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Know The Playing Field Before Working Out Of State

While neighboring states may offer attractive business opportunities, many potential legal pitfalls await the unsuspecting contractor who ventures across the Idaho State line to do business. These problems can usually be painlessly avoided if proper steps are taken. This article seeks to provide Idaho contractors with a general overview of several potential issues so they can be armed with the information necessary to take advantage of these opportunities without falling victim to legal entanglements. Some of the relevant statutory provisions of Washington, Oregon, California, Nevada, Utah, Wyoming and Montana will be addressed in this article.

Licensing and Registration Requirements. While Idaho has virtually no licensing or registration requirements for contractors, aside from public works projects, many surrounding states have instituted regulatory schemes requiring either registration or licenses for any contractor wishing to conduct business in the state. The nature of these requirements ranges from somewhat strict to mere formalities in some states, but failure to observe the rules in this area can result in severe penalties no matter what the locality. Utah, California, Oregon and Nevada mandate with few exceptions that anyone engaging in construction in these States must obtain a license from the respective State’s regulatory board. The requirements for obtaining a license and, specifically, who is covered by these requirements vary from state-to-state and contractors are advised to consult the regulations of each state before starting the licensing process. In addition, most states offer various classifications of licenses ranging from general to trade specific, and requirements may vary as well, making consultation of individual state procedures necessary to ensure proper licensure for the job being undertaken.

General Requirements. Most states will require completion of an exam (Oregon also requires completion of a 16-hour education course prior to exam administration), proof of registration with various government agencies, proof of proper insurance coverage, assurance of financial solvency, often in the form of credit reports, disclosure of assets and/or submission of a professionally prepared financial statement, and payment of various application and/or exam fees. California, Oregon and Nevada also require, with certain exceptions, a bond to be posted before issuing a license and California, Utah and Nevada require a showing of a certain amount of work experience in the area in which you are seeking a license. Washington and Montana do not require a license, but have maintained regulatory control at the State level by mandating that contractors register with the respective State’s Department of Labor. Registration is optional in Montana if the contractor or subcontractor does not have employees. It is also important to note that states requiring only registration on private construction jobs will still usually require a license for public works projects.

The timing of obtaining a license or completing the registration process can also be important, depending on a state’s rules. For example, Oregon and Nevada require that contractors be licensed at the time of the bid, while other states, such as California, allow a bid to be submitted without a license, but will not award the bid to a non-licensed contractor. If the contract is awarded and it is later discovered that the contractor failed to get the proper license or register, the penalties are often significant. In addition to imposing disciplinary measures and civil fines, most states (again, subject to some exemptions), will not allow an unlicensed or unregistered contractor to bring a suit in the state court to enforce the contract and collect compensation for completed construction work.

In Wyoming, Utah, Washington and Oregon, it is necessary to note a special requirement when bidding on Department of Transportation projects. Subject to some variations in these States, they require prequalification (in addition to any license and registration requirements) before submitting any bids.

Qualification of the Entity in a State. In every state adjacent to Idaho, and also California, all foreign (out-of-state) contractors must register their business entity with the Secretary of State in order to qualify to do business in that state. This can be accomplished by hiring a company, such as CCH, or a lawyer to complete this task, or simply by filing the necessary paperwork and paying the fee directly to the Secretary of State. Although it is a relatively simple procedure, the consequences for not completing it can be severe in most states, and usually include imposing a civil fine and a restriction on filing any suit in that state’s courts until the requisite paperwork has been filed.

Insurance and Worker’s Compensation. Another essential point when operating out-of-state is making sure that the contractor’s general insurance and worker’s compensation insurance policies are effective in the state in which you are operating. The most effective way to accomplish this is to notify your agent that you will be working in another state and they can provide information regarding policy status in relation to out-of-state operations. This is very important with regard to worker’s compensation because some states might not have the limitations on an employee’s ability to sue the employer for work-related injuries. Also, some states may allow the owner of a project to be held liable for an employee’s injury if the contractor has not maintained effective worker’s compensation insurance.

Sales and Use Taxes. Except for Oregon and Montana, Idaho’s bordering states and California impose state and local sales and use taxes. While the intricacies of these tax schemes are beyond the scope of this article, it is important for contractors to remember that there could be a tax imposed on materials and construction equipment brought into to the state which have been purchased in another state, which is known as a “use tax.”

Contractors working in Washington should also be aware of a tax unique to that State known as the “gross receipts” tax. Almost all businesses operating in Washington, including corporations, LLCs, partnerships and sole proprietors, are subject to the tax. This is a tax on the gross income, making the amount paid to the contractor for both labor and materials taxable by the State of Washington.

Labor Relations. A final issue that any contractor operating out-of-state needs to be aware of is labor relation and union issues. For example, California, Washington, Montana and Nevada have all codified some form of a prevailing wage regulation that requires workers on public works projects to be paid the “prevailing rate,” which is generally defined, with some variations, as the same rate being paid for similar work in similar localities in the state. Certain areas may have a strong union presence and in these areas, contractors should be prepared to deal with union issues even if they do not have an existing labor contract.

These are only some of the possible issues that have become increasingly significant when working in other states, and the advice of a lawyer should be sought regarding the legal implications of specific out-of-state projects.