and what salary to pay themselves. They need
to determine what expenses are deductible and begin keeping the
necessary records, and they need to complete their tax filings
in a timely manner. In a survey, 20 percent of online workers
listed understanding tax and legal obligations as one of their
top challenges. In addition, these platform companies could add
value to both workers and consumers by setting prices, handling
transactions, letting parties rate each other, and conducting
background checks. Yet, such activities are often used as
evidence of an employer-employee relationship.
Public policy should encourage companies to support their
workers' careers, irrespective of the work relationship. If a
company offers withholding to all workers, or pays for access
to tax or business advice, or extends benefits to independent
contractors, why would we want to discourage that by insisting
that it must also be subject to minimum wage, collective
bargaining, and unemployment insurance legislation?
In a recent ITIF report, I argue that there are three
approaches that Congress can take to begin modernizing the
nation's labor laws. The best option would be for Congress to
amend each federal labor law by replacing the common law test
with a clearer one specific to that particular piece of
legislation. The second approach would be to define a third
category of workers somewhere between an employee and an
independent contractor. Finally, Congress could give platforms
devoted to personal services a temporary exemption from most
labor laws. The worker of many of these platforms are clearly
independent contractors anyway under the common law test. The
small size of the gig economy and the temporary nature of the
exemption reduce any risk to the broader labor markets.
The world around us is rapidly changing. Work arrangements
will continue to diversify as companies respond. Congress
cannot dictate the shape of future work arrangements. It can,
however, play a large role in helping workers get the kind of
support they need to have good careers that fit into their
increasingly complicated lives.
Thank you again for the opportunity to appear before you.
Chairman CHABOT. Thank you very much. We appreciate the
testimony from all the panelists here this morning, and now we
will ask questions. I recognize myself for 5 minutes.
Ms. Bruckner, you testified that more than 60 percent of
your survey respondents did not receive a Form 1099-K or a Form
1099-MISC. What changes would you suggest to improve reporting
to benefit both workers and the IRS?
Ms. BRUCKNER. I think that the first thing that we should
do is recognize that the instructions for the Form 1099-MISC
directs people to use the Form 1099-K for credit card reporting
or payments made by credit card, and that creates a tax
reporting loophole for income that is earned that is less than
$20,000, because there are certain income thresholds for using
the Form 1099-K. The IRS should immediately reconsider those
instructions on the Form 1099-MISC and see if it can be used
for credit card payments less than the income threshold for
$20,000.
Chairman CHABOT. Okay. Do you have a sense of how many
folks are not complying with the tax code because it is too
complicated--in the shared economy I am talking about--that it
is too complicated and too cumbersome versus, ``I am not going
to pay my taxes''?
Ms. BRUCKNER. That is a good question. I do not have a hard
number on that, but I can tell you anecdotally from when we
talk to folks that are in the sharing economy or when we talk
to tax preparers that specialize in advising folks who earned
income with platform-related work, they were immediately
confused as to whether or not they had to pay taxes on their
income earned because in many instances they did not get any
1099 at all.
Chairman CHABOT. Okay. Very good. Thank you.
Mr. Willey, I will move to you now. We have heard a lot
today about the tremendous projected growth of the sharing
economy in the coming years. What are TaskRabbit's own
estimates of the growth that you might expect to see in your
company and what areas do you see as having the best growth
potential?
Mr. WILLEY. If history is any indication of the future,
which we believe it is, year over year to date we are growing
at 4X on a revenue basis. We are also growing our task--we have
15,000 organic applications from our taskers on a month-to-
month basis. Both of those indicate that, one, we are still in
the very early days of what the sharing economy could look
like; and two, TaskRabbit is well-positioned to be a figurehead
of growth.
Chairman CHABOT. Thank you.
Mr. Reed, I will move to you at this point. We discussed
the complexity of all this, how hard it is to get information,
how to figure out how to comply with the IRS code under
existing code. Very confusing. Is it possible that there is
some enterprising entrepreneur out there that could come up
with an app, form their own company, to solve this problem
rather than the government figure it out for them?
Mr. WILLEY. Well, I think that it is a two-pronged test.
One, yes, absolutely. In fact, there have been some early-to-
market applications that attempted to make the switch. One of
the real discoveries that we found is that an application that
is on your device to help you with taxes is one that you likely
only turn to at that moment of panic. What really we are seeing
now is the fact that you have to do an integrated application.
You need to be able to pull in the information from TaskRabbit
into your tax preparation software on an ongoing basis so that
you can keep track of it. And, in fact, that leads to one of
the confusing elements we have all been discussing. If
TaskRabbit or NomFul or any of these companies were to provide
that kind of interactivity and that ongoing information flow
and training, well, that might trigger the case of them being
considered employees.
So on the one hand, it is very hard to put together an
application that draws the right information, and on the other,
our platforms are concerned about the liability they may take
on by providing us the very thing that we need to satisfy the
first question you asked, how do we get people to pay their
taxes?
