TELECOMMUTING TAX CREDIT BILL INTRODUCED IN NEW JERSEY; CALIFORNIA BILL PROPOSED TO MODIFY POLLUTION-REDUCTION SPENDING SUMMARY: A state assemblyman in New Jersey introduced legislation that would grant a tax credit for both corporation business tax and gross income tax for employers who allow their employees to telecommute. It's a good example of legislation that sounds good at first but has little substance and is not likely to change employer behavior. Tax credits for telecommuting are potentially a no-win situation: if they're minimal they won't motivate additional telecommuting, and if they're substantial enough to change behavior they probably won't be passed into law. A related development is a California bill that would allow auto registration surcharge money collected in the Bay area to be spent to promote telecommuting, as well as for existing pollution- and trip-reduction methods. I'm ashamed to admit that I first learned of this pending legislation when reporters from two New Jersey newspapers called me to ask my opinion about it - and I live in New Jersey, so you'd think I should at least be able to stay current on my local legislative activity. Assemblyman Michael Patrick Carroll, who represents District 25 in Morris County, introduced Assembly Bill 2648 on November 23, 1998. It was reported favorably out of the Assembly Committee on Commerce, Tourism, Gaming, and Military and Veterans' Affairs on January 21 and is headed for a hearing in the full Assembly later this year. The impetus for the bill came from Len Cohen, a CPA with the accounting firm of Polakoff Weismann Leen in Livingston, NJ. Cohen, who has worked with other legislators to introduce other bills in the past, told me that he felt it was time to stimulate some interest in telecommuting. "It was based on my own interest in relieving congestion on our New Jersey roads, and also to help alleviate road rage." While he doesn't telecommute himself on a regular basis, he'll occasionally work from home in bad weather. "Most of our work as a CPA firm requires that we're at our clients' offices, so telecommuting wouldn't be that easy for us." The proposed legislation calls for a tax credit of 1% (against both the employer's corporation business tax and gross income tax) of a proportionate amount of the telecommuting employee's salary. The calculation is a little tricky but sensible; it is based on the "percentage of the services that are part of the employee's workweek that are performed in the employee's residence." For example, let's consider an employee earning $50,000 per year who telecommutes one day a week, or 20% of the available time. The annual salary is multiplied by that telecommuting portion ($50,000 x 20% = $10,000) and then 1% of that amount (or $100) is taken as a tax credit for both forms of corporate tax. In this case, the employer would receive a total $200 tax credit if the employee telecommuted one day a week for the entire year. These tax credits can be applied to tax otherwise owed for the taxable year, or carried over for up to seven years if the credits exceed the limits allowed. There are a few strings attached, based on the original legislation and on changes made by the committee which heard it: - The employee must have a "written residential telecommuting work arrangement" which is defined as "a written contract between the taxpayer and employee defining the responsibilities of the taxpayer and employee with respect to a job allowing residential telecommuting"; - The telecommuting must be within a residence, not in any kind of branch office or telecenter; - The employee's residence must be within New Jersey; - The employee cannot make any work-related commute trips on telecommuting days; - The employee must not be "directly supervised" while working as a telecommuter. Employers who want to get these tax credits will have to file a form for each telecommuter listing the specifics of the employee's schedule and salary. There are no other details listed about record-keeping, partial-year telecommuting, and all the other points that need to be worked out if the legislation is passed. The cover letter indicating passage out of the Committee on Commerce etc. notes the following - which sounds like it's straight out of any one of many telecommuting articles or manuals: "Employees, employers and communities benefit from telecommuting arrangements. New Jersey communities can benefit from the reduced number of vehicle miles traveled by New Jersey commuters, reduced dependence on gasoline for fueling commuters trips, and the resulting improved air quality from reduced air pollution from commuting vehicles. Employers can benefit from increased productivity attributable to telecommuting workers as well as from reductions in office space requirements. Employees can benefit from reduced stress from reduced commuting times, improved morale and a better balance between work, commuting and increased time available for their personal lives spent with family and friends." I think it's terrific that this legislation has made it this far. Given the healthy economy in New Jersey, a bill calling for tax credits (also known as "less money for the legislature to spend") has a better chance today than it would have had a few years ago. But I seriously question whether it will have any significant effect even if it passes into law: - If we assume an average of two telecommuting days per week for that $50,000 employee - which is a reasonable number to pick for an IT