Wednesday, July 26, 2017
I spent some time today reading through the “New Economy Works to Guarantee Independence and Growth Act of 2017” (the NEW GIG Act of 2017), a bill introduced on July 17 by Senator John Thune, Republican of South Dakota. Senator Thune asserts, “My legislation would provide clear rules so . . . freelance-style workers can work as independent contractors with the peace of mind that their tax status will be respected by the IRS.” Senator Thune describes the bill as a measure that would “add certainty to worker classification rules.” The problem is that the bill does not by its terms even apply to freelance-style workers, it applies much more expansively to “service providers,” defined very broadly under the bill as “any qualified person who performs service for another person.” (interestingly, the term is not defined until well into the text of the bill, at amended Internal Revenue Code Section 7706(2)(j)). The bill would radically alter the classification of both “employees” and “employers,” as defined presently under the Internal Revenue Code (I.R.C.), but my focus here is on the employee definition.
In sum, under what would be new Section 7706 of the I.R.C., a “service provider” might not be an employee for many statutory reasons (see proposed amended I.R.C. Section 7706(a)(1)). There would be so many ways not to be an employee (or to be a “qualified service provider”), the “requirements” are recited for about 5 pages of text, in amended I.R.C. Section 7706(a)-(d) of the bill, that when I started to write them out for this post I abruptly stopped, fearful of losing my busy blog audience mid-paragraph. There would be so many ways not to be an employee that I would be a very poor lawyer if I could not make several colorable arguments under the text that any employee was a “qualified service provider”. I will leave it to you, through inspection of the linked text, to agree or disagree with my assessment.
One thing there was not, of course—this being a federal tax bill, was a preemption provision. Unlike some of the House tort-reform bills, passed and sent on to the Senate in recent weeks (and unusually opposed by significant contingents of states-rights minded republicans, there is no generic language instructing that the bill is to have any bearing on state law--say, for example, on workers’ compensation law. It is patently obvious, however, what kind of mischief could be generated if large numbers of “employees” for state law purposes were deemed not employees for federal tax purposes. It would be but one step from that confused sequence of events to attempts to “harmonize” federal and state law. That harmonization, if aggressively undertaken, could easily wreak havoc on all laws applicable to “employees.” Is that a good or bad thing? I suppose it depends on what you think about those laws.
Michael C. Duff