New Jersey Begins to Kick Back on §3508 Sales Reps

December 6, 2013 | from AdminBerenson No Comments

New Jersey has long been considered a difficult state when a contractor is grappling with regulatory and enforcement issues. However, the state has long upheld the use of §3508.

Clients may recall that §3508 of the Internal Revenue Code, followed in varying degrees by 30-35 states, allows a contractor to pay a sales representative without withholding payroll taxes – if you can meet the tests and have the correct written agreement in place with the sales representative.

New Jersey has for many years followed this practice, and Berenson LLP has defended and prevailed in many New Jersey unemployment audits of sales representatives structured under §3508.

The precise language of N.J. Stat. ß 43:21-19 lets a contractor avoid state unemployment withholding if the sales representatives is engaged in selling merchandise in-home and is paid only on a commission and bonus basis.

Unfortunately, New Jersey unemployment auditors are increasingly taking the position that “merchandise” does not include capital improvements such as siding or roofing or replacement windows or doors. They point to the legislative definition of “merchandise” contained within N.J.A.C. 12:19-1.2. As Berenson LLP has pointed out previously in audits, however, that definition technically is not supposed to apply to a §3508 analysis.

Nevertheless, New Jersey clients utilizing §3508 should now reconsider the risk-reward of their structure due to this increased effort by unemployment auditors to crack down on our industry. Feel free to contact us if you would like to examine this further.

For a complete discussion of this and other 2014 hot button topics impacting the safety and profitability of remodelers, join us for our annual Home Improvement Legal Seminar at the PGA Resort in Palm Beach Gardens on January 30-31, 2014.