Inside This Edition: Appeals Court Sanctions
Annualization Regulation, Tax Cuts Offer Some New Breaks For
Business, President’s Message, Statute
Of Limitations Does Not Apply To Abatement Malpractice Action, State Insurance Commissioner Rejects W.C. Rate Hike, OSHA Adopts New Five Year Strategic Plan, Calendar
Of Events
APPEALS COURT SANCTIONS ANNUALIZATION REGULATION (Go Top)
The
U.S. Court of Appeals for the Second Circuit has found that the New York State
Department of Labor’s “annualization” requirement for prevailing wage
supplements is not preempted by the National Labor Relations Act, thereby
allowing DOL to continue enforcement of the controversial annualization
regulation. In ruling on the
annualization issue, the Court of Appeals reversed a July 8, 2002 decision by
the U.S. District Court for the Southern District of NY in Roundout Electric, Inc. v.
New York State Department of Labor, et al.
The
annualization controversy first surfaced in April 1999, when the Department of
Labor promulgated a “Notice” to contractors stating that DOL would not allow
credit for prevailing wage supplement payments used “to obtain benefits for
individuals other than those on whose behalf the payments were made,” nor for
payments used “to obtain benefits for a period of time during which the worker
was engaged on a private project.” In
other words, DOL stated that benefits may not be “pooled” and that they must be
“annualized”. DOL annualizes the
benefits provided by a contractor by dividing the actual contribution or cost
of providing such supplement by the total hours worked on both public and
private projects in order to determine the amount of credit a contractor will
receive toward meeting his prevailing supplement obligation.
In
reversing the lower court, the Court of Appeals rejected Roundout’s argument
that the annualization regulation, in effect, injects the State improperly into
the labor-management bargaining process by dictating employee supplements that
the employer must pay on private construction projects. The Court also rejected the argument that
the NLRA was violated because the only “safe harbor” from the annualization
rule was cash payments, which triggered additional social security taxes and
unfairly deprived employees of the advantage of tax-deferred benefits.
As
NESCA has advised in the past, it continues to be apparent that the only
alternative subcontractors have to the annualization rule is to pay prevailing
wage supplements in cash.
TAX CUTS OFFER SOME NEW BREAKS FOR BUSINESS (Go Top)
As NESCA
members may know, Congress passed a new tax relief package just before Memorial
Day, which in fact, turns out to be the third largest tax cut in U.S. history.
Although much of the media focus has been on the tax breaks for families and
investors in the Jobs and Growth Tax Relief Reconciliation Act of 2003
(JGTRRA), the new law contains some very significant business tax breaks. Business highlights are:
· An
increase in bonus depreciation to 50 percent for assets first put into service
on or after May 6, 2003 and before January 1, 2005;
· A
quadrupling of small business expensing from $25,000 to $100,000 for 2003, 2004
and 2005; and
· Lower
dividend and capital gains tax rates.
Although
business owners are always looking for a way to reduce their taxes, the passage
of this new tax law is not just a time for celebration, it’s also a time for
strategic planning.
Depreciation bonus. The increase
in the depreciation bonus to 50 percent is an extension of last year’s Job
Creation and Worker Assistance Act that included 30-percent first year
depreciation bonus. The 50-percent bonus applies to property placed in service
on or after May 6, 2003, and before January 1, 2005. The 50-percent bonus is on
top of the regular first year depreciation.
Small business expensing. JGTRRA
increases the amount a small business can expense under Section 179 for fixed
assets acquisitions in a particular year from $25,000 to $100,000. For purposes
of the phase-out of the deductible amount, the current $200,000 ceiling is
increased to $400,000. Property must be placed in service in 2003, 2004 and
2005.
Combining
bonus depreciation with increased expensing can generate some significant tax
savings. Small business owners will tend to achieve
the
maximum benefit by expensing purchases of used assets, while saving bonus
depreciation for purchases of new assets. In both cases, assets with longer
depreciable lives generally should be selected first. Businesses need to act
fast to take full advantage of bonus depreciation
and
increased expensing.
Dividend rate cut. The big
question about the dividend tax rate cut is how will corporations respond? It appears
likely that corporations will initiate or increase dividend payments in the
hope of attracting capital, raising their stock price and, therefore, making it
easier to attract equity capital. However, the six-year sunset provision may
discourage corporations from moving quickly. Closely-held corporations, which
traditionally extract funds in the form of compensation, rather than dividends,
have new options. Compensation will still receive a corporate level deduction
while dividends will not. However, compensation is taxed as high as 35 percent.
