Akron is sending a message to out-of-town contractors: if your workers dodge the city’s income taxes, you will pay.
Akron Mayor Dan Horrigan, council President Marilyn Keith and councilman Jeff Fusco are proposing a change in how building projects are permitted. The goal is to “close a loophole” they say some contractors use to avoid responsibility for their employees, who must pay income taxes while working in the city.
Before contractors begin work, they must pull a permit with the county. The new city law would require the contractor to then forward the permit to the city tax commissioner and attach a list of the names of the companies that will be working on the project and how many people are expected to be working on average.
City tax enforcers could then count construction workers and check company names on the side of work vans. If the names and numbers are off, the tax auditors know where to apply scrutiny during tax season.
The plan, its advocates said, would level the playing field between local companies that follow the rules and traveling outfits that underbid jobs knowing that certain income taxes can be illegally avoided with little fear of getting caught.
“There’s something of a subculture, especially when a contractor travels a far distance to work in the city. Some contractors aren’t aboveboard,” said Mark Douglas, president of the Tri-County Building & Construction Trades Council, a union advocacy group serving Summit, Portage and Medina counties.
Douglas was a member of the Horrigan’s Blue Ribbon Task Force, which recommended closing “the loophole” in February in a list of good government initiatives that the new mayor has followed.
An electrician by trade, Douglas said out-of-state contractors can bring their own help or hire sub-contractors to perform certain aspects of a larger project. When the job is done and workers file their taxes the next year, they sometimes neglect to include that they worked in Akron for a couple weeks or months, during which time they are subject to the city’s 2.25 percent income tax.
The city couldn’t identify examples of workers who have dodged the city income tax.
“Right now, our understanding of the breadth of the problem is primarily based on anecdotal information,” said Ellen Lander Nischt, assistant law director. “If we knew exactly when and how specific contractors were violating the law, we would pursue collections against them.
“The amount of lost revenue is also difficult to quantify because, again, we don’t know what we don’t know,” Nischt continued. “Our estimate, based in part on the Blue Ribbon Panel’s report, is that the number is not insignificant.”
Fusco asked colleagues to recall a hail storm that ripped through Akron a few years ago. Out-of-town contractors seeking to replace siding, roofs and windows flooded the county’s permit office.
Whether everyone paid their fair share of city income tax the next spring may never be known because the current system lacks details that would allow for real-time monitoring during construction.
“It’s not about what we know. It’s about what we don’t know,” Fusco said.
Akron’s new law, if passed Monday by council, would go into effect in February. After that, permit pullers with workers who are caught dodging the city’s income taxes will pay a $5,000 fine. Homeowners who perform their own improvements or repairs would be exempt.
Councilman Russell Neal Jr., said “the reality” of the situation may be that a homeowner pulls a permit and asks “a cousin or a neighbor or someone from church” to perform the work. In that case, legal counsel advised, the homeowner who pulled the permit could be fined if the worker is paid but fails to claim the work on his or her taxes.
Doug Livingston can be reached at 330-996-3792 or dlivingston@thebeaconjournal.com. Follow on Twitter: @ABJDoug .