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No More Safe Harbor?
By: Anne Lardner
Issue: 2010feb
Spotlight turns on independent contractor legislation.
For many years, PPAI has had a voice in Washington, D.C., to promote and protect the interests of the promotional products industry and small-business interests in general. Of late, that voice was needed more than ever. The past few years have brought increased scrutiny of promotional products by the healthcare industry, special interest groups and product safety advocates. It is increasingly important that all promotional products professionals take the time to become educated on the external forces now influencing our marketplace. The list of rules, regulations and codes is long—and it is growing.
For many years, your Association worked quietly, in the background, to protect the interests of the promotional products industry and small business, but times change. Now, we must be far more vocal and aggressive in our efforts and it is equally important that we no longer work alone—but work together with you to advance the interests of our industry. It is our collective responsibility to work to ensure that lawmakers understand the value, benefits and employment opportunities offered by this creative and vibrant industry.
“No Stone Unturned…”
PPAI has put together a “no stone unturned” program to maximize that effort. Working together with regional association partners, thousands of volunteers, industry leaders and coalition partners both within and outside of our industry, we’re driving both grassroots and grasstops advocacy efforts. We have expanded our lobbying presence in Washington, D.C., dedicated staff to the effort on a full-time basis, established websites to offer quick links to contact elected officials, and put tools in place to monitor proposed legislation on a state as well as federal level. To view a summary of PPAI’s collective efforts as of year-end 2009, go to http://tinyurl.com/yduns92.
Throughout 2009, PPAI was focused primarily on the healthcare debate—specifically, the Physician Payments Sunshine Act. Over the course of 12 months, all of you responded by sending more than 8,000 letters to Washington, D.C.—letting elected officials know we will not stand by and allow laws to be passed that could harm the promotional products industry.
Now, as Washington’s attention turns away from healthcare reform, we turn also to face the next challenge to the promotional products industry—increased scrutiny on the role of independent contractors.
The Role Of Independent Contractors
In 2009, Representative Jim McDermott (D-WA) introduced H.R. 3408, The Taxpayer Responsibility, Accountability and Consistency Act. If passed in its current form, H.R. 3408 would limit the use of independent contractors.
For more than 10 years, PPAI has worked directly with both the IRS and Congress to ensure they understand that using independent contractors to perform sales-related services is a long-standing practice in the promotional products industry. In our industry, the distributor develops solutions to marketing challenges through the innovative use of promotional products and is a resource to corporate buyers, marketing professionals and others. A supplier manufactures, imports, converts, imprints or otherwise produces or processes promotional products offered for sale through distributors and the distributor sales force known as promotional consultants. The promotional consultants are the independent contractorsor.
H.R. 3408 would eliminate the “safe harbor” provision of tax law, known as Section 530, that recognizes the long-standing industry practice as a basis for classification as an independent contract.
Section 530 of the Revenue Act of 1978 provided a safe harbor, which is generally stated in the negative: "Section 530 allows a taxpayer to treat a worker as not being an employee for employment tax purposes (but not income tax purposes), regardless of the worker's actual status under the common law test, unless the taxpayer has no reasonable basis for such treatment or fails to meet certain requirements." One of the “reasonable bases” is a long-standing recognized practice in the industry. This has been a particularly important safe harbor for the promotional products industry.
An important provision of Section 530, which has had an influence on the determination process during the last 30 years, states “No regulation or Revenue Ruling shall be published on or after the date of the enactment of this Act and before the effective date of any law hereafter enacted clarifying the employment status of individuals for purposes of the employment taxes by the Department of the Treasury (including the IRS) with respect to the employment status of any individual for purposes of the employment taxes.”
Unfortunately, H.R. 3408 would repeal section 530 and replace it with one new safe harbor. The industry practice safe harbor would be repealed.
In order to qualify for the new safe harbor, taxpayers would need a written determination from the Department of Treasury that the individual (or individuals holding a substantially similar position) was not considered an employee. Taxpayers could also rely on the safe harbor if the IRS concluded an examination of the individual (or individual holding a substantially similar position) and did not determine that such individual was an employee. Taxpayers could rely on a letter ruling or an examination that was completed up to seven years prior to the tax period in question. It requires that taxpayers must have consistently treated workers as independent contractors in order to qualify for the safe harbor.
The current-law section 530 safe harbor would remain in effect for up to one year after the date of enactment of the legislation. The bill provides individuals (or a designated representative) the ability to petition the IRS for a review of their classification status. If an individual is reclassified as an employee, the IRS must report that fact to the Department of Labor.
Take Action Now
Please make time today to call your representative and let him or her know that this legislation will cause profound harm to the promotional products industry. Go to www.ppailaw.org and follow the simple prompts to send an e-mail and call your representatives. Scripts and phone numbers are provided.
PPAI will continue to monitor, report and analyze issues that will affect the promotional products industry. As an Association, we call on all industry professionals to respond to the action alerts and e-mail, call, fax, write and visit their elected officials to ensure that our collective voices are heard to protect the well-being of the promotional products industry. We encourage you to visit www.ppailaw.org and make your voice heard.
Anne Lardner is PPAI’s senior manager of public affairs.
AnneL@ppai.org
972-258-3041
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