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Prime Contractor Is Liable for State Unemployment Taxes of Unlicensed Subcontractors Even on a Federal Project


May 1, 2000


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(A version of this article appears in the Construction Law Digests, published by the West Group.)


By James Acret

Hunt employed unlicensed subcontractors for work on federal military installations in California. The subs failed to file quarterly returns for state unemployment insurance. The state Employment Development Department assessed Hunt for the unpaid contributions and withholding taxes of the unlicensed subs. Hunt paid the taxes ($38,714.28) and sued for a refund. The trial court entered judgment for plaintiff. REVERSED. Hunt Building Corporation v. Bernick, ___ Cal.App.4th ___, ___ Cal.Rptr.2d ___, 2000 Daily Journal D.A.R. 3069 (4th Dist. 2000)

California does not have the power to impose contractors licensing requirements on contractors working on federal projects, but Congress specifically permits California to enforce its unemployment compensation laws for services performed on federal land. 26 U.S.C. §3305 (d). Under provisions of the Labor Code, prime contractors are liable for providing worker's compensation and to make unpaid unemployment contributions for unlicensed subcontractors. Labor Code §2750.5 provides: ". any person performing any function or activity for which a license is required pursuant to [the state contractor license law] shall hold a valid contractors' license as a condition of having independent contractor status."


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