Independent Contractor Compliance Blog - by Collabrus™

From California to New York, lawmakers are placing more importance on collecting every tax dollar due under existing laws in order to decrease deficits.

SACRAMENTO, CA - The Sacramento Bee reported in a single edition (July 10, 2009):

• The state’s revenue deficit is becoming more and more serious causing state offices to close their doors three days per month
• The governor adds a third day to state employee “furloughs”
• The legislators can not come to an agreement on “the $26.3 billion hole in the spending plan.”
• The governor states there is wasteful spending in the government, but his critics charge he doesn’t provide any details where they can cut
• Chase, Bank of America, Wells Fargo and Citigroup banks have stopped honoring the state’s IOU’s, causing the state’s situation to worsen
• Californians currently pay over 10.5% of their total income to the state in various states tax programs and government fees for services (Some estimates go as high as 15%), but legislators want to add more tax and fees for government services

In response, California is increasing its enforcements efforts

The governor has appointed a commission to review and recommend an overhaul of California’s tax system-we’re still awaiting their report.

During these tough economic times EDD is receiving higher federal funding to enforce employment tax laws.

California’s Department of Industrial Relations current website boasts of its creation of the Economic and Employment Enforcement Coalition (EEEC). The website states, “The EEEC is a partnership of state and federal agencies…conducting vigorous and targeted enforcement against labor law violators; and helping to level the playing field and restore the competitive advantage to law-abiding businesses and their employees…California needs stronger enforcement of the current labor laws.”

Some California lawmakers are proposing we replace sales tax with a value added tax (I read that to mean if you added value to something, it’s taxed).

It’s not just California

Across the nation every state and federal revenue agency is ramping up their enforcement efforts to bring in more tax revenue. For example in New York State lawmakers have formed a “Task Force” modeled after one in California’s. They combine every tax and labor law enforcement agency, with authority, to identify and pursue businesses underreporting or misclassifying their workers.

The New York “Task Force”, which was just created in September 2007, already boasts it has prosecuted employers for:

• Misclassifying 12, 300 employees as independent contractors
• Discovered $157 million in unreported wagesHas assessed an additional $5 million in unemployment insurance taxes
• Fined companies over $1 million in UI penalties
• Fine an additional $1.1 million for workman’s comp penalties

The IRS is adding 4500 new agents to close the Tax Gap

In May 2009, IRS Commissioner, Douglas Shulman, told Congress he is placing more importance on greater enforcement as a method of closing the “tax gap.” He stated he will use the increased IRS funding he received this year to hire 4,500 new revenue agents for that purpose.

It’s not too late

Don’t wait for the government to knock on your door then decide, “We better get our house in order.” It’s too late then…