New Jersey-2012-A3859-Introduced

An Act concerning reporting for State tax purposes of certain payments made to construction service providers, supplementing Title 54 of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. a. An entity that in the course of business makes a payment to a construction service provider of $600 or more in a tax year for performing construction services shall report the payment to the Director of the Division of Taxation in the Department of the Treasury and the construction service provider in a manner prescribed by the director.

b. The entity shall file the report with the director, and transmit a copy of the report to the construction service provider, on or before the last day of the first month following the tax year in which the payment was made. The report shall include:

(1) The entity's name, address, federal social security number or federal taxpayer identification number, or both numbers if the entity has both numbers, and business registration certificate number if the entity has that number;

(2) The construction service provider's name, address, federal social security number or federal taxpayer identification number, or both numbers if the entity has both numbers, and business registration certificate number if the entity has that number;

(3) The total amount the entity paid to the construction service provider in the tax year, including payments for services and for any materials and equipment that were transferred along with services; and

(4) Any other information that the director shall determine.

c. (1) An entity that fails to file a report as required pursuant to this section with the Director of the Division of Taxation, or that files an incomplete report, or knowingly files a false or misleading report, shall be liable for a penalty of $25 for each day of violation, not to exceed $50,000 for each report not timely and properly filed.

(2) An entity that is liable for a penalty under this subsection shall not be permitted to bid, or have a bid considered, on any public works contract until the penalty has been paid to the director in full.

(3) A contractor that has been found liable for a second violation of this subsection within a five-year period shall not be allowed to bid on any public works contract for one year from the date of the determination of the second violation.

d. As used in this section:

"Construction services" means the erection, excavation, installation, alteration, addition, modification, repair, improvement, demolition, destruction, dismantling or removal of all or part of a building, structure, dock, wharf, surface or subsurface construction on or attached to any real property;

"Construction service provider" means a general contractor or subcontractor that provides construction services regardless of whether the general contractor or subcontractor has a valid business registration with the Division of Revenue in the Department of the Treasury;

"Contractor" means an individual, firm, corporation, or other entity who, in the pursuit of an independent business undertakes to, or offers to undertake, or submits a bid to, construct, alter, repair, add to, subtract from, improve, develop, move, wreck, or demolish any building, highway, road, railroad, excavation or other structure, project, development, or improvement attached to real estate or to do any part thereof, including but not limited to, the installation of carpeting or other floor covering, the erection of scaffolding or other structures or works in connection therewith, the installation or repair of roofing or siding, performing tree removal services, or cabinet or similar installation; or, who, to do similar work upon his or her own property, employs members of more than one trade upon a single job or project or under a single building permit. "Contractor" includes a consultant acting as a general contractor. "Contractor" also includes an individual, firm, corporation, or other entity as defined in this section, whether or not validly registered as a business with the Division of Revenue or who are otherwise required to be registered or licensed by law, who offer to sell their property without occupying or using the structures, projects, developments, or improvements for more than one year from the date the structure, project, development, or improvement was substantially completed or abandoned;

"Entity" means a sole proprietor, partnership, corporation, limited liability company, trust, association, escrow agent, financial institution, government entity other than the federal government, and any other individual or group, engaged in a trade, occupation, enterprise, governmental function, or similar activity in this State, that regularly contracts for construction services;

"General contractor" means a contractor whose business operations require the use of more than one building trade or craft upon a single job or project or under a single building permit. "General contractor" includes but is not be limited to one who superintends, or consults on, in whole or in part, work falling within "contractor" as defined in this section;

"Payment" means a transfer of consideration, but does not include wages paid by the entity to an employee;

"Public works contract" means a contract to be performed for or on behalf of the State, a county, municipality or public school district or other political subdivision of the State, or an agency or authority created by any of the foregoing, for the construction, alteration or repair of a building or public work;

"Subcontractor" means a contractor whose operations do not fall within the definition of "general contractor," and only subcontracts work that is incidental to a general contractor's work; and

"Tax year" means the fiscal or calendar accounting year of a State taxpayer.

2. Notwithstanding the provisions of the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) to the contrary, the Director of the Division of Taxation may adopt immediately upon filing with the Office of Administrative Law such rules and regulations as the director determines to be necessary and appropriate to effectuate the purposes of P.L. , c. (C. ) (pending before the Legislature as this bill), which rules and regulations shall be effective for a period not to exceed 360 days following the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill) and may thereafter be amended, adopted, or readopted by the director in accordance with the requirements of P.L.1968, c.410 (C.52:14B-1 et seq.).

3. This act shall take effect immediately.

STATEMENT

This bill requires individuals and entities engaged in government functions or commercial enterprises that regularly engage in contracts for construction services, to report annually to the New Jersey Division of Taxation on nonwage payments of $600 or more that they make to construction services contractors. The bill applies to payments made to general contractors and subcontractors whether or not validly registered to do business in this State, incorporated and unincorporated entities, and to payers who regularly contract for construction services. The bill will apply to payments for construction services and to payments for combined construction goods and services.

Certain unscrupulous construction services providers may engage in payroll fraud and tax avoidance as part of their efforts to underbid and take construction work from honest businesses. These contractors may use subcontractors that break the law by paying their workers off the books and evading payments on State and federal employment taxes, income taxes, and workers' compensation premiums. These schemes are enabled because there is no State law that tracks payments from one construction business to an incorporated construction subcontractor. That allows the subcontractor to report whatever amount they want, or nothing at all, to State taxing authorities. Federal Form 1099 Miscellaneous reporting is only required on the federal level if the subcontractor, or service provider, is unincorporated. The $600 payment threshold is the same as is required for filing of federal Form 1099 Miscellaneous.

This bill is intended to close that loophole on the State level by requiring reporting of payments from one construction business or regular construction service purchaser to another construction business, either as a general contractor or subcontractor, whether or not they are incorporated, and whether or not they comply with State business registration requirements. This annual payment information reporting will allow the State Division of Taxation to track payments to make sure that the construction business receiving payment is paying all of its appropriate State taxes. The reporting by the payers on construction services contracts will encourage proper declaration of income and payment of taxes.