Contractors slash bids by avoiding taxes, state lacks enforcement

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by DAVID SCHECTER

WFAA

Posted on July 12, 2011 at 11:49 PM

MANSFIELD - When the Mansfield Independent School District decided to spend $39 million on the Center for Performing Arts it went looking for the lowest bidders to do the work.

For rebar, the district hired Macario Mireles and his company called AB Rebar. 

The question is how did Mireles come in with the lowest bid? Perhaps, because he did not pay payroll taxes his bid was the lowest.

In a sworn deposition about the Mansfield job Mireles was asked: "Do you pay-do you withhold taxes?" His reply: "No, I don't pay taxes. I don't pay their taxes."

No payroll taxes, no unemployment tax, and no worker's compensation insurance to assist injured workers. All of them required by the terms of the Mansfield contract and all government contracts.

It is possible because even though construction workers are generally told what to do and how to do it, Mireles and AB Rebar do not call the workers "employees". He classifies them "independent contractors."   

Under the law, independent contractors are not subject to payroll taxes.

A News 8 investigation found state and local governments ignoring construction companies who undercut competitors by not paying by state and federal payroll taxes on some workers. 

It costs the state as much as $175 million a year. 

There is no state penalty for breaking the law and legitimate business owners say that is driving them out of business.

Business owners like Andy Anderson, who owns a rebar company called Linden Steel said this is not fair.

"The only way I can compete is get on the same playing field as those guys," said Anderson.

Anderson lost the Mansfield bid to AB Rebar.

While Anderson prides himself on being cheap, he said he can never be as cheap as AB Rebar because he pays payroll taxes. .

"There's just no way is the bona fide contractor going to be able to compete with these guys," Anderson said.

Anderson shared his documentation about the misclassified with the Mansfield's School Board. He thought they would be concerned about possible violations of its own strict contract requirements. But when the district wrote back, it said "good cause does not exist to believe AB Rebar violated the law."

Despite open records requests by News 8, the District has provided no documentation as to why.

"Let me just say it this way, I just want to spit. Just spit. Mansfield's not worth my spit right now," Anderson said.

When Mansfield declined to comment News 8 approached Board President Sandra Vatthauer after a regularly scheduled meeting.

"We have very strict guidelines that we have put forth to our contractors," said Vatthauer. "We do due diligence to make sure that we are maintaining the standards we would like to see."

News 8 asked Vatthauer if she was confident all payroll taxes were being paid on the district’s project.

"When they are not followed we will take action," she responded.

AB Rebar is a symbol of a larger problem in the construction industry and News 8 found the Texas Workforce Commission is doing little to crack down. 

The TWC is charged with enforcing the law by auditing companies in problem industries. Construction is certainly a problem. The University of Texas estimates a staggering 1-in-3 workers is misclassified, a huge loss to state unemployment fund.

But what industries does the TWC audit most? News 8 found:

  •    Dentists, 88% more than construction
  •    Lawyers 80% more
  •    Doctors %68 more

Texas does not penalize companies who break the law. 

Though, in November, TWC Commissioner Ronny Congeleton tried to change that. He voted for a resolution asking the legislature to impose penalties. Fellow commissioners Andres Alcantar and Tom Pauken voted him down.    

Lisa Givens is the TWC's spokesperson. She said it investigates all complaints, offers education for employers, and use a complex formula to prioritize industries with the highest likelihood of a problem.

"A lot of the employers in Texas are small businesses. If there was a penalty that was excessive it could put them out of business," said Givens.

News 8 asked if companies that cheat should be penalized.

"Well I believe our auditing practice function so that eventually they will," Givens said.

Anderson said, if and when the State catches up, the damage is done. He wants the stronger enforcement of the law.        

"For the very fabric of how this country was built on laws. We just need to do the right thing," he said.        

But, if government entities, like Mansfield Schools and the Texas Workforce Commission cannot or will not level the playing field for legitimate contractors, Anderson said it won't be long before those contractors are gone.

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