By John Hickey
Recent legislative sessions have drastically changed the laws affecting construction contractors. The 2007 session produced wholesale changes to construction contractor licensing, and the 2009 session included a state stimulus package and long-term funding for infrastructure construction. Although the 2011 session did not see changes of that magnitude, there were plenty that are important to the construction industry.
Oregon Tax Law
Historically, Oregon tax law relied on federal tax law applicable to that year to calculate taxable income. In 2009, when the Oregon Legislature deduced that the federal government would pass the American Recovery and Reinvestment Act ("ARRA"), which it knew would extend certain tax benefits (i.e., stimulus measures) to many businesses and consequently lower the businesses' taxable state income (and state revenue), the Legislature passed a bill making the new federal tax benefits not applicable to Oregon taxes.
The 2011 Legislature reconnected Oregon to the federal tax benefits, which primarily are increased Section 179 expensing and accelerated depreciation. Section 179 expensing allows a business to deduct the entire purchase price of equipment up to a capped amount from the business's income for the year in which the equipment is purchased. Whereas the 2009 Legislature set the state cap so that it would not be increased by ARRA, the 2011 Legislature removed that limitation.
Accelerated depreciation allows businesses to deduct a higher amount of the cost of equipment from income over a period that is shorter than the useful life of the equipment specified in the Tax Code. The changes make it cheaper in the short term for Oregon construction companies to purchase equipment.
Most public schools have cut or severely limited career and technical education programs, which has made it difficult for construction companies, among many other types of companies, to find skilled workers. In response, the 2011 Legislature passed a bill to create and promote career and technical education programs.
The legislation will make it easier to form technically focused charter schools, require certain state agencies to meet at regular intervals to collaborate on promoting career and technical education programs, and provide grants to enhance such programs. The grant program was funded with $2 million from the general fund for the biennium beginning July 1, 2011.
A person now commits a Class C traffic violation ($180 ticket) by idling a commercial vehicle on premises open to the public if the person stops the vehicle and allows the engine to idle for more than five minutes in any continuous 60-minute period, unless an exception applies. The exceptions relevant to construction vehicles are: idling due to traffic; and the powering of "work-related mechanical, safety, electrical or construction equipment installed on the vehicle that is not used for propulsion." The bottom line for construction workers is — don't leave your truck idling when you stop for coffee.
The Legislature also limited the ability of one party to a construction contract to force certain waivers on the other party. A provision in a construction agreement is void to the extent that it requires a party or the party's surety or insurer to waive a right of subrogation, indemnity, or contribution for amounts paid because of certain damages that were caused by the negligence of someone else. Subrogation, indemnity, and contribution are legal concepts that come up in situations in which someone pays a claim but believes that someone else is responsible for at least a portion of what was paid and seeks to recover from that other person.
The new law does not apply to project insurance policies (e.g., owner-controlled insurance programs) since subrogation waivers make sense under those policies (because the insurer insures most project participants under such policies, the responsible party is usually covered by the insurance policy). In most contexts, contractors who force subcontractors and the subcontractors' insurers to waive their right to go after the responsible party will no longer be able to do so.
Among the changes avoided were a raid on the state Highway Trust Fund and the implementation of a low-carbon fuel standard. The Governor proposed to take $93 million over the next biennium from the Highway Trust Fund to fund the Oregon State Police Patrol Division. The Governor believed that funding the Patrol Division with such funds would free up funds for schools. The proposal was met with strong opposition and failed.
The 2009 Legislature authorized the Oregon Environmental Quality Commission to implement a low-carbon fuel standard that would require a reduction in the emissions generated from transportation fuels (i.e., cars and trucks would be required to produce less carbon per unit of fuel). The Oregon Department of Environmental Quality ("DEQ") planned on creating the standards in 2011 and implementing them in 2012.
However, petroleum industry experts and economists testified in hearings before the 2011 Legislature that the standards would greatly increase fuel costs over the next few years. After hearing the testimony, DEQ stated that implementation of any standard would not occur before 2014. You should expect the issue to surface again in the 2013 legislative session.
In summary, construction contractors who have put off purchasing new equipment should consult their accountant to determine whether the new tax benefits make now the right time to buy. Although contractors need to be wary of the new idling law and contractual waiver limitations, costly threats were avoided and steps were taken to improve career and technical education.