State probes unpaid taxes by contractors

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by DAVID SCHECHTER

Bio | Email | Follow: @davidschechter

WFAA

Posted on July 16, 2011 at 12:34 AM

Updated Saturday, Jul 16 at 9:32 AM

DALLAS - Following a News 8 report about contractors who undercut competitors by avoiding payroll taxes, the state has launched an investigation, and leaders in both the Texas House and Senate are calling for hearings.

It’s a problem that’s estimated to shortchange the Texas unemployment fund by as much as $175 million a year, and in Texas there is no penalty for cheating.

The News 8 investigation revealed evidence of unpaid payroll taxes by a sub-contractor on the publicly-funded Mansfield Independent School District Performing Arts Center.
 
The next day, the project's general contractor, Thomas S. Byrne, said it was contacted by the Texas Workforce Commission, which collects unemployment tax for the state. Byrne said it will now require audits on all projects to ensure its subs follow the rules.

Records show the TWC exercises lax oversight over rampant employment problems in the construction industry.

"The Workforce Commission needs to operate in a more efficient manner, locate those who are not obeying the law and extracting the taxes from them,” said Bill Hammond, a former TWC commissioner and the executive director of the Texas Association of Business.

At issue in Mansfield is the rebar sub-contractor Macario Mireles and his company AB Rebar.

"No, I don't pay taxes," read a sworn deposition by Mireles about the Mansfield job. "I don't pay their taxes."

Meaning there was no payroll taxes, unemployment tax nor worker's compensation insurance to assist injured workers, all of which are required by the terms of the Mansfield contract and all government contracts.

How is that possible? Even though construction workers are generally told what to do and how to do it, Mireles and AB Rebar do not call them employees. He classifies them as "independent contractors." And, under the law, independent contractors are not subject to payroll taxes.

Competing rebar contractor Andy Anderson was underbid in Mansfield by Mireles and AB Rebar. When he first spoke to News 8, he stood alone. WFAA asked him why nobody wanted to talk about the problem.

"They're afraid to be blackballed in the industry,” he answered.

Now, he's getting support from his fellow building contractors.

"It is a cancer,” said John Hinson, of Marek Brothers Systems. "It's a cancer is what it is. It truly ruins the fabric of everything we do."

"To me, they're tax evaders,” said Paul Holden, of Facility Construction Services. "They're tax cheats, and they're putting us at a competitive disadvantage because we're playing by the rule book. We need a strong referee out there to say, 'You're playing by the rules, and you're not.'"

The referee is supposed to be the TWC.

Now, in response to News 8, Sen. John Carona, chairman of the Business and Commerce Committee, said he intends to hold hearings on state enforcement of worker misclassification. It's the same for Rep. Joe DesHotel in the House. He will call Anderson as a witness.

"I intend to visit with him and invite him to testify during the interim to help us develop the problem; help us to expose the issue,” DesHotel said.

In a state that claims to business friendly, critics say it only makes sense to level the playing field for businesses that play by the rules by paying their taxes.

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