Dividends, under the new law, will be taxed at 15 percent.
Marginal rate cuts. Unincorporated
businesses will receive direct tax benefits from the decrease in marginal tax
rates. The Treasury Department estimates that 80 percent of the benefit from
the lowering of the highest marginal rate to 35 percent will go to business
owners.
If
your business is a traditional C corporation, the lowering of the individual
marginal rates may trigger you to think about whether you want to convert your
business to another business form, such as a Limited Liability Company,
partnership or S corp. because the corporate tax rates are no longer a bargain
compared to the individual rates. The change in the marginal rates will also mean
that your business will have to conform its payroll practices to incorporate
the lesser amounts required to be withheld from employee’s paychecks.
You
have many decisions to make in connection with the passage of this important
legislation. If you have any questions
regarding this article, give us a call or contact your tax advisor.
Article submitted by Teal,
Becker & Chiaramonte, CPAs, P.C.
As most members know, during July and August, NESCA does not hold any regular membership meetings. This comes from the realization that subcontractors are particularly busy bidding and building during the summer months, and it is also a time of summer vacation plans. The summer is also a transition period for NESCA. New officers and board members have been elected, and new committee chairmen have been appointed. Given these factors, July and August represent important planning months for NESCA.
During the past month, NESCA officers, committee chairmen and staff have been very busy planning the coming year’s activities including membership meetings, educational seminars, legislative and regulatory initiatives, special events such as our annual trade show, and even a few new social activities. Meetings of several of our committees have already been held, and other committees will be meeting soon. I urge any member who has an interest in serving on a committee, either now or in the future, to contact the NESCA office. After all, who is better able to provide us with the valuable input and new ideas we need than our members? We not only welcome, we actively encourage your thoughts and suggestions relative to anything NESCA engages in, whether it relates to our meetings and seminars, member benefits and services, legislative initiatives, or even our social events.
As we approach the autumn months, NESCA and our state affiliate, the Empire State Subcontractors Association, will continue to work on a number of very important matters. Top on the list will be the passage of our retainage reform bill. This legislation will require private owners to place retainage into an interest-bearing escrow account for the benefit of the parties from whom the retainage has been held. This bill will benefit every subcontractor doing business in New York State by protecting your money on private construction projects. When the regular session of the Legislature ended in June, our bill was on the floor of the Senate and in the Codes Committee in the Assembly. If the Legislature returns as expected for a special session in September, we will vigorously lobby for passage of this measure by both houses. NESCA and ESSA will also continue to work with other construction industry organizations to reform Sections 240/241 if the Labor Law, which continues to have a devastating impact on the affordability and availability of general liability insurance.
Please work with us as we attempt to accomplish these two goals and others. When we fax you action alerts, please contact your state legislators in support of our bills. Grass roots efforts DO have an impact on legislators. Let your elected representatives know how you feel about retainage reform and reform of the Labor Law. I have no doubt that if we all work together on these issues, we will succeed in helping ourselves and the entire construction industry.
Jeffrey B. Senft, President
STATUTE OF LIMITATIONS DOES NOT APPLY TO
ABATEMENT MALPRACTICE ACTION (Go Top)
The
New York State Court of Appeals on June 5, 2003 decided Germantown
Central School District v. Clark, Clark, Mills & Gilson, AIA, et al. In this case, a school district commenced a
professional malpractice action upon discovering asbestos in one of its
buildings more than a decade after completion and certification of an asbestos
abatement project. The question
presented to the court was whether the claim accrued at the time of the alleged
malpractice or upon discovery that asbestos remained in the building. CPLR §214-c created a date of discovery
statute of limitations for toxic torts.
The court stated “The adoption of the date of discovery rule therefore
results in the tolling of the statute of limitations until a party harmed by a
toxic substance discovers or should have discovered the injury.” Pointing out that the statute does not
provide a remedy to every asbestos related personal injury or property damage
claim, the court held “there is no allegation by plaintiff that the asbestos
migrated to a different location, became airborne or friable, or caused illness
to any occupants of the building.
