In the last 18 months, more than $1.5 billion of Oklahoma taxpayer’s money has been spent to build new schools projects and other public facilities in the state. As much as 70 percent of the subcontracts for the new public school projects have gone to out-of-state companies, many of whom employ out-of-state workers. At the same time many local construction businesses have lost as much as 60 percent or more of their normal work and their former workers are on the unemployment rolls. A majority of these out-of-state subcontractors have failed to register with the Oklahoma agencies responsible for collecting the income and unemployment taxes required of all local companies doing business in the state. By these out-of-state subcontractors not paying Oklahoma taxes (including employment, sales, use and property taxes) and failing to comply with Oklahoma statutes, it has created an unfair advantage for out-of-state subcontractors and a loss of tax revenue to the state of Oklahoma as well as a loss of revenue and employment opportunities for Oklahoma companies and workers. Since the magnitude is so great, it is difficult to calculate the total impact on the Oklahoma economy but these lost projects, jobs and revenues have certainly cost the state and its citizens more than just the lost taxes from the construction projects themselves.
State law requires all non-resident companies to register with the Oklahoma Tax Commission and the Oklahoma Employment Security Commission and post a bond to assure that all state taxes are or will be paid. This is not happening today, primarily because there is no current way for the state to know these out-of-state companies are even operating in the state, particularly when they chose not to or fail to register with the Tax Commission as Oklahoma-based businesses do.
When public works projects are manned by out-of-state workers the revenue intended to circulate through the state’s economy is being sent to other states and in some cases other countries. This is why many surrounding states have systems in place to monitor and control companies contracting in their states.
Oklahoma needs a way to monitor the compliance of all contracting firms with the current laws and regulations of the state of Oklahoma. Amendments are needed to current law that would make the monitoring of compliance with Oklahoma laws and regulations much easier and places a portion of the burden of enforcement on the subcontractors and prime contractors themselves.
A key to monitoring the compliance of out-of-state subcontractors with Oklahoma laws and regulations is to ensure that every out-of-state subcontractor is registered with the appropriate state agencies, and if they are a licensed trade, licensed by the appropriate state agencies, prior to bidding on a public or private project. Such is accomplished by requiring some type or form of statewide registration which requires all subcontractors, in-state and out-of-state, to obtain a registration or license number that must be placed on all bid documents in order for the bid to be valid.
Technically this would be simple to establish, could be done without revealing confidential information, and would not be burdensome on the prime or sub contractor. It would reflect that a subcontractor has filed the proper documents required to do business in the state of Oklahoma. It would further show that any licensed trade requirements or bonding requirements have been met as well.
This reporting system alone would not be able to ascertain that payrolls are reported properly as that would still be up to the audits by the various agencies in Oklahoma charged with enforcement of the tax and employment laws. To assist with such compliance, at the conclusion of the building project, the general contractor should be required to submit a confidential one or two page document to the Tax Commission (preferably electronically) reflecting how much they have paid their major subs for labor and materials. The Tax Commission could then use this information to verify that the proper amounts have been reported and paid monthly during the course of the construction project.
This type of approach will give the contracting agencies, businesses and general contractors more assurance that the companies they have entered into a construction contract with are in compliance with state laws and regulations, and therefore a safer risk. Additionally it would enhance the state’s ability to collect taxes due to the state.
State officials and elected representatives must enact a corporate compliance program in Oklahoma and ensure that all of the affected agencies will have the statutory directive and funds to implement this plan immediately. Any cost incurred will be returned to the state many times over in increased tax revenue from both the construction project itself and economic growth from the Oklahoma businesses performing the labor and providing the materials on the project who are today losing these bids to out-of-state contractors due largely to the out-of-state subcontractors’ noncompliance with state laws and regulations. With this change, Oklahoma companies will retain more of the dollars spent by our state and local institutions and this in turn can be retained and spent by our own citizens in our local communities. These proposed changes in state law will be the least burdensome method on both the public and private sector to ensure that all contractors and suppliers are operating on a level playing field in Oklahoma and that all appropriate taxes are being collected at both the state and local level.
