Do you have a delinquency issue with contractors The answer is just about all of us have an issue with contractors no matter how organized and on top of things you try to stay We categorize contractors into 2 types ID: 726724
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Slide1
Contractor complianceSlide2
Do you have a delinquency issue with contractors?Slide3
Do you have a delinquency issue with contractors?
The answer is just about all of us have an issue with contractors, no matter how organized and on top of things you try to stay. Slide4
We
categorize contractors into 2 typesSlide5
We categorize contractors into 2 types
Type # 1
Contractors that come in and out without a set schedule to perform smaller jobs.Slide6
We categorize contractors into 2 types
Handymen
Deck Contractors
Cement Contractors (driveways/patios)
Window Contractors
Roofers (residential)
Plumbers (leaky pipe/toilet install)
Electricians
Landscapers
Type # 1
Contractors that come in and out without a set schedule to perform smaller jobs.Slide7
Handymen
Deck Contractors
Cement Contractors (driveways/patios)
Window Contractors
Roofers (residential)
Plumbers (leaky pipe/toilet install)
Electricians
Landscapers
Type # 1
Contractors that come in and out without a set schedule to perform smaller jobs.
These represent the vast majority of contracted work over the course of the year. However, they bring in the fewest $$$.Slide8
Type #
2
Contractors that bid out larger commercial construction projects.Slide9
New school
New shopping development
Road reconstruction
Bridge renovation
Building renovation
Type #
2
Contractors that bid out larger commercial construction projects.
Each one of these projects are going to have a lengthy list of sub-contractors. These are where you are going to get the most bang for your buck in terms of compliance effort, as most contractors are on these jobs for longer than 20 days.Slide10
How Big is the Problem???Slide11
$2,300,000
$51,000
$14,915
-$36,085
Only 29% of withholding tax was actually paid!!!
Example of an Actual Construction Project
Total wages subject to withholding tax
Collectible withholding dollars
Actual withholding dollars collected
Difference
$11.5M Student Housing ProjectSlide12
What Can I do about this?Slide13
What Can I do about this?
The answer is not going to come from a single person or source. You will need to establish a system of required information gathering from multiple sources. An organized plan of action will need to be implemented, as well as some other recommended enhancements to your current process. Slide14
Recommendation #1: Establish a Required Procedure for All ContractorsSlide15
Recommendation #1: Establish a Required Procedure for All Contractors
In order for a contractor to receive a permit, we suggest establishing a requirement to fully register to pay taxes. This at least gets them into the system and documented that they are performing work within a specific timeframe, creating a filing requirement. The permit should not be issued until this step is completed.
Require them to complete a permit application for every job they perform within your municipality. Once again, they should not receive a permit until completed in full.
If you are a member of a 3
rd
party administrator, establish a procedure with them in which the permit applications and registration forms are submitted to them on a monthly basis. Discuss an action plan that is agreeable to both you and the
administrator in
which the information is entered into the system and run through a compliance process. Slide16
Recommendation #2: Evaluate the Information You are Requesting on Your Registration and Permit Applications
The action that can be taken is only as good as the information that is received. Consider making some changes or revising these forms if necessary. Make sure you are not asking for things that don’t have any value, and add things that provide significant value. Slide17
Everyone asks for basic contact information, EINs, etc. However, consider adding the following…Slide18
Everyone asks for basic contact information, EINs, etc. However, consider adding the following…
Location and date of the job being performed
Being able to identify the specific job and when it was performed aids in communication efficiency and a faster conversion into tax dollars.
Brief summary of the work
Siding repair, HVAC install, etc.Slide19
Everyone asks for basic contact information, EINs, etc. However, consider adding the following…
Estimated days on the job
Days worked in City/Village year-to-date
This information allows us to determine if/when it is necessary to begin a compliance campaign for accounts that exceed 20 days worked for the year. Slide20
Business Return Items to Note
:
If the contractor knows the job will take more than 20 days, they need to withhold on all employees from day 1 of that job.
Just because a contractors total days on all permits exceed 20 days does not automatically mean they now have a withholding requirement going forward.