Chairman CHABOT. Thank you. I have time for one more
question. Mr. Kennedy, I will turn to you on this one. Even if
we were able to implement a temporary legislative and
regulatory moratorium on the sharing economy as you have
suggested, you correctly point out that there are myriad of
relevant state and local laws that bear on this sector. How
would you address inconsistencies between federal action versus
state and local?
Mr. KENNEDY. I would say two things to that. The first is I
think there is room for an increased dialogue between the
federal government and the states about what the common rule
should be. We would like, ideally, for there to be consistency
at the federal and state levels, so encouraging reform at the
state level that matches reform at the federal level would be
important. The second is that Congress can, to some extent,
preempt state laws using the Commerce Clause. There is room for
debate about where that line is, but I think there is scope for
preempting a lot of the state legislation now.
Chairman CHABOT. Okay. Thank you very much. My time is
expired. The Ranking Member is recognized for 5 minutes.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Mr. Kennedy, in your testimony you touch on this issue but
I would like to hear more discussion on it. There is a level of
complexity inherent in operating a business that straddles the
boundary between wage employment and self-employment. What can
be done specifically in tax law to overcome these challenges?
Is it creating a new hybrid definition of an employee or
amending the IRS Safe Harbor Rule?
Mr. KENNEDY. My personal inclination would be to amend the
Safe Harbor Rule to create a brighter line between where a
particular law applies and where it does not apply so people
know which side they are on. For people who would only make a
little bit of money on these platforms, you could raise the
threshold so that they do not need--they still need to report
the income and pay taxes on it but they do not need to make,
say, quarterly payments. There are two hopefully minor reforms
that would make a difference.
Ms. VELAZQUEZ. Thank you.
Ms. Bruckner, there has been some concern from traditional
brick-and-mortar businesses about the emergence of the sharing
economy business model and how it affects fairness. While I do
not advocate one business model over the other, how do we
ensure that actions taken to foster entrepreneurship through
new methods do not disadvantage businesses that invested time
and money to conform to existing regulations when classifying
their workers?
Ms. BRUCKNER. The first thing that you can do is promote
understanding of what your tax filing obligations are because
people view unfairness when they think that other people are
not paying their fair share. If we take actions on outreach and
education on what income you need to pay taxes on and promote
what your tax filing obligations are, then you are creating an
opportunity for people to actually pay their fair share and
creating transparency and making sure that folks, be they in a
sharing economy or working for a brick-and-mortar business, are
both paying their fair share.
Ms. VELAZQUEZ. Mr. Reed, do you have any comments on that?
Mr. REED. Well, I think what we all have seen, what the
studies have shown from Ms. Bruckner and Mr. Kennedy is that
that paradigm of bricks-and-mortar store as a standalone entity
is almost nonexistent. Sure, there is a corner bodega that
sells ice cream and sundries that will probably always be very
isolated, but in nearly every other business, you are going to
have a mixed economy. I started a bike store when I was
younger. I still own part of a bike store, well, we sell part
of our equipment online. We get rid of stuff that we did not
sell in the year online. We use services like eBay, et cetera.
What I am finding is even your corner independent bike store is
probably going to have an interaction in this sharing economy.
While it is important to preserve the rights and the
capabilities of those brick-and-mortar stores, we have to
understand that we are merging into an always connected, always
online, and candidly, always selling economy.
Ms. VELAZQUEZ. Mr. Kennedy, your views on that?
Mr. KENNEDY. I think somebody who has paid a million
dollars for their medallion in New York probably feels a bit
aggrieved that Uber is competing, but I think if you look at it
objectively, Uber is a better model. They are reducing prices.
They are serving neighborhoods that traditionally have not been
served so well. The riders seem to think it is a better
experience. The answer, I think, is not to go backwards into
the traditional model but to free up the traditional taxicabs
and brick-and-mortar businesses so that they can participate
more in the online experience. You see the taxicabs actually
starting to put out their own apps now. Reforming some of the
traditional laws and traditional regulation would be a more
appropriate response.
Ms. VELAZQUEZ. Thank you.
Ms. Bruckner, if workers are found to be misclassified,
what are the current penalties under the tax code? Would they
then be penalized automatically under other laws, like the Fair
Labor Standards Act as well?
Ms. BRUCKNER. Our research did not look at the
misclassification legal implications. We think that that is a
part of the debate that impacts a very small segment of the
overall sharing economy and that there are much larger, broader
implications for the growing numbers of independent
contractors, freelancers in general. Our research focuses
specifically on the existing tax compliance challenges of those
folks that are operating as self-employed, small business
owners generally. There is, absolutely, misclassification that
occurs in every industry at every paygrade and there are
extensive legal ramifications, but we focus first and foremost
on the smallest of the small business owners and what their tax
challenges are.
Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman.
