Home Front

On the independent contractor issue, Mary Landrieu, a Democrat and the first female senator elected from the state of Louisiana, says she strongly supports tax simplification and regulatory reform. "We should be rewarding people and making it easier for them to start businesses and hire people, not more difficult," says the senator, who also favors repealing estate taxes, particularly for family-owned firms. Landrieu ran a real estate business that specialized in townhouse development for 10 years.

In their business dealings, Cannon and Collins have talked with entrepreneurs who have repeatedly faced the confusing issue of what constitutes an independent contractor for tax purposes. Both see widespread agreement that IRS rules regarding independent contractors are too complicated.

Sen. Christopher "Kit" Bond (R-MO), chairman of the Senate Committee on Small Business, says trying to simplify the test for independent contractors will be one of his top priorities during the 105th Congress. The Small Business Job Protection Act of 1996 offered a slight clarification but did not solve the problem, asserts Bond.

In the 104th Congress, Bond introduced legislation called the Independent Contractor Tax Simplification Act of 1996, which would change the way workers are classified. The bill would require entrepreneurs to answer affirmatively to three questions in order for their employees to be considered independent contractors:

1. Is there a written agreement between the parties involved?

2. Does it appear that the worker has made some investment, such as incurring substantial unreimbursed expenses or being paid primarily on a commission basis?

3. Does the worker appear to have some independence, such as having his or her own place of business?

Bond co-sponsored the legislation jointly with Sen. Don Nickles (R-OK), Assistant Majority Leader. He is hoping to forge a similar alliance in the 105th Congress.

"I think the legislation needs to be reintroduced early in the session, [which will] allow time for careful consideration of specific provisions," says Sen. Collins. "There may be disagreement on the specific test Senator Bond's bill would provide, but I think he is going in the right direction. I think there would be a lot of support for simplifying the process."

On the congressional side, Republican Nancy Johnson, who represents the sixth district in Connecticut, believes that legislation to reinstate the home office deduction stands a better chance of passing this session of Congress because there will be less competition from other interest groups seeking tax cuts. She speculates that this, combined with support from a coalition of organizations representing homebased businesses, might be a key to passage.

This article was originally published in the February 1997 print edition of Entrepreneur with the headline: Home Front.