Tax proposal scares small contractors

Published: July 1, 2009
Tags: Matt’s Electric Inc., tax, Wisconsin Builders Association, Wisconsin Department of Workforce Development, withholding, worker misclassification

Paul Snyder
paul.snyder@dailyreporter.com

Matt’s Electric Inc. might shut down if the state chooses to withhold 2 percent of earnings generated by small and independent contractors.

“I can’t absorb that,” said Matt Feyuerherm, president of the small electrical contractor in Ellsworth. “I’m lucky I made it through last year. We pay enough already.”

But Feyuerherm might not have a choice if the final report of the Wisconsin Department of Workforce Development’s task force on worker misclassification retains the 2 percent recommendation.

DWD spokesman Dick Jones said the next step for the task force is to use its recommendations to draft a bill that targets worker misclassification in the state. By improperly classifying workers as independent, contractors can pay them any sum plus skirt payments for unemployment insurance and workers’ compensation.

But the state’s recently signed budget could alter the task force’s upcoming bill. Gov. Jim Doyle signed off on the task force recommendation for mandatory contractor registration, but he vetoed the task force’s withholding requirement, which was lowered from 2 percent to 1 percent during the budget process.

In his veto message, Doyle called the withholding “unduly burdensome” on employers and said the issue needs further study.

Brad Boycks, director of government and political affairs for the Wisconsin Builders Association, applauded the move, saying it would have added one more financial requirement on contractors already reeling in a sputtering economy.

But the issue is not dead as the task force ponders the 2 percent proposal, which could let the Wisconsin Department of Revenue monitor payments to those who violate worker classification requirements.

The chance to improve the monitoring process prompted state Rep. Cory Mason, D-Racine, to introduce the 1 percent provision during budget deliberations.

“It’s a nominal withholding amount,” Mason said. “We’re literally talking single digits — maybe $6 a week.”

It might sound nominal, Feyuerherm said, but it adds up quickly. He said his business averages about $600,000 per year, so a 1 percent withholding would mean his company would be out $6,000. If the task force recommendation of 2 percent makes it into a state bill, he said, he could be out $12,000.

To catch contractors that are not working fairly, Feyuerherm said, the DOR should monitor companies that gross millions of dollars annually but only submit a small number of 1099 forms per year.

“If there’s only one form for $50,000 or $60,000 (for a subcontractor),” he said, “then you know someone’s only getting their work off of one guy and avoiding paying taxes.”

Boycks said Doyle’s veto and reasoning might make a 2 percent provision more difficult to pursue in a standalone bill.

But if it does resurface, Feyuerherm said, small contractors could face too great a cost to continue doing business in Wisconsin.

“Why should we be footing the bill for people who don’t play by the rules when we do?” he asked.

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