Chairman CHABOT. The gentlelady yields back. Thank you.
The gentleman from New York, Mr. Gibson, is recognized for
5 minutes, except he is not here. Okay. Who is next on our
side?
Okay. The gentleman also from New York, Mr. Hanna, is
recognized for 5 minutes.
Mr. HANNA. Thank you. This is a fascinating topic. The
underground economy, as you know, is growing. Part of this
whole conversation has to do with noncompliance. You said $2.5
billion are unreported potential income, and yet there is
unanimity that the tax code, if not encouraging this, is not
caught up to the issue. So you have the government's desire to
eliminate the notion of independent contractors so they all
fall under the auspices of the companies that are helping them
open these businesses; right? Yet that does not solve the
problem, I am interested that there is an issue there. The IRS,
people are not sending 1099s because they do not require them,
so who is really breaking the law here? Are they looking at the
credit card threshold? If they are, how would they even know
it? I mean, let's face it. People are saying uniformly that
people are not complying, implying that they are uniformed, but
we all know that we have to pay taxes. We all know that if we
have income, we owe somebody something or at least a report
saying we fell under certain--so I do not buy that people do
not know that they owe something to someone.
Ms. Velazquez said that there is a subtle incentive to make
everybody a private contractor because look at what you avoid,
the whole FICA issue, the health insurance, all those things.
So I think it is a really complicated issue. I am interested in
any response you might have, Ms. Bruckner, because who would
not want to be like TaskRabbit saying these are all independent
contractors and we are not responsible for anybody. I mean,
that would be ideal for you. You just collect your percentage
and move on, but yet, it is a problem. It is a big problem.
Mr. Reed?
Mr. REED. Having been a small business owner and having
been on both sides of this, I am not sure I would completely
agree with the concept that everybody would love to have
independent contractors. As somebody who owned a small
business, one of the things, one of the reasons I hired people
to be employees is that I could count on them to be there. As I
pointed out, lots of drivers drive for both Uber and for Lyft,
and so you essentially have your employees in a state of
competition with you; right? You are having to constantly offer
incentives, find new ways to entice them to stay and not jump
ship. One of the advantages that you have when you own a
business and have employees is there is an opportunity cost to
having them there, but it allows you to do different----
Mr. HANNA. No, I am not arguing.
Mr. REED. So I think that we are making that decision on
kind of an ongoing basis because TaskRabbit has employees, do
you not?
Mr. WILLEY. Thank God I am one of them.
Mr. REED. Exactly.
Mr. HANNA. But the premise is the same. I agree with you. I
have had hundreds of employees myself. I am new to this job. So
I get it. But we have to find a way to disincentivize the
companies from doing that inappropriately, and at the same time
find a way to help people pay what they are owed, because the
IRS cannot run around chasing down everybody who owes them
$500.
Mr. WILLEY. I do not argue that we need to create the right
set of incentives for both companies and for 1099 or taskers,
as we call them, contractors, to have the right benefits and
right access to whatever they choose. But legitimately right
now, our taskers are telling us the one thing they value most
is flexibility. In order for us to provide that flexibility,
they need to be 1099 contractors. One of the negating factors
however, to them filing their taxes or receiving training in
any other regard--whether that be professional services,
learning how to be better handymen, understanding how to market
themselves--is this inability to work directly with them around
training. That is ultimately one of the barriers, the issue we
are talking about today, and more broadly around how to
interact with this workforce in a meaningful way.
Mr. HANNA. Do you agree with that, Mr. Kennedy?
Mr. KENNEDY. Yes. I would also add that if you are talking
about withholding taxes or providing, say, healthcare benefits,
the economic evidence is that the employee ultimately pays for
that in reduced take-home pay. So it is not really the employee
that is bearing the burden; it is possibly the employer.
One of the reasons I suggested the temporary exemption is
because there is real scope for the companies to come forward
in certain areas and have a closer relationship with their
employees. Tax is one of them because all the records are
electronic, and so providing the IRS with the information is
almost costless. But the companies are afraid that this will
come back to bite them later in the form of a disgruntled
worker saying they were misclassified or an agency coming and
saying you did not do this or that.
Mr. HANNA. Sure. With workman's comp there is a big
incentive to that.
Chairman CHABOT. The gentleman's time is expired. The
gentleman is granted an additional minute to wrap up.
Mr. HANNA. Oh, thank you. Thank you, Chairman.
I get all that, but just one last thing. The Affordable
Care Act. Regardless of how you feel about it, it impacts it in
an enormous way with people in marginal positions and income,
the potential to have the cost of that particular health care
grow is incredible to me, just from what we read all the time.
So thank you. My time is expired. Thank you.
Chairman CHABOT. The gentleman's time is expired.
The gentlelady from California, Ms. Hahn is recognized for
5 minutes.
