Tax Bill: ASTA on Pass-Through Businesses, Independent Contractors

Tip of Fountain Pen Writing
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The American Society of Travel Agents (ASTA) has sent a letter to the chair and ranking members of the U.S. Senate Finance Committee and the U.S. House Ways & Means Committee calling for favorable treatment of pass-through businesses in the tax reform bill, as well as an alternative approach to the treatment of independent contractors.

In the letter ASTA noted that 70 percent of travel agencies are small business employing fewer than five people, and, based on informal member consultations, the vast majority of ASTA members are organized as “pass-through” entities. ASTA argued that pass-through businesses “should be afforded the most favorable treatment possible” in the final tax bill, and also called on Congress to devote a proportional amount of revenue to reducing the pass-through rate as it does to reducing the tax rate on C-corporations.

In its section on independent contractors (ICs), many of whom are home-based travel agents, ASTA noted that their use in the travel industry is prevalent and growing – 75 percent of ASTA members reported using at least one IC in its latest survey.

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“ICs and their clients currently face substantial uncertainty over whether their business relationship will be respected for purposes of federal statues, due to the variety of statutory definitions for the term employee,” ASTA said.

ASTA argued against the inclusion of two proposed amendments to the tax bill. One incorporated language from the New Gig Act of 2017 to create a safe harbor for IC relationships but required tax withholding on ICs, which ASTA said undermined “a bedrock distinction between contractors and employees for federal tax purposes.” The second amendment would have repealed Section 530 of the Revenue Act of 1978, which provides relief from federal employment taxes, penalties and interest for businesses in the event that the International Revenue Service (IRS) retroactively classifies its workers from ICs to employees. Neither amendment wound up being incorporated into the Senate bill, and there were no comparable provisions in the House bill.

Instead, ASTA called for the adoption of the Harmonization of Coverage Act of 2017, which ASTA said would harmonize the definition of the term “employee” for the purpose of federal employment statutes. The definition would conform the Fair Labor Standards Act (FLSA) to other New Deal statutes enacted during the same era to follow a common law definition of employee, as well as conform the FLSA to a more recent Supreme Court decision that adopts a common law test for the term employee.

ASTA said the bill would “provide clear rules of the road in terms of who is an employee and who is an independent contractor, and allow travel agency owners and ICs alike to focus on what they do best – sell travel.”

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