Unless the job qualifies as a work site location, the number days is tracked by employee
Small Employer RuleSlide21
Everyone asks for basic contact information, EINs, etc. However, consider adding the following…
Estimated Contract Amount
The amount of the contract is able to be plugged into a formula, which creates a projection of the anticipated withholding tax to be collected. This estimated amount has historically been accurate within a +/- 3% margin.
The benefit of having this information enables us to reasonably question a withholding shortage. The result is almost always…
Improperly coded employees
Lack of awareness of the existence of a local tax
Use of sub-contractorsSlide22
Estimated Contract Amount
The amount of the contract is able to be plugged into a formula, which creates a projection of the anticipated withholding tax to be collected. This estimated amount has historically been accurate within a +/- 3% margin.
The benefit of having this information enables us to reasonably question a withholding shortage. The reason for a shortage is almost always…
Improperly coded employees
Lack of awareness of the existence of a local tax
Use of sub-contractors
Generally, you can apply a formula to individual contracts or to the contract amounts of major construction projects to estimate the withholding revenue a given project will generate.
Example: $100M retail complex
(100,000,000 x 20%) x 2.00% tax rate = $400,000
+/-3% = $388,000 - $412,000Slide23
Business Return Items to Note:
The gross receipts from these contracts should appear in the numerator of the sales factor on schedule Y.
Additionally, keep in mind, that the gross receipts should be included on schedule Y even if they are classified as a small employer and no withholding was allocated to the job site muni.Slide24
Small Employer
Per
ORC 718.01 a small employer is defined as a business with less that $500,000 in gross
revenue.
This
matters when determining allocation for withholding dollars.Slide25
Everyone asks for basic contact information, EINs, etc. However, consider adding the following…
Did you use any sub-contractors? Yes/No
List all sub-contractors used:
Name and contact info
EIN / SS#
Contract amount
If you are relying on the initial list of sub-contractors provided by the general, you are only getting a small fraction of the tax dollars you are entitled to. This list will double, triple or even quadruple in size the deeper you dig into it. They are not voluntarily sending us this money. It needs to be identified and retrieved. Slide26
Did you use any sub-contractors? Yes/No
List all sub-contractors used:
Name and contact info
EIN / SS#
Contract amount
If you are relying on the initial list of sub-contractors provided by the general, you are only getting a small fraction of the tax dollars you are entitled to. This list will double, triple or quadruple in size the deeper you dig into it. They are not voluntarily sending us this money. It needs to be identified and retrieved.
For example, the original list provided to us by the general contractor of a new development had 49 companies. Our current list is 181 and expected to be somewhere near 250 upon completion. Slide27
Business Return
Item
to Note:
Sub
Contractors / Independent Contractors will not be included in the wage factor of Schedule Y because they are NOT employees of the company completing the permit / return.Slide28
I mentioned earlier that identifying project contractors and converting that information into collectable tax dollars requires a great deal of communication among several different sources. However, a simple checklist will help you in this effort…
Make your 3
rd
party administrator aware of the project or the work being performed.
Set-up a kickoff meeting or conference call amongst municipal representatives from the finance and building departments, as well as your 3
rd
party administrator if applicable.
Discuss the scope of the project, contract amount, start and expected completion dates, identify the general contractor, and determine whether periodic status updates will be necessary.Slide29
I mentioned earlier that identifying project contractors and converting that information into collectable tax dollars requires a great deal of communication among several different sources. However, a simple checklist will help you in this effort…
Contact the general contractor and explain your role in this process. Inform them of their filing requirements and request the complete list of all sub-contractors and contract amounts
.
Begin the compliance process by issuing a welcome notice to each sub-contractor advising them on what their filing requirements will be.
Begin tracking collections in an organized manner through Excel or similar program and take any necessary compliance-related action for non-filers. Slide30
I mentioned earlier that identifying project contractors and converting that information into collectable tax dollars requires a great deal of communication among several different sources. However, a simple checklist will help you in this effort…
If resources allow, go out and periodically visit the construction site. Make it obvious that you are there to check things out and that you will be monitoring the personnel presence on-site. Show up randomly or schedule a periodic walk-through with the general contractor. Either way, you will walk away with some valuable information and the number of compliance issues significantly decreases when you can provide that a municipal representative was a live witness to them physically working on the job.
Conduct a thorough analysis as the project enters its final phases and begin to uncover shortages that require further action. Slide31
conclusion