Ms. HAHN. Thank you, Mr. Chairman, Ranking Member Velazquez
for holding this hearing. I agree with my colleague, Mr. Hanna.
This is an interesting topic and certainly there are a lot of
changes underfoot in how small businesses are operating, how
they are going to be paying taxes, how they impact the
consumer. It is really interesting.
One of the things, I wanted to ask you Professor Bruckner,
because you noted in your testimony that 22 percent of the
members of the National Association of the Self-Employed
responded that they work with an on-demand platform company,
like Uber or Airbnb, and of that 22 percent, almost half did
not know about any tax deductions, expenses or credits that
they could claim related to their on-demand platform income.
While most of the discussion so far has been whether or not
they are paying their taxes, in general, what kind of tax
deductions or credits can be claimed for those in that
industry? Also what can we do to maybe better educate this
group on the availability of some of these savings?
Ms. BRUCKNER. That is a great question. Starting off with
the most obvious answer is when you drive for a business, in
many instances you can deduct the miles that you drove. The
question is do you deduct actual miles that you drive or do you
deduct using a standard deduction formula that is in the tax
code? In addition, depending on where you work, if you are
selling goods online but you produce those goods from outside
of your home, can you take advantage of the home office tax
deduction? Are there other startup expenses that you might
qualify for under the code for being able to expense in
becoming your own small businesses? It was really surprising to
us that this experienced, self-identified, self-employed
population was not aware. At least half of them were not aware
of these potential deductions and expenses and even tax credits
that could apply to them, which means that they could be very
well leaving money on the table when they go to file their
taxes.
Ms. HAHN. Thank you.
I was going to ask Mr. Willey from TaskRabbit, I know we
are talking about taxes in this session, but, since you are
here, love the business model, love the concept, you know, if
only our kids would do their chores we would not have to hire
taskers. But one of the concerns that some of us have is
background checks of some of those who are now becoming taskers
and coming into our homes. Can you walk us through how
TaskRabbit vets and administers the background checks for these
taskers?
Mr. WILLEY. Sure. Trust and safety, holistically, is
clearly one of our company's biggest priorities, and I think it
is important to state that as we look at a variety of things
that happen in the marketplace every day. Clearly us recruiting
and/or onboarding taskers is something that operationally we
look at every day to make sure it is the best process possible.
In doing so, like I mentioned, 15,000 taskers or potential
taskers apply to work in the marketplace every month. What that
includes is the submission of a form online with basic contact
information, which includes their Social Security Number, then
we do a background check, which currently they pay for. Then,
based on that process, they come in person for a one-hour
orientation to learn the processes and procedures of our
marketplace, as well as how to use the tasker app in order to
answer for potential work.
Ms. HAHN. Thank you. Let me also follow up, am running out
of time. It is fascinating that we are talking about $35 an
hour. I mean, that is like five times----
Mr. WILLEY. The federal minimum wage.
Ms. HAHN.--the federal minimum wage. It is incredible. You
have stated that thousands of applications are coming to you
really without any direct recruiting or marketing. I am
thinking about, particularly in the district that I represent
in Los Angeles, there are a lot of folks who are looking for
work. Many of the neighborhoods are low-income neighborhoods.
How can you reach out to some of those other communities in our
country who seem to me would be perfect to fill some of these
jobs? What can you do to help people find some of these good-
paying jobs?
Mr. WILLEY. It is a good question actually, and we thank
you for your support and that of the City of Los Angeles. You
are one of our largest markets. I think you are right. There is
more potential and opportunity for us to broaden outreach, to
have a broader portion of the market or the population find new
work opportunities, and we consistently support that with, one,
a livable wage. That is most important to us. Two, is the
flexibility, because 90 percent of our taskers do not work
full-time in the marketplace, so they are allowed to create
other new work opportunities. I would say the third thing,
which is the most important, is this idea of transferability of
skills. If we can consistently train those that work as taskers
in the marketplace with broader skillsets for them to take on
and in the future then do bigger, broader things, not only does
our existing marketplace benefit, but as do consumers and what
we call clients to receive better services.
Chairman CHABOT. The gentlelady's time has expired.
Ms. HAHN. Thank you very much, and I yield back.
Chairman CHABOT. Thank you.
The gentleman from Mississippi, Mr. Kelly, is recognized
for 5 minutes.
Mr. KELLY. Thank you, Mr. Chairman, and I thank the Ranking
Member, and I thank this distinguished panel. I really
appreciate you being here today.
I am going to vary a little bit. People do not like change,
and governments do not like change, and so I am talking to some
of the other comments that I have heard. This is a system that
works but it is different. I see the same thing with overtime
rules with small businesses. What governments do not
understand, they try to make fit into their mold, into their
box, and the net reality is it does not work in that box. They
have to adapt to the sharing system and to the small businesses
and not try to adapt them to the rules that apply to everyone
else. If we do that, if we try to force small businesses or
sharing economies to be a part of the regular tax process or
agency process, what happens is you fail because we try to
insert ourselves. We need to change, not ask you to change.
