One of the main areas of
focus at the recent annual meeting of the MultiState Tax Commission is the
sharing economy and how to address the growing tax gap problems for the IRS and
states. The issue? Tax liabilities for Uber Technologies Inc.,
Airbnb Inc. and other peer-to-peer companies and the many independent
contractors who work for them.
The tax gap is growing because on-demand service providers such as Lyft Inc. and TaskRabbit are a growing part of the economy according to a number of speakers at the meeting. One study delivered to Congress in May estimated that more than 2.5 million Americans earned income via on-demand platforms like Airbnb, Etsy Inc. and Lyft in 2014, and the companies generated an estimated $15 billion in revenue. But tax dollars on much of that revenue could be lost because the companies don't withhold taxes on the income they pay to people who provide services or sell items via their platforms, the study said.
Annette Nellen, director of San Jose State University's graduate tax program, noted that code Section 6050W, which addresses returns relating to payments made in settlement of payment card and third-party network transactions, requires processors of credit cards and debit cards to issue a Form 1099-K to vendors and the Internal Revenue Service, she said. The section also requires Form 1099-K reporting for third-party network transactions in which a third party—such as PayPal Inc.—processes payments. The statute includes a threshold for these transactions so that a Form 1099-K needs to be issued only when service providers have at least 200 transactions in a year and earn at least $20,000, Nellen said. "There are a lot of people working in the sharing economy where the number of transactions fall below that."
Generally, Nellen questioned whether there is enough guidance for taxpayers working in the sharing economy, including on "long-standing" issues like worker classification. The debate has been couched as a labor law issue, Nellen said, and "a lot of people are saying, once the labor law gets solved, everything is done. I think they will be very surprised if the IRS comes in and says maybe they aren't contractors for tax purposes."
Panelists at the meeting agreed that the barriers to entry in the sharing economy are so minimal that many participants have no idea of the tax consequences involved. Why don't Uber and Lyft and Airbnb provide the necessary tax guidance to their service providers? Uber and Lyft don't want to give the information to them "because it will look like they're training them and they are employees rather than independent contractors," Nellen said.
The tax gap is growing because on-demand service providers such as Lyft Inc. and TaskRabbit are a growing part of the economy according to a number of speakers at the meeting. One study delivered to Congress in May estimated that more than 2.5 million Americans earned income via on-demand platforms like Airbnb, Etsy Inc. and Lyft in 2014, and the companies generated an estimated $15 billion in revenue. But tax dollars on much of that revenue could be lost because the companies don't withhold taxes on the income they pay to people who provide services or sell items via their platforms, the study said.
Annette Nellen, director of San Jose State University's graduate tax program, noted that code Section 6050W, which addresses returns relating to payments made in settlement of payment card and third-party network transactions, requires processors of credit cards and debit cards to issue a Form 1099-K to vendors and the Internal Revenue Service, she said. The section also requires Form 1099-K reporting for third-party network transactions in which a third party—such as PayPal Inc.—processes payments. The statute includes a threshold for these transactions so that a Form 1099-K needs to be issued only when service providers have at least 200 transactions in a year and earn at least $20,000, Nellen said. "There are a lot of people working in the sharing economy where the number of transactions fall below that."
Generally, Nellen questioned whether there is enough guidance for taxpayers working in the sharing economy, including on "long-standing" issues like worker classification. The debate has been couched as a labor law issue, Nellen said, and "a lot of people are saying, once the labor law gets solved, everything is done. I think they will be very surprised if the IRS comes in and says maybe they aren't contractors for tax purposes."
Panelists at the meeting agreed that the barriers to entry in the sharing economy are so minimal that many participants have no idea of the tax consequences involved. Why don't Uber and Lyft and Airbnb provide the necessary tax guidance to their service providers? Uber and Lyft don't want to give the information to them "because it will look like they're training them and they are employees rather than independent contractors," Nellen said.
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