Now we have some tax legislation coming out of Washington that makes sense, thanks to Rep. James Himes (D-CT), which would make it easier for companies to employ telecommuters from out of state by removing the tax penalties these employees currently face.

The bill sponsored by Himes eliminates the so-called “convenience of the employer” rule that leads to double taxation on the employee’s wages. Under the current system, when an employee is telecommuting for a company in another state—say he lives in Illinois but the company he works for is in New York, both states with income taxes—both states are entitled to tax that telecommuter on 100% of his income derived from that job. There is no distinction between the income made during visits to the employer and that made strictly at home. It is all taxable by both states as long as the telecommuting is for the “convenience” of telecommuter (such as the “convenience” of having the job in the first place) and not due to a specific job requirement.

The Telecommuter Tax Fairness Act of 2009 changes that. As introduced, the bill prohibits a state from imposing an income tax on the compensation of a nonresident individual for any period in which such individual is not physically present in or working in such state or from deeming such nonresident individual to be present in or working in such state on the grounds that: (1) such individual is present at or working at home for convenience; or (2) such individual's work at home fails any convenience of the employer test or any similar test. (Summary written by the Congressional Research Service.)

In other words, unless the employee is there, within the borders of the state in which the work is being done, the state cannot tax that income. This means that our telecommuter in Illinois who works for that New York-based company would only be liable for New York income taxes when he has to come into to work at the New York corporate office. As long as he is in Illinois, he is only subject to Illinois income taxes.

This is important legislation and should be supported by the small business community. After all, telecommuting is constantly growing as it offers a lot of advantages for both employer and employee including:

• Improved Productivity . People who work from home tend to work longer hours as they no longer face long commutes and have fewer interruptions. Also, they are more likely to work a few hours on weekends and in the evening simply because there is work to be done. This is great for salaried employees but can add up to hefty overtime for hourly employees so that needs to be watched carefully.

• Personnel Retention . Life changes like pregnancy or having to go with a spouse who was transferred to another city or state can force valuable employees to resign. Allowing them to telecommute means you won’t lose their talent even when life intervenes.

• Reduced Office Overhead . With workers working from home, you don’t need the kind of office space you otherwise would need. This translates into lower costs for you, the employer.

• Reduced Absenteeism. Who has not had to take a day off to care for a sick child or handle some necessary personal business? There is no reason to lose that workday, however, when you permit telecommuting, which offers employees flexibility that improves their work-life balance while also keeping up their productivity.

• A Wider Pool of Recruits . Geography is no longer a limiting factor when it comes to recruitment and workers with special needs, such as those with disabilities or chronic illnesses who are not comfortable in a traditional, can be considered, thus giving employer the broadest talent pool possible from which to recruit.

• Stronger Continuity Plans . Business continuity planning relies heavily on telecommuting. More and more we see the necessity to plan for emergencies such as pandemics, terrorist attacks or natural disasters and telecommuting, with its decentralized structure, is a perfect way to remain up and running when coming into the office is difficult or impossible.

Yet with all these advantages, many will not—or can not—participate and take advantage of them due to the unjust double-taxation that this legislation seeks to eliminate. This legislation, which is currently before the House Judiciary Committee, is a real step toward having the nation’s policies answer the real needs of business and it should be supported by business owners everywhere.