What I find interesting is that the sharing economy is very
tangible. The other thing that I find very interesting is it
applies to people either as a second job or a supplemental
income, not as their primary, so a lot of times they are paying
taxes in a primary job. They have healthcare in their primary
job. But it is very flexible. I think Mr. Reed, you hit it,
flexibility is the key. We absolutely have to be flexible
because most of these people are students. They are retirees.
They are stay-at-home moms. They are soldiers' wives. They are
people who may be moving locations or either tied to a location
and tied to other duties, and so that flexibility is the most
important. What can we as a Small Business Committee do to make
it easier to make sure that the people who want to and should
pay their taxes pay them, but also that we keep open that
flexibility? I will start with you, Ms. Bruckner.
Ms. BRUCKNER. I think holding a hearing on this is a good
start. First and foremost we need to be educating other members
of Congress about the sharing economy and about the fact that
it is just not a millennial phenomenon. If you talk to the
platform companies, some of the fastest growing cohorts that
they see across the board are baby boomers. This is affecting
all sectors of our population, and as you point out, generally,
these are people that are doing this part-time or as a
secondary source of income. The hassles that they have to face
complying with their tax code obligations are things that we
definitely should consider moving forward with. How do we make
life better for the American taxpayer going into tax reform?
Mr. KELLY. Any other comments from the panel?
Mr. REED. I think that one of the key elements that we have
touched on considerably is ensuring that the IRS allows us to
provide the training so that we get these people to understand
their obligations. It is ironic that here we are, having a
panel about how do we get people to pay their taxes, and yet,
as Mr. Willey has talked about, and as our members have
discussed, we are concerned that in order to make it easier for
them to understand how to pay their taxes we might actually
destroy the very business model that allows them to have that
flexibility. If there is one conundrum out there that exists,
it is the idea that we could find ourselves in the wrong
classification trying to help the IRS do their job.
Mr. KELLY. This is one of the things, I think the sharing
economy is great, just like I think small business is great.
Sometimes I think people are threatened, and rather than try to
get better at what they do, and you know, if you are getting
your tail kicked, you do not make the other team change their
rules or quit playing; you get better at what they are doing
and you steal or copy or whatever you want to call it, and you
get like them.
I am going to go back. Professor Bruckner, while the
federal government works to catch up to assist the needs of a
growing sector of the economy, is there anything that this
Committee or various agencies involved can do educationally to
inform taxpayers while we work to make the guidance more clear?
What should we be doing in the meantime?
Ms. BRUCKNER. The number one thing that the IRS can do is
start working through its relationships with third-party
preparers and with tax preparers, educating them. Because, in
many instances, they do not even know how to advise customers
that come in and need help with their taxes related to their
sharing economy income. Leveraging those third-party
relationships and increasing outreach and education to even tax
preparers and folks that are engaged in that industry would be
a great start.
Mr. KELLY. Finally, Mr. Reed, I am going to let you comment
if there is time, but one of the things is sales tax, it is a
big issue. We cannot just say it is better where it originates
or better where it ends up because a lot of localities and
county governments and county municipalities rely on that sales
tax to have governments and other things that perform functions
and service their people for services, police and fire
department. We need to have a healthy discussion on that to
determine what the best answer is. With that, I yield back, Mr.
Chairman.
Chairman CHABOT. Thank you. The gentleman yields back.
The chair would be remiss if I did not mention an irony of
this. We are talking about the IRS here this morning, what we
need to do to adjust, and the Committee that I left to come
here, currently, the topic there is whether or not we should
impeach the IRS commissioner right now. It kind of boggles your
mind. But that being said, for the record, we will now
recognize the gentlelady from North Carolina, Ms. Adams, who is
the Ranking Member of the Investigations, Oversight, and
Regulations Subcommittee for 5 minutes.
Ms. ADAMS. Thank you, Mr. Chair, and thank you, Ranking
Member Velazquez for hosting the hearing, and thank you, also,
to the participants today.
The sharing economy is certainly a new aspect of our
economic system that we must pay close attention to in order to
properly provide effective oversight with regard to worker
classification.
Ms. Bruckner, to start, worker classification is nothing
new in labor law. In fact, last year, Utah and Arizona forced
construction companies who were labeling workers as independent
contractors instead of employees to pay more than $700,000 in
back wages and damages. What makes the sharing economy harder
to regulate than the traditional workforce?
Ms. BRUCKNER. I think what is different and unique about
the sharing economy is that when you look at it for tax policy
purposes, you are not just looking at companies like TaskRabbit
or Lyft or Uber, who raised some of those issues, or that is
where the debate has been. We also look at it in terms of Etsy
or Airbnb, folks who generally you would not even think to put
in the same sentence as a misclassification debate. It is much
bigger when you look at how these people are earning income and
file or are obligated to file for U.S. tax purposes. It is a
different question and that is what our research endeavors to
point out.
