Tax-dodging companies hide among layers of subcontractors

Wake jail was built brick by brick with untaxed labor

mlocke@newsobserver.comAugust 19, 2012 

  • About this series In April, The N&O reported that at least 30,000 North Carolina businesses had not bought workers’ compensation coverage, as required by law. After that report, we heard from workers, lawyers and business owners about deeper problems surrounding laborers and businesses, particularly in the construction industry. To report this series, we reviewed thousands of pages of documents and computerized records and conducted dozens of interviews. To illustrate how the trend of off-the-books workers emerged and the mechanics and cost involved, we focused on masonry, though the practice is also common in other trades.

In 2010 and 2011, Martin’s Bricklaying supplied 76,000 hours of labor to help build the $125 million Wake County Detention Center on Hammond Road.

The business earned $1,066,538 for this work, records show.

The company’s owner, Sabas Martin Galeana, has run afoul of state and federal tax obligations in years past, court records show; he settled the last of three liens in 2009. A review of several employees’ recent pay stubs shows that Martin has failed to withhold state and federal taxes as recently as July. The workers say he didn’t provide his workers the tax forms they needed to settle their own obligations.

Here’s how those business practices went undetected on the jail project:

Public projects such as the jail are bid in phases under the direction of a single general contracting firm selected by the government. Skanska USA, a large and prestigious company that operates across the country, won the bid to manage the detention center project.

Skanska solicited bids from subcontractors to do more specialized work such as masonry. Nearly $6 million worth of masonry work was awarded to Joyner Masonry Works of Greenville, which in turn hired Martin’s company as a subcontractor.

Joyner Masonry and those contracted directly by Skanska are thoroughly vetted. They must submit payroll reports, show financial stability, present workers’ compensation policies and references.

A different set of rules

Skanska expects Joyner to vet its own subcontractors, making sure they abide by labor laws and all state and federal regulations.

Skanska required Martin to certify in July 2011 that he had no liens against him and that he was paying all applicable taxes. No one checked further or asked for names of employees or a certified payroll that would show his compliance.

County officials said they were disappointed to learn that a business avoiding tax obligations was involved in the project.

“That’s surprising and disappointing,” said Phil Stout, Wake County’s director of facilities and construction, who worked with Skanska on the project.

Martin did not respond to several requests for an interview.

Skanska executives, too, were frustrated by The N&O’s findings. Steve Stouthamer, Skanska’s manager for North Carolina projects, said he wishes that the state offered a central place to check whether a business was following all applicable laws, such as tax obligations.

“If something like this is brought to our attention, we can put the contractor in breach” of the contract, Stouthamer said.

Skanska’s workers’ compensation carrier is facing a claim regarding an injury suffered by one of Martin’s employees while working on the jail project. Jose Gonzalez of Wallace injured his back in February 2011, according to forms filed with the state Industrial Commission.

Gonzalez’s pay stubs for that period, provided by his attorney, show no state and federal tax withholdings. State law requires employers to detail withholdings on pay stubs for each pay period. Gonzalez was simply paid an hourly wage for work performed during that time, the records show.

In an interview, Gonzalez said he was paid by check by Martin each week while he worked on the project. Gonzalez said he paid no taxes because Martin offered him no tax forms to file.

Asked how Skanska knows that Gonzalez was, in fact, working on the detention center, Stouthamer said Gonzalez signed in for required safety training when he first reported to work on the project.

Skanska officials are settling the workers’ compensation claim.

Staff writer Chris Kudialis contributed to this report.

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