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United Property Associates About License RequirementsBecause of continuing, although infrequent, incidents where unlicensed or uninsured people or businesses are requested or recommended for work at properties UPA manages, I have had Stephen Merritt, CPA, research and document requirements by the United States Internal Revenue Service and the State of Virginia for licensing, insurance, and taxation. When owners or board members suggest or recommend businesses, please refer to this page to learn why UPA strictly requires business licenses and insurance certificates before we will agree to employ or pay a person or company for performing work at a property.
Bernie J. Grablowsky, Ph.D., PCAM
Stephen Merritt, CPA, P.C. June 20, 2000 Dear Bernie: At your request I have outlined and compiled information regarding why a business should have worker's compensation insurance, report income, and obtain a business license. I have attached the code sections with areas highlighted that are relevant. I hope this information expresses the importance of using reputable contractors. Income The IRS defines gross income as income from all sources. It can be compensation for services, business income, interest, rent, dividends, and gains on sale of property. Code Section 61 of the Internal Revenue Service clearly outlines what is income. Upon hiring a contractor you should always obtain a Form W-9. A 1099 is required to be issued at the end of the year for any unincorporated entity who was paid $600 or more during the calendar year. Business License The state of Virginia has a license requirement for every person engaging in business in our Commonwealth. There is general information regarding licensing under Code Section 58.1-3703.1 of The Code of Virginia. Any person who engages in business must obtain a license from the city(s) of operation. Workers Compensation The state of Virginia has a requirement for worker's compensation insurance. This information is located under Code Section 65.2 of The Code of Virginia. It is also know as the Virginia Worker's Compensation Act. The law requires that a business with three or more employees have a worker's compensation policy. However, worker's compensation insurance is available for those businesses having less than three employees. If a contractor is hired who does not have worker's compensation insurance the organization or firm that hired the contractor is liable for this contractor's worker's compensation. Upon annual audit, the organization or firm that hired the contractor will have to show the insurance auditor insurance certificates. Any contractor hired that does not have a certificate stating they are covered by a worker's compensation policy becomes an "employee" of the organization that hired him. This results in higher insurance premiums for the employing organization because the auditor calculates the 'insurance" for that contractor based on fee paid for the job. Ultimately, the property owner or the association is responsible for any claims. Therefore it is advisable that all contractors working on a property have worker's compensation insurance. In summation, while some contractor's bids may come in lower than other bidding vendors, in order to calculate any real savings you must be sure that the new prospective vendor is abiding by all the laws for reporting of income, licensure, and insurance. If they are not, they are not saving you any money. The extra bookkeeping and insurance fees will probably negate any "savings".
Sincerely,
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