Ms. ADAMS. Okay. There are quite a few federal and state
laws that define the employer-employee relationship and that of
an independent contractor. Is it possible that a worker could
be deemed an employee under one law and an independent
contractor under another?
Ms. BRUCKNER. That possibly could happen, but I think that
misclassification happens in all different kinds of industries
and in all different types of circumstances. Those are issues
that we do not address specifically in our research. We focus
really on how the existing tax code is not working for American
taxpayers that are just trying to earn some income in the
sharing economy.
Ms. ADAMS. Thank you. Would you know if there would be tax
implications for situations like that?
Ms. BRUCKNER. I venture to guess that there are tax
implications, but I by no means cover that in either my
testimony or in the report that we put out.
Ms. ADAMS. Okay. What role does technology play in blurring
the line between an employee and an independent contractor do
you think? Mr. Reed? What about you?
Mr. REED. It is safe to say, and I have a suspicion that
all of us would agree, that the technology that we have is what
empowers the sharing economy. Let's use location as the most
obvious example. Without the ability to know the location,
TaskRabbit cannot figure out who to assign, who can get there
quickly, how long will it take them? The entire function of the
sharing economy works because I can take up those spaces in
between your other job, your other task, when you drop the kids
off for daycare, and I can make it work both in space and time.
Without the power that our smartphone provides, we do not have
the sharing economy.
Ms. ADAMS. Would anyone? Mr. Willey?
Mr. WILLEY. I completely agree with that. I think
TaskRabbit was founded in 2008, which was the first year that
the iPhone 1 launched. I do not think there is any luck in that
planning. I think technology certainly empowers us both from
matching taskers with what we call clients or consumers, but
also building supply and demand in order to do this in a real-
time, high-quality experience. Both of those things are simply
empowered by mobile technology.
Ms. ADAMS. Thank you. Mr. Reed, the sharing economy model
relies on the infrastructure of their platform. What should
these businesses do to ensure that their infrastructures'
growth keeps pace with that other company?
Mr. REED. Well, we would always encourage the companies to
figure out ways to make it more enticing for the people
providing the service to be part of it, and that gets down to
training, providing easy access to the client that you need to
find. I thought it was interesting that Ms. Bruckner brought up
eBay, Etsy, this entire universe of physical goods and the sale
of physical goods. The key elements that platforms need to
provide are, first, easy access to a customer who wants their
service. The second thing is a trustworthy space. If there is
one thing that drives our ecosystem to success or failure it is
the trust the client places in it. We hear it over and over. Do
I trust the person giving me a ride? How do I know the tasker
coming to my house should be let in the front door? Building a
platform that enables trustworthiness and the ability to get
those two merged together is a critical, critical element.
Ms. ADAMS. Thank you very much. Mr. Chair, I yield back.
Chairman CHABOT. Thank you. The gentlelady's time is
expired.
I want to thank the witnesses for being here today, and I
just have one final question. Mr. Willey, I would like to ask
you this. I noted that you have an office in London, and I
happen to be on the Foreign Affairs Committee. I am wondering
how is the U.S. doing compared to the rest of the world on the
shared economy? Are we ahead of the game? Are we behind? Are we
about where we would want to be? If you want to comment on how
things are going around the globe.
Mr. WILLEY. Sure. I can comment for the U.K. and for
London, specifically. As it relates to our business, there is
no doubt that the United States is a head of where the rest of
the world is in terms of the sharing economy and its adoption
of its services. That said, the fastest growing emerging
markets in the world in the sharing economy are not in the
United States. Specifically for us, London is our fastest
growing market. There are different dynamics in these markets,
whether it be around taxes or health care, that create nuances
as to how companies go to market and how do they work with
their taskers within their marketplace that create actually new
opportunities for companies like TaskRabbit. Expansion is a
very interesting and I think new opportunity for companies like
TaskRabbit. It will be done, at least by us, very carefully as
we understand the marketplace dynamics.
Chairman CHABOT. Where is the cutting edge around the
world? Is there one or a couple countries that are particularly
ahead of the game?
Mr. WILLEY. I think when you look at population density you
have to very clearly see that those markets have obvious
opportunities simply based on the fact that sharing economy
companies need to match supply and demand in ideally very high
population cities. Those cities, China, India, are areas where
I think the cutting edge of the sharing economy is clearly
looking to grow. Like I mentioned, those nuances for those
cities and for those countries are very different than the U.S.
Chairman CHABOT. The Ranking Member is recognized.
Ms. VELAZQUEZ. Thank you. I would like to ask a follow-up
question. When you mentioned health care and taxes, it is
related to London or just other countries? And why?