professional who might telecommute - that adds up to $400 per year. That number has a nice ring to it, and should be high enough to get a CFO's attention. - However, to get that credit the employee must telecommute two days a week, every week, for the full year. Anything less decreases the tax credit proportionately, as well it should. - The paperwork burden involved in earning the tax credit is going to be substantial. Someone is going to have to keep accurate records of the telecommuter's schedule, and then transpose them to the official state forms, and then keep track of the earned credits, and otherwise handle all the bureaucratic burden. So, the question is - given the promise of a $400 tax credit in exchange for two days of telecommuting each week, will employers be motivated to allow more telecommuting? I sort of doubt it. And I doubt even more that enough employers will allow enough incremental telecommuting to even begin producing the kinds of traffic and air quality benefits mentioned in the Committee statement. Even though employers will get a $400 tax credit (using the same example), it will cost them perhaps $3000 in initial capital expense and another $200 or more per month in phone bills to get that credit. The tax credit may be enough to push an undecided employer over the fence but I don't think it will lead to a vast increase in the New Jersey telecommuter count. If the tax credit were to double, however, then the scenario might change. An $800 tax credit per telecommuting employee gets close to that magic "thousand" threshold that always sounds much more than something with "hundred" attached to it. And, $800 pays for four months - a third of a year - of phone bills (using the $200 monthly cost). Those numbers may get more attention - but by the same token they would be problematic for the legislature. The draft legislation doesn't include any projected tax revenue effects, and a spokesman in Assemblyman Carroll's office told me that he expects the impact on taxes would probably be very low. "Our main objective is to help get some people off the roads," he said, "and to get them to become more environmentally aware. Even though it's a tax bill, we think of it more as an environmental issue." [You can read the full text of the bill by going to Assm. Carroll's site and going to the list of bills he sponsored, and then find Assembly Bill 2648, introduced in 1998.] California Bill Would Add Telecommuting to Anti-Pollution Efforts In a related development, there has been progress on a bill in the California State Senate. Senate Bill 826, introduced by Senator Byron Sher of Stanford, would amend the provisions of legislation that governs how a $4 per vehicle registration surcharge in the Bay area could be spent. It was referred back to the Senate Transportation Committee on April 5. [My thanks to David Fleming for bringing this legislation to my attention - Ed.]. The bill notes that "Existing law authorizes local air quality management districts to impose an annual vehicle registration fee surcharge of up to $4 to ensure that the districts have the necessary funds to carry out their responsibilities for implementing the California Clean Air Act of 1988. Revenues from the fees must be used solely to reduce air pollution from motor vehicles and for related planning, monitoring, enforcement and technical studies necessary for the implementation of the Act." Currently, the Bay Area Air Quality Management District (AQMD) is using the $4 fee to promote "ridesharing programs, purchase of clean fuel buses, traffic management and "smart streets", congestion pricing demonstration programs, automobile buy-back and scrappage programs, bicycle facility improvement projects and others." This fee generates approximately $20.6 million annually within the Bay Area AQMD - not a trivial amount. According to the latest revision, this bill would: 1. Authorize expenditures for zero emission vehicle programs (low emission vehicle program already are authorized); 2. Authorize expenditures for telecommuting activities; 3. Repeal the January 1, 2000 sunset date on the authorization for bicycle facility improvement projects, allowing the program to continue indefinitely. 4. Authorize expenditures for an incentive program to encourage local governments to adopt "smart growth" strategies. [You can read the full text of the bill as well as a legislative analysis by searching for Senate Bill 826 at .] I don't know the actual breakdown of how this $20.6 million is spent, but I suspect most of it goes to traditional pollution- and trip-reduction programs. The two additions - telecommuting and "smart growth" promotion - are likely to cause quite a stir, especially if either of them crosses the line from information or advocacy to mandate. This surcharge fund - which implies there are roughly 5.15 million vehicles registered in the Bay area, an astounding number - should be self-limiting but probably won't be. If the efforts that are funded are working, the number of registered vehicles should drop, and the fund would drop. If that happens, the awareness of the need to cut travel and pollution might also drop, causing a return to higher vehicle registrations, higher pollution, and a larger surcharge fund - thus starting the cycle all over again. CONTACT: Assm. Michael Carroll (973) 539-8113 www.njleg.state.nj.us/html98/carroll.htm asm.mpcarroll@worldnet.att.net Len Cohen (973) 597-9300 Sen. Byron Sher (916) 445-6747 Senator.Sher@sen.ca.gov www.sen.ca.gov/sher/