CONSTRUCTION Accounting ARTICLE -
Crossing the Border - a Guide to Multistate Licensing

Target Audience: Construction Industry Professionals, General Contractors, Construction Accountants

Finding construction work these days often means expanding your horizons to include new contacts and potential projects. But what if those hot new jobs are in other states?

Performing an out-of-state job is more complicated than just crossing the border with your crane and crew in tow. Most states require contractors to obtain licenses — even if they hold licenses in their home states. Those who skirt the licensing process can get slapped with civil or criminal penalties, such as significant fines.

Of course, the out-of-state licensing process can be complex and time-consuming, and contractors who receive out-of-state licenses also may be liable for certain fees and taxes. So before you set up shop in another state, understand what you’re getting into.

Start early

If you want to snag out-of-state work, it pays to think ahead. Contractors who plan to put off licensing until they land their jobs may be in for an unpleasant surprise — some states allow only licensed contractors to bid on work.

Licensing requirements for bidders may depend on a project’s size. One state may require that contractors be licensed if they’re bidding on a project that’s, say, $50,000 or more, while another may set the cutoff at $25,000 or more.

The lead time required for licensing also varies widely, which can trip you up if you want to start a job quickly. Some states review license applications only during official meetings, and those meetings may be held quarterly. If your job is time-sensitive, check on the state’s licensing timetable so you don’t miss a deadline.

Do your research

When it comes to actually performing the work, each state has its own twist on the licensing process — so research the details closely. Not all states require licenses for contractors, and license requirements may vary based on the municipality where you’ll be working and the scope of work.

In some states, a license to work isn’t required if a job falls below a certain dollar threshold. That threshold varies from state to state — for example, it might be only $2,000 or it might be $50,000.

Other states don’t license contractors at the state level but have alternative requirements that you’ll need to meet. For example, you could be required to register with the state and then apply for licenses in the specific towns or counties where you’ll be working.

While you’re researching the specifics, don’t forget your subcontractors (assuming you’re a general contractor). Some states require subs to be licensed separately — even if they’re working under a general contractor’s supervision. Other states require licenses only for certain trades, such as plumbing or electrical work.

The application process

When you apply for an out-of-state license, prepare for a mountain of paperwork. Some commonly requested documents for license applications include:

• Financial statements prepared by your CPA,
• Summaries of your assets, including equipment,
• Copies of your general liability and workers’ compensation insurance certificates that list the state licensing board as an additional insured,
• References from your suppliers, and
• Detailed explanations of any lawsuits you’ve been involved in or disciplinary action taken against you.

States also typically require contractors to qualify to do business in the state, and obtain a tax identification number, before they’ll issue a license. In addition, you may need to take exams or participate in training.

Certain states have license reciprocity agreements with one another. This means that, if you’re licensed in one state, you may qualify for a license in a reciprocating state without having to sit for that state’s trade exam. While reciprocity doesn’t mean you’ll be automatically waived in, it generally accelerates the licensing process a bit.

Obtaining an out-of-state license also means dealing with related tax and financial issues. Some states and municipalities assess an annual license tax based on a percentage of the contractor’s gross receipts, while others charge an annual fee that goes toward a recovery fund for project owners who have financial disputes with licensed contractors.

In addition, you’ll need to sort out the payroll, property, and sales and use taxes you owe for the work you do in that state. This is a complex topic that would entail one or more articles to explain. Ask your CPA for help.

Stand a better chance

While an out-of-state opportunity may seem lucrative, it’s important to calculate how much the related licensing process will cost you in time and money. By doing your research before bidding you’ll stand a better chance of coming out ahead.

No license? Big problem!

You hear about a great job in another state, but you don’t have time to get a license. Should you submit a bid anyway? What’s the worst that could happen? Plenty.

States don’t take licensing lightly, and many are bolstering their budgets by cracking down on scofflaws. For example, you could be kicked off the project and declared ineligible to bid on any work in the state in question for a given period — say, six months. Whether you’re kicked off the job or not, you may have to pay a fine.

In more severe cases, your construction company could be permanently banned from future work in the state. A particularly stringent state might even file criminal charges against you. And, again, financial penalties could well be in the offing. Bottom line: Don’t take the chance — even for just one job. It’s not worth the risk.

Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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