Mr. WILLEY. It is related to other countries, specifically
in London. Forgive me, I am not an expert in U.K., and I am not
a lawyer. But, I know when we look at our marketplace in
London, even our services, or what we call our mix, are
different. Our number one service in London is handyman
services, which is a different number one service than say we
have in Los Angeles, or that we have in San Francisco. Part of
that is based on, one, the city dynamics, two, that is also
based on those that are available and willing and wanting to
work in that capacity. A lot of it has to do with health care
and the availability of it. It also has to do with general sort
of city service behavior. We see lots of nuances between these
cities, which is why when we look at deploying TaskRabbit
globally, those are very cautious and careful decisions that we
need to work in partnership with federal and state or country
governments to do so with always the benefit and the welfare of
our taskers in mind.
Ms. VELAZQUEZ. Thank you.
Chairman CHABOT. Thank you. The gentlelady yields back.
In closing, I would just comment that we have heard a lot
of evidence here regarding the current tax law and outdated IRS
policies that are ill-suited to the burgeoning sharing economy
and the companies and workers who are directly participating.
It seems clear that we need to figure this out and adjust
accordingly. I am pleased that our distinguished panel has
undertaken the task of researching and identifying many of the
challenges presented as well as suggesting some possible
solutions. The rise of the sharing economy is a very exciting
development, and we need to ensure that our outmoded legal
system does not strangle this new engine for growth in its
infancy. We look forward to working with all of you to
modernize our system, to boost the economy, and increase
employment opportunities for many Americans.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered. If there is no further
business to come before the Committee, we are adjourned. Thank
you.
[Whereupon, at 12:12 p.m., the Committee was adjourned.]
A P P E N D I X
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Mr. Chairman, Ranking Member Velazquez, and members of the
House Small Business Committee, I am Rob Willey, Vice President
of Marketing for TaskRabbit. Thank you for the invitation to
testify today, but more important, thank you for holding
today's hearing on a topic that captures the legal, regulatory,
and public policy challenges that confront platform companies,
as well as the millions of individuals that look to platforms
like ours to improve their daily lives.
Our Founder and Executive Chairwoman, Leah Busque, launched
TaskRabbit in 2008 as a way to help people connect and get more
done every day. We are a pioneer in the on-demand service
platform industry, operating in 18 major U.S. cities--with New
York City being our largest domestic market--and abroad in
London, which is our fastest growing market.
We're a two-sided marketplace connecting Taskers with
Clients across a variety of categories, such as cleaning,
handyman services, delivery, moving, and much more.
TaskRabbit's vision is to allow you to be your most productive
self, and we're changing the face of work by aligning and
meeting a consumer's daily needs across multiple categories,
offsetting the demands of their normal lives with consistent
and high quality services.
Roughly 60 percent of our Taskers are millennials--young
people who see TaskRabbit as a way to earn income while
pursuing a college degree, or to supplement the income they are
earning from a full-time job. Our community is diverse with a
broad set of needs, which is why we have a contractual
relationship with our Taskers. By utilizing our platform--
largely through a mobile app but also on the web--Taskers can
directly engage with their clients. We have more than 50,000
registered Taskers on our platform, and see more than 15,000
applications per month with little direct recruiting or
marketing. Interest in our platform is largely driven by
flexible scheduling and the ability to earn livable wages.
Taskers have the freedom to decide when, where, and how they
work, and set their own hourly rates.
Flexibility--the ability to work when and where they want,
and at the hourly rate they want--has and continues to be the
#1 reason. Taskers are on our platform. They set their prices,
their hours, and their location, and are able to make livable
wages around a lifestyle that works for them. The importance of
our two-sided marketplace is that both the customer that seeks
a specific service and the Tasker that can provide it, both
choose to opt-in to this on-demand platform.
Today's Tasker earns an average of $35 per hour--five times
the federal minimum wage. The overwhelming majority of our
Taskers utilize the platform for part-time work to supplement
their incomes, less than 10% ``task'' full-time. Overall, the
average monthly income for Taskers tripled year over year.
It is fitting that today's hearing is in the House Small
Business Committee. Whether called ``solopreneurs'' or ``micro-
entrepreneurs,'' our Taskers are in fact, independent, self-
employed, small business owners.
The part-time, flexible nature of the work done by our
Taskers is consistent with the larger app-based platform
economy, and those characteristics, and the factors that gave
rise to the platform economy, are important to note given
today's hearing. A February 2016 study by the JP Morgan Chase
Institute found that the overwhelming majority of the estimated
2.5 million Americans people who earned income as small
business owners using platforms like ours did so to supplement
their incomes and better support themselves and their families.
With little to no barriers to entry, the on-demand platform
economy has become an important option at a time when income
volatility continues to challenge individuals and families.
Typically, significant fluctuations in take-home pay, work
hours, or availability of optimal job opportunities put
pressure on individuals to reduce their household spending or
take on more debt. The creation of on-demand platforms like
ours has made new income-earning opportunities accessible and
feasible to millions of Americans.
