Unlicensed Contractors?

California CPA magazine: September 2008

TaxTalk Highlights and Other Issues

TaxTalk members recently bandied about whether or not unlicensed contractors doing work for homeowners should be classified as employees. The brief answer? Probably not, for the following reasons:

California Unemployment Insurance Code Sec. 640 states the “employment” of casual labor does not include services not in the course of the employing unit’s (i.e. the homeowner’s) trade or business in any calendar quarter by an employee, unless such service is performed by the worker for 24 or more days during either the current or the preceding calendar quarter.

A property owner typically is not required to have a contractor’s license, so the workers may not be statutory employees under CUIC Secs. 621.5 and 13004.5, unlike workers for construction companies.

For more information, see Information Sheets DE231, “Employment” and DE231G, “Construction Industry” at www.edd.ca.gov/Payroll_Taxes/Forms_and_Publications.htm.

EDD Website Redesigned
With the EDD’s new online look, www.edd.ca.gov, agency officials advise users that their previously bookmarked pages may need to be updated.

E-filing of Sales Tax Returns
The California Board of Equalization announced June 27 that it will transition most businesses that file sales tax return by mail to e-filing over the next two years. The BOE has its own free e-file system. There also are two fee-based vendors that will transmit e-filed return to the BOE.

So far, the BOE has not announced whether or not there will be a penalty for non-compliance. Taxpayers are receiving letters indicating that they will no longer receive paper sales tax returns in the mail and, thus, will be expected to e-file. Taxpayers who do not wish to e-file sales tax forms must file Form BOE-245-OYE to request a one-year e-filing exemption.

Innocent Spouse Relief
The U.S. 9th Circuit Court of Appeals upheld the Tax Court in denying an innocent spouse a refund of payments made from community property for the husband’s understatements (Ordlock v. Commissioner, filed 7/24/08; Tax Court citation 126TC47).

Same-sex RDPs
There was an informative article on filing tax returns for registered domestic couples in the July issue of Spidell’s CA Tax Letter. The article observed that although California law is clear that an RDP couple must use the married-filing-jointly status for California purposes, there is no clear-cut answer for same-sex couples who marry in California, but are not RDPs.

Nevada Electing Small Business Trust
There are ads everywhere encouraging California residents to incorporate in Nevada to save taxes. Generally, that won’t work, since California residents are taxed on all income from whatever source, just like the IRS taxes people on all income from whatever source.

In these cases, the FTB will take the position that the “nominee trustees” are “agents” for any potential California beneficiaries. In addition, the FTB probably will attack these under the California Rev. & Tax Code’s tax shelter provisions, where the penalties can be quite severe. On top of that, the FTB could take the position that any CPA who encourages a client to enter into such an arrangement, or fails to warn the client of the shortcomings, is aiding and abetting the violation of provisions of the CA Rev. & Tax Code. A CPA’s errors and omissions carrier will likely have some concerns, as well.

This Isn’t Tax, But …
The State Compensation Insurance Fund is advising employers to adopt a cell phone usage policy before a work accident occurs. It recommends that the policy cover general use of cell phones for personal calls in the work place (for example, while on breaks only or for emergencies), and referencing the California law on hands-free cell phones while driving.

OT Premium in Addition to Holiday Premium
Where an employer agrees to pay an employee a premium rate of time and one-half for work on designated holidays, the employee was not entitled under Labor Code Sec. 510(a) to time and one-half of the premium holiday pay as overtime where the employee works more than eight hours in a day or 40 hours in a week. (Advanced-Tech Security Services, Inc., v. Superior Court (Roman), June 3, 2008, Second District, Div. Five.  Cite as 2008 SOS 3242.)

Thanks to the following CPAs  for their contributions to this column: Susan Bradley, Jim Counts, Roger Cruser, Kip Dellinger and Glen Hammill.

Leonard W. Williams, CPA is a Sunnyvale-based sole practitioner. A member of CalCPA’s Committee on Taxation, the AICPA Tax Division and a former Peninsula Chapter president, you can reach him at williams@lwwilliamscpa.com.