Report - Building companies failing to withhold taxes

JEFFERSON CITY, Mo. -- Many out-of-state construction companies aren't making their workers pay enough income taxes to Missouri, the state Revenue Department said Wednesday.

The department said a task force found that some contractors and subcontractors not based in Missouri don't properly withhold taxes from their employees for work done in Missouri. The task force report said that by the time the state realizes this, the company and its employees have left the state, and there's little that can be done to collect those taxes owed.

The department said the practice leaves Missouri-based companies at a disadvantage.

Nonresidents who earn at least $600 a year in Missouri are supposed to pay state income taxes.

The task force recommended some changes in state law that would help the state collect that money.

Among them is a potential requirement for businesses that use out-of-state subcontractors to withhold 2 percent of payments to ensure enough taxes are collected. A similar arrangement already is law for out-of-state athletes and entertainers who perform in Missouri.

That change in law, the study said, also would help solve the problem of non-Missouri residents calling themselves independent contractors rather than employees. When that happens, the company they contract with does not fall under the "transient employer" law, and "any tax due is essentially uncollectable," according to the task force report which suggested "this scenario is occurring frequently in the industry."

The task force also suggested adding more state employees to enforce the tax collection laws for out-of-state companies.

"These efforts should help to increase compliance, level the playing field for Missouri contractors, and increase jobs for Missouri workers in the construction trades," Revenue Director Carol Fischer said.

Department spokeswoman Jessica Robinson said the agency already has simplified the process for going after companies that aren't withholding income taxes. In the past, if the department heard of a problem, it sent the company a letter and referred the case to the Internal Revenue Service. Then, after an audit, the state assessed the company or individual for taxes owed, if they could be found.

Now, through a pilot project under way in St. Louis, the department is going straight to the work site when it gets a tip to investigate whether a company is complying with tax laws. The process could be used statewide later.

The department also shortened its paper trail to speed the process of pursuing a court order to halt work on a project if a company is not holding back taxes as it should, she said.

The study found that of 1,600 known out-of-state employers who do work in Missouri, about 600 have fulfilled all state registration requirements, including posting a bond and showing proof of worker's compensation and unemployment insurance.

The study said that without adding state employees and increasing training, there's no way to spend time tracking down out-of-state employers who have not registered with the state.

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On the Net:

Revenue Department: http://www.dor.mo.gov