Of course, the emergence of the platform economy has
sparked an, at times, intense debate on the classification of
workers as ``employees'' or ``independent contractors,'' and
the costs and benefits associated with either classification.
We know the current legal worker classification structure was
designed around a much different economic and technological
era. In addition, today's classification structure has been
shaped mostly by decades of regulations and court cases at the
federal and state levels, which have fueled uncertainty across
our sector--uncertainty about what we can or cannot do to
support our Taskers while preserving their flexibility and
independence in accessing our platform.
The result: we face very limited choices when it comes to
the services and level of collaboration we can provide for our
Taskers. With the increase in alternative work arrangements in
addition to the emergence of the platform economy, we're
currently in an era where there's no typical freelancer.
There's no ``Joe the Plumber,''--rather, we see multiple
different work models and work cases.
An example of that inability to collaborate and provide
support services for our Taskers is in the tax arena. As
Professor Caroline Bruckner ably highlighted in her report
released just yesterday, self-employed participants in the
platform economy have difficulties with both tax compliance and
tax benefits. Professor Bruckner's survey data revealed that
significant percentages of respondents did not know what their
obligations were with respect to tax filings or taxes owed.
They also were not fully aware of the deductions or credits
they could claim on income earned on platforms like TaskRabbit.
We at TaskRabbit have no reason to doubt that significant
numbers of Taskers are facing or are simply unaware of the tax
compliance challenges or the tax benefits that confront them.
For many of our Taskers, when they sign up to join our
platform, they are making their first forays into the world of
small business and self-employment. Some may understand that
earning a certain level of income triggers the quarterly
estimated payment filing requirement. Many may not.
It's in TaskRabbit's interest to see that our Taskers gain
a better understanding of what's required with respect to tax
compliance, and what's available with respect to tax benefits.
What we want to avoid is a situation in which the burdens of
tax compliance become so great that it forces Taskers to scale
back on their tasks, if not compel them to leave the network
altogether. What we hope to ensure are situations in which tax
compliance is not burdensome, and full utilization of tax
benefits helps maximize return on Tasker participation in the
network.
Tax compliance is just one area of many where our Taskers
could benefit from better training. Our Taskers also are
looking for direction on how to better market themselves and
their services, access health care, and plan for retirement. We
at TaskRabbit would like to be a resource, a partner, and a
collaborator for that training--it is one of our main areas of
focus in determining what types of services we can provide
simply because the threat of litigation and the risks tied to
worker classification laws and regulations at the federal and
state level are real.
I agree with the recommendations of my fellow witnesses
that these issues should be considered by Congress and relevant
government agencies, such as the U.S. Department of Labor and
the Internal Revenue Service. It is certainly worth Congress
considering the notion of a legal and regulatory timeout
suggested by Dr. Joe Kennedy with the Information Technology
Industry Foundation. There is precedent for that kind of
action.
In the early years of the Internet, Congress imposed a
moratorium on federal and state taxation of Internet
transactions. Doing so helped a young, nascent sector of the
economy develop and provide real benefits for consumers. A
limited period of legal and regulatory relief would enable
platform economy companies to pursue innovative ways to develop
and provide services and benefits to those small business
owners and entrepreneurs who utilize platform services.
If a broad timeout like the one I just described will take
time for Congress to consider, perhaps a narrow timeout tied to
a specific set of issues, including tax compliance,
preparation, and benefits, could serve as an initial pilot
project to demonstrate feasibility and effectiveness, while
providing real value to those who provide on-demand services in
the platform economy. In addition, we urge both Congress and
the Internal Revenue Service to consider ways to bring greater
flexibility in tax preparation and compliance for small
businesses and the self-employed.
Though TaskRabbit pioneered this industry, this space is
still very early and emerging. We absolutely want to continue
working with governments to engage with policymakers as our
company and industry grows and matures. We consider this
engagement rewarding on many levels. Just last month, for
example, we announced our intent to follow the diversity
principles outlined by the Congressional Black Caucus in its
TECH 2020 initiative, and we're proud to have been the first
technology company to adopt these principles.
Mr. Chairman and Ranking Member Velazquez, we appreciate
today's hearing, and your and the Committee's interest in
taking the time to understand our business and how it's
changing the face of work, and how public policies can impede
or further that advancement. There is already bipartisan
interest in the platform economy, as evidenced by last year's
formation of the Sharing Economy Caucus, co-chaired by
California Congressmen Darrell Issa and Eric Swalwell. We also
applaud the House Republican and Democratic leaders, Kevin
McCarthy and Nancy Pelosi, for taking a closer look at the
public policies impacting the platform economy.
We hope we can channel this bipartisan energy toward
constructive policy solutions that will further enable
TaskRabbit and the platform economy to continue to innovate and
grow, and further empower small business owners and
entrepreneurs to efficiently and effectively provide important
services across the country.
Thank you.
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