Legislative Happenings - 05/28/18
Interim Meeting on Payroll Fraud and Peer-to-Peer Vehicle Rentals
The interim legislative session started up again on May 16. All the respective committees met to discuss what study items they wanted to focus on for the 2019 Legislative Session that starts up in January. For the next six months, the committees will be meeting once a month to focus on specific issues. The Business and Labor subcommittee focused on what seems to be an epidemic of payroll fraud and the emerging market of peer-to-peer vehicle leasing. What follows are my notes from the meeting:
Business and Labor Committee Long-Term Planning:
The Labor Commission requested that the Business and Labor Interim committee consider as a study item an appeal right for complainants with regards to fair housing.
Interim Planning and Study Item Approval:
Amusement park and trampoline facility safety inspections and liability study items were added.
The study item requested by the Labor Commission to study a method to provide the right of appeal of a complainant of housing discrimination was added to the study plan.
The study items were adopted as amended
The committee voted to allow the committee chairs to open committee bill files for any items in the approved study.
Payroll Tax Fraud Study Item
Matthew Capece, Representative of the General President, United Brotherhood of Carpenters and Joiners of America, testified that he is seeing Worker’s Compensation avoidance fraud in the construction industry. He stated that they are seeing organized criminal conduct to provide tax free labor via mis-classification of labor as 1099 workers. Two out of three workers are paid completely off the books via the use of subcontract labor brokers. He stated that upper tier contractors need to be accountable and is costing insurers $1.3 billion. Mr. Capece suggested that the legislature provide oversight of institutions enforcing laws to make sure they have the tools they need to enforce the law and that upper tier contractor liability is needed.
Patrick Bieker, Lead Representative, Southwest Regional Council of Carpenters, testified that labor brokers are controlling the workers. The Sandy Tower project had 10 labor brokers for over 100 men on the project. No taxes were taken out of worker’s pay. CSI routed the workers through NGF. Mr. Bieker has sign-in sheets of who reported to which labor broker. He also testified that workers were being paid in Lowes parking lot every Friday. He also mentioned that Geico ordered to pay $650,000 in labor law violations.
Greg Letey and Mike Scala, General Manager, DAW Construction Group, LLC, testified that their organization focuses on people being trained and taken care of. They stated that violations are normal and prevalent with the industry. DAW Construction is doing everything they can to be in full compliance. yet payroll fraud affects construction estimates. Bids that DAW don’t get boil down to payroll taxes, worker’s compensation, and overtime. DAW provides health insurance and retirement, to employees. Payroll fraud bypasses garnishments and child support. DAW believes that there needs to be more enforcement of the existing laws.
Barry C. Conover, Executive Director, State Tax Commission, testified that payroll fraud is a problem for state tax administrators and the IRS. The State Tax Commission has good contacts with the Department of Labor and the Department of Workforce Services to verify when companies are withholding taxes. If it is found companies are not paying withholding taxes, then an audit is performed, and if violations are found, they are shared with IRS. Mr. Conover recommends that in addition to enforcement, taking a look at fuel tax as an example for pushing accountability for compensation and tax withholding up the chain of employers.
Scott Johnson, Criminal Investigation Division, Internal Revenue Service, testified that the Internal Revenue Service sees a lot of filing of false payroll returns. Contractors will use labor brokers for a limited number of employees and hire hundreds of workers without taxes being taken out of paychecks. The IRS investigated 162 cases, resulting in 77 sentences nationwide. There’s very little that general contractors are asked to verify, as in the number of individuals covered by the insurance policies. Mr. Johnson recommends verification of deposits and coverage is afforded.
Chris Hill, Deputy Commissioner, Labor Commission, testified that the Labor Commission continues to see issues with workers compensation and workers compensation coverage. They receive complaints from the public and other businesses.
Brendan Call, Section Chief, Office of the Attorney General, testified that payroll fraud is very blatant. Not just construction, but other businesses are engaging in payroll fraud. Cash transactions are being separated from credit card transactions for payment under the table. It is not uncommon to tell people when their social security check fails to come back with a new identity. People are paying no taxes, and employers have a competitive advantage. Mr. Call says that the law needs to take down the business owners engaged who are accessories to the fraud.