Where, as here, plaintiff’s property damage claim involves no additional
damage to its building since the original implantation of the harmful substance
– or, stated another way, where the passage of time has produced no change in
the consequences of the presence of asbestos – the injury cannot be said to
have resulted from the latent effects of exposure to toxic substance…[H]ere,
the harm to plaintiff’s property occurred upon insulation of the asbestos in
the building and was constant thereafter.”
Concluding, the court held that Section 214-c is not applicable to
plaintiff’s professional malpractice claims and that the action was precluded
by the three year statute of limitations for malpractice actions set forth in
CPLR §214(6), which provides a three year statute of limitations commencing
upon the installation of the asbestos in the building.
The
holding in this case should be of particular interest to asbestos abatement
subcontractors concerning claims against them for errors and omissions in
certifying that projects are free from asbestos.
STATE INSURANCE COMMISSIONER REJECTS W.C.
RATE HIKE (Go Top)
New
York State Insurance Superintendent Gregory Serio has rejected a proposed 11
percent increase in workers’ compensation insurance premiums for 2003-04,
ruling that the current rates will remain in place. However, the workers’ compensation assessment, a tax on premiums
that all employers must also pay, will increase by 10 percent, from 13 percent
to 14.3 percent.
The
Insurance Department announced the decision to hold rates steady in a July 16
press release. “The increase requested
is not supported by the information submitted to the department in the filing
and at the public hearing held almost two weeks ago,” the Insurance Department
said. The press release sharply
criticized the New York Compensation Insurance Rating Board (NYCIRB), the
insurance-industry entity that each year recommends changes in workers’
compensation rates. In rejecting the
rate increase, the Insurance Department also rejected the methodologies
utilized by NYCIRB and concluded that NYCIRB had failed to follow through on
the letter and the spirit of the 1996 workers’ compensation reforms.
OSHA ADOPTS NEW FIVE YEAR STRATEGIC PLAN (Go Top)
During
the past five years, the federal Occupation Safety and Health Administration
(OSHA) has used a strategic management plan to guide its efforts for reducing
workplace injuries and illnesses.
Because injury and illness rates have dropped in recent years, the
agency is continuing its strategic plan by setting new goals, while carrying
over those not completed. Decreasing
construction fatalities and reducing silica exposure are two areas being
carried over from the previous plan.
The
new plan is based on an analysis of the current state of safety and health,
occupational trends, emerging issues, and agency priorities. Based on this analysis, OSHA’s overall goal
is to reduce fatalities by at least 15 percent and workplace injuries and
illnesses by at least 20 percent by 2008.
Each year, OSHA will emphasize specific areas to achieve this broader
goal. For instance, in 2003-04, the
goal is to reduce (1) construction fatalities by 3 percent, (2) general
industry fatalities by 1 percent, and (3) overall injuries by 4 percent.
Board of
Directors Meeting
Century House, Latham, 6 pm
NESCA Annual
Golf Outing
Shaker Ridge CC, Latham, 11
am
September 11,
2003
Century
House, Latham, 5 pm
September 11,
2003
Century House, Latham, 6 pm
Help Wanted
Experienced asphalt paving estimator/ project manager who is career-minded for full-time longevity position. Please call (518) 356-4890 for immediate confidential interview.
Engineering Position Wanted
Mechanical design experience, as well as safety, maintenance, programming. Available for full-time employment or contract work. BSME, working toward MSBE. Very trainable and willing to learn. Willing to relocate. Contact Carolyn Kuziomko at (518) 462-3819 or email repgillian@aol.com
THANK YOU FOR DUES PAYMENTS
Thank you to all members who have paid their 2003-04 membership dues. A special thank you goes out to the following members who made a voluntary contribution over and above their regular dues payment:
President’s Circle ($1,000)
S & O
Construction Services
Patron Group ($250)
Brownell Steel Cristo Demolition Dutchess Mechanical, Inc.
Stone Bridge Iron & Steel Gross Electric Tri-Valley Plumbing & Heating
Sustaining
Member ($100)
Alltek
Energy Systems Consolidated Masonry
R.F. Gordon Mechanical
J.
Hogan Refrigeration Southern Tier
Insulations Star Roofing &
Restoration
Ward
Pavements, Inc.
Friend
of NESCA ($50)
Hanson
Well Drilling & Pump Co., Inc.