VCC Summer-Fall 2021

V irginia C apitol C onnections , S ummer /F all 2021 13 3. We must take a look at the rules, regulations, and standards governing the Charitable Gaming Board and ensure that no member of that board has a conflict by having a vested interest in the rulings and decisions of the Charitable Gaming Board. 4. We must make sure the enforcement agency that oversees charitable gaming has the financial means and staffing requirements to investigate, audit, enforce, and terminate contracts, licenses, and permits when laws are broken. 5. We must ensure that the monies generated by these charitable electronic games are actually getting to the charities themselves—legitimate charities; that all tax revenues at both the state and local level are being duly collected, and we must drive out the “fake charities” and criminal organizations from the Commonwealth of Virginia. The responsibilities of this subcommittee are both real and serious. The future of viable charitable gaming in Virginia depends on what we do here, and we owe it to both the charities that it benefits, and the citizens of Virginia who choose to engage in this type of gaming in our great state. I look forward to working with all of you in solving this issue. Thank you Mr. Chairman. Bryce E. Reeves is a Republican Virginia State Senator, representing the 17th district. Reeves was elected in 2011. Senator Bryce Reeves’ Speech… from page 11 Virginia has been reviewing the issue of worker misclassification—inaccurately identifying individuals as independent contractors when they are really employees—for over a decade. For example, in 2011, the General Assembly directed the Joint Legislative Audit and ReviewCommission (JLARC) to study the issue of worker misclassification in Virginia. Building on this report, which was published in 2012, Governor McAuliffe issued Executive Order 24 establishing the Misclassification and Wage Theft Taskforce. Governor Northam issued Executive Order 16 which reconvened the Taskforce and requested updated recommendations on how to measure and combat misclassification inVirginia. In 2019, Governor Northam issued Executive Order 38, which required the Taskforce to publish a final report with recommendations in 2019. Following the report’s recommendations, the 2020 General Assembly passed a host of legislation seeking to address the connected issues of worker misclassification, wage theft, and payroll fraud. Among the 2020 legislation, House Bill 1407 and Senate Bill 744, which had an effective date of January 1, 2021, outline Virginia Tax’s role in addressing misclassification. A seemingly minor, but very important change is that under the new law, an individual who performs services for a business for pay will be presumed to be an employee. As a result, it is now incumbent on the employer to demonstrate that the individual is an independent contractor. In making worker misclassification determinations, Virginia Tax is required to use and apply current IRS guidelines regarding whether a service provider is an employee or independent contractor. If a business is found to have misclassified employees, that business is now subject to an escalating set of civil penalties of up to $1,000 per misclassified individual for the first offense, up to $2,500 per misclassified individual for the second offense, and up to $5,000 per misclassified individual for the third and any subsequent offenses. In addition to the civil penalties, if misclassifications are found during a second audit, then that employer will be barred from state government contracts for up to a year and up to two years for any subsequent offenses. To implement the legislation, Virginia Tax received funding to create a new worker misclassification audit program with 9 dedicated employees, including auditors, tax examiners, a business analyst, and a field education and outreach specialist. The COVID-19 pandemic case surge during the winter of 2021 clearly hindered our ability to get this new audit program stood up and operating. However, we have identified a number of businesses to potentially audit using data reported toVirginia Tax (such asW-2s, 1099s, and other withholding data), North American Industry Classification System (NAICS) codes, referrals from other agencies, and auditor recommendations. One way we use data to help identify potential audit candidates is by analyzing the number of 1099-NECs and 1099-MISCs an employer issues compared toW-2s. A high ratio of 1099s will likely lead to further analysis to determine whether or not an audit is warranted. When our auditors are looking at a worker misclassification determination, they’re looking at the entire working relationship, considering all information that provides evidence of the degree of control and independence according to the IRS’s 3 common law rules. These rules fall into 3 broad categories: behavioral control, financial control, and type of relationship. When looking at a specific case, not all factors will necessarily be relevant, and some factors may be more relevant than others. See irs.gov for more information on applying the IRS’s 3 common law rules. Guided by these rules, our goal is always to look at the entire relationship. Following that careful look at the business’s classification decision(s), Virginia Tax will issue an audit determination. After receiving a worker misclassification audit determination, businesses have the right to appeal any finding within 90 days of the assessment, as with any of our audits. They can also apply to the circuit court for relief within 3 years from the date of assessment or final determination or within one year from the date the administrative appeal concludes, whichever is later. We publish all of our completed appeals in the Laws, Rules, and Decisions section of our website at tax.virginia. gov/laws-rules-decisions so all interested parties can look into cases that may apply to them. Equally important to our audit program, we’re undertaking outreach and education activities aimed at preventing worker misclassification on the frontend, before an audit takes place. We’ve added information on our website, but are also building out training resources to include both self-service materials (e.g. more web content, presentations, and videos on-demand) as well as live training opportunities (both digital and in-person as requested). Right now we’re focusing on outreach to affected stakeholders to understand what questions they have about how the new laws impact them, and using these conversations to inform our creation of educational content in a variety of formats to meet the needs of businesses and other stakeholders. Since this is a new program, we’re taking the opportunity to refine and adapt as necessary. Next steps include finishing worker misclassification guidelines, as called for in HB 1407/SB 744. We’re also currently working on a number of things to increase the accuracy of audit selection. For example, we will work to incorporate criteria related to worker misclassification into our analytics as one avenue in audit selection. In addition we will reach out to the IRS to identify any federal misclassification data, similar to the information-sharing channels we have in place for many of our other audit programs We still have a lot ahead of us as we build out our worker misclassification program at Virginia Tax. We are looking forward to working with connected agencies and affected stakeholders in this process. In the meantime, we welcome questions or feedback at misclassificationofworkers@tax.virginia.gov . Craig M. Burns was appointed Commissioner of the Virginia Department of Taxation in November 2010, after serving as Acting Tax Commissioner since June 2010. Prior to his appointment as Tax Commissioner, Burns had served as Deputy Secretary of Finance since October 2008. Worker Misclassification in the Commonwealth By CRAIG BURNS V