Peer-to-Peer Rentals: Vehicle Rentals
Lou Bertuca, Senior Manager Government Relations, Turo, testified that Turo is a personal vehicle sharing platform located in San Francisco. Turo connects car owners with neighbors who need a car. A driver has access to a different mode of transit. The vehicle owner is protected by Turo and their underlying insurance in never touched. Liberty Mutual partners with Turo, providing a separate agreement with the owner that says that if anything happens to their car that Turo will cover the damage up to and including the replacement cost of the car and repair. Turo states that is not a rental car company. Turo does not own any cars at all. Hosts are able to list their cars on the platform to share their car. People pay sales tax when they purchase a car, which is about 7% in Utah. Rental car companies do not pay sales tax. The State of Utah recognizes this as different for rental car companies and for somebody who is a host on the Turo's site. Turo offers a myriad of protections. For example, a rental car company is not liable if someone crashes a car into city hall. Turo is liable for vicarious liabilities, including the one just mentioned. Mr. Bertuca noted that the price of car ownership has gone through the roof in certain cities. Turo would love to grow in the state of Utah with possible regulatory frameworks that work for Utah. Mr. Bertuca reiterated that there are no gaps in Turo’s coverage.
Mike Taylor, Vice President, Budget Rent a Car; President, Car and Truck Rental and Leasing Association, believes that the car rental industry is overtaxed and feed. Mr Taylor stated that as taxes and fees increase, rates have to decrease, because demand rate remains constant. He is concerned about giving Turo a 20-30% advantage. Mr. Turo added that sales taxes collected at point of sale would be lower than the revenue that is lost via a tourist tax. Mr Taylor plead with the committee to not create a protected class for a competitor in the car rental industry, asking to be treated the same, however that might be.
Jesse Hubbard, President, Rugged Rental and Sales, testified that as a car rental company five miles away from the airport, Rugged Rental is required to pay all taxes as other companies at the airport like sales tax, tourism tax, and the 10% airport tax. Mr. Hubbard believes that many customers are considering going to other states because car rentals are getting too expensive in Utah. He would like some of the taxes taken away like the 9 ½% tourism tax and the airport tax, especially if the rental company does not collocate at the airport. Mr. Hubbard was under the impression that Toro was selling additional insurance if you want to buy a higher level of coverage, stating that it is required in Utah to have a license to order to sell insurance. He stated that tourism is Utah is one of our best industries. Mr. Hubbard would have Toro pay the same taxes any other company would pay and is asking for a level playing field for all car rental companies.
Howard Headlee, President and Chief Executive Officer, Utah Bankers Association, testified that when banks make loans against assets, they need to make sure the assets which are used as collateral are protected. When the assets are deployed with alternative usages than those which existed at time of purchase, the new risks need to be adequately insured in order to protect the consumers. He also stated that lien holders need to be informed as to use of asset so that the consumers can better protect their assets.
- Eric Erikson, Vice President and Chief Operating Officer, Bear River Mutual Insurance Company, testified that there the two types of property and casual are either exclusively personal or commercial policies. The activity of listing a vehicle on a peer-to-peer site would be considered business-related activities; therefore, a claim affecting business use can adversely affect insurance intended for personal use. Peer-to-peer customers should be notified that there is would be no coverage by their personal insurance in that instance.
The next interim meeting is scheduled for June 20 at 1:15 pm in the Utah Senate Building. The meeting schedule and transcripts are available at http://le.utah.gov
Always in Service,
Sophia Hawes-Tingey is the Legislative Liaison for the Utah Gay and Lesbian Chamber of Commerce, the Co-Chair of the Business and Labor Committee of the Women’s State Legislative Council of Utah, Chair of the Board of Directors for the Transgender Inclusion Project, member of the Board of Directors for the Utah Stonewall Democrats, the Vice Chair of the Community Council of Midvale, and co-founder of People Empowered, LLC. You can visit Sophia’s webpage at http://www.sophiahawes.com or follow her on Facebook and Twitter.