Open Post on the ALJ Sprinkler Hearing

Today BAM’s legal team and expert witnesses present our case to Administrative Law Judge Eric Lipman to keep mandatory sprinkler systems out of the residential building code. We will be live tweeting and live blogging throughout the hearing today. Check back for updates.

8:37AM The troops are assembling. The judge said he he plans to start right at 9:00AM. Several members and association staff have come to support. Rochester, Fargo-Moorhead, Brainerd and the Twin Cities are all here.

9:00AM Judge Lipman has started the hearing stating today is about record building and fact finding. Judge Lipman said the hearing will be focused on three key issues: 1) does the government have legal authority to adopt these rules, 2) whether the department fulfilled all administrative procedures, and 3) the range of choices an agency is authorized to make and whether they were needed and reasonable.

9:25AM Department of Labor and Industry’s general counsel Jeff Lebowski is introducing their case and exhibits A through J.

9:42AM Standing recess called by the Judge.

9:53AM Roger Axel is testifying on behalf of BAM stating he is for public safety as a building official and introduced how fire sprinklers were put in the national code.

9:59AM Steve Orlowski is now testifying discussing discrepancies and what’s been happening in the rest of the United States with regard to the sprinkler issue. Orlowski is wrapping up his testimony and states in all his research he cannot find a reason for the 4,500 square foot threshold the department included in their draft code.

10:25AM Karen Linner is beginning her testimony. She will address how this will affect the state of Minnesota. No deaths in homes built after smoke alarms started being required in 2003 – hardwired, battery backed-up, and interconnected. No fire fighter deaths in residential fires since data has been collected. Gives history of code proposals and proposed trade offs.

Linner covers whether Minnesotans want sprinklers to be required. A U of M survey determined 87% of Minnesotans want sprinklers to remain their choice.

11:22AM Joe Springer testifies on behalf of BAM and asks several questions of the Department about how they determined there was a need and reasonableness for mandatory fire sprinklers in homes 4,500 square feet and larger.

11:40AM State Fire Marshal Dahm testifies fire marshals support the model national code. (Despite the fact that 41 states have rejected the national code, and only one state has accepted it – California.) Marshal Dahm says sprinklers protect people, property, possessions, and pets.

11:50AM Judge Lipman called a recess until 12:20 on the dot.

12:20PM And we’re back. Jeff Hudson of NFPA, a residential fire sprinkler advocate, is testifying now. Admits fire death rate went down once smoke alarms were required in homes.

12:42PM Ronald Farr employee of Underwriters Laboratory now testifying. UL “certifies, validates, tests, inspects, audits, and advises and trains” for their clients. Farr says they’ve been doing research for sprinkler advocates.

1:04PM Clay Dietrich testifying for BAM now. Retired assistant fire chief from Moorhead, MN. Served for 27 years. Also been a builder for 39 years. Discusses border city issues, areas without municipal water supply, and cost. “The real problem is older homes without smoke alarms. That’s where deaths are happening. The problem isn’t with new housing.”

1:40PM The judge called a 15 minute break.

1:55PM And we’re back. Sean Flahrety is testifying on behalf of the national fire sprinkler association.

2:16PM Chris Contreras from Ryland Homes testifies regarding size and percentage of homes affected (30%) as well as increased cost. $10K additional cost may only be $53 extra per month in a mortgage but over the course of the life of that mortgage it ends up being $19K and that can be hard for a homeowner and at times ends up being the tipping point.

2:24PM Mark Brunner from the Manufactured and Modular Homes Association testifies.

2:35PM The fire chiefs are up and say smoke alarms are not enough protection.

2:55PM Buddy Dewar testifying now as head of the National Fire Protection Agency. Claims fire sprinklers should be mandated to put out non-fatal fires and protect property. Also claims the reason 41 states have rejected mandatory residential sprinkler systems is because of the “strength of the building industry.”

3:20PM All scheduled witnesses have been heard. Judge recesses until 3:35PM. Plan is to adjourn for the day by 5:00PM.

3:35PM No further witnesses came forward and judge adjourned the hearing at 3:45PM. Please submit and comments by January 2nd at 4:30PM. The rebuttal period will then last 5 business days and close at 4:30PM on January 9.

Early Registration Discount: Feb. 6 MN Construction Conference

Register early for the first-ever Minnesota Construction Industry Conference

Early-bird registration is now open for the first-ever Minnesota Construction Industry Conference to be held on February 6, 2014, at the Ramada Inn Mall of America, Bloomington.

The State of Minnesota and its construction industry partners will host the one-day conference and provide educational and networking opportunities for highway/heavy, commercial building and residential contractors, plus informative general sessions for the entire construction industry. The event will update construction industry members about current regulations and rules and provide an opportunity for attendees to share ideas with the state officials about how to build a better Minnesota.

Along with the general sessions, each construction-industry sector – highway/heavy, commercial building and residential – will have five workshops. Planned session topics include: business development, building code changes, contracting with the state, licensing and compliance, safety and health compliance and consultation, workforce development, and a panel discussion with state commissioners. Also, state subject matter experts will be available for one-on-one sessions to answer contractor questions.

The construction conference will also feature a trade show of industry-related exhibitors and sponsors. Continuing education units are available for some of the residential construction workshops.

Registration cost for the conference is $79 before Dec. 31, 2013. Starting Jan. 1, 2014, the cost is $99. Registration includes general sessions, workshops, 1-on-1 with the State sessions (optional), all conference materials, continental breakfast and lunch.

View the conference agenda and register online at www.dli.mn.gov/construction.

Interview with the Expert: Sneak Peek at 2014 Session

Introducing Brian Halloran of Redmond Associates; the lobbying firm that represents BAM at the State Capitol. Redmond Associates are among the best in the business and we’ve asked them to give us a sneak peek of the 2014 session.

Question:  This upcoming Minnesota legislative session is commonly known as a “bonding” session; tell us a little bit about what that entails.

Answer:  Minnesota operates on two-year biennial cycles. The 2013 session was the first year of the biennium, so the principle responsibility of lawmakers was to pass a budget to fund state government for fiscal years 2014-15. With that $38 billion blueprint set, lawmakers will focus primarily on crafting a public works borrowing package or “bonding” bill.

Members of the Capital Investment committees (in the House and Senate) are traveling the state to review projects that enhance and/or build infrastructure like bridges, roads and transit, convention centers, water treatments systems, and education facilities.  There are nearly $3 billion in requests by state agencies and local governments.  I expect the overall bonding package to be in the $850 million range. Last session gave us a glimpse of the contours of what the 2014 session’s bill may look like when an $800 million bill narrowly failed in the House on a mostly partisan vote.

Among the nearly $3 billion in requests is a push to fund the remaining $126 million needed to pay for the $272 effort to restore the capitol building itself. Cass Gilbert’s 108-year-old domed building is now in the early stages of a major renovation, and it’s been exciting to see hard hats and scaffolding surrounding it.

Whatever the ultimate size of the bonding package, it will have to include some bipartisan cooperation.  For most legislation to pass, a simple majority is required meaning 34 votes in the Senate and 68 votes in the House.  Bonding bills, however, have a higher standard for passage set at three-fifths majority. That means 41 votes in the Senate and 81 votes in the House. The current balance of power holds at 39 democrats and 28 republicans in the Senate, and 73 democrats and 61 republicans in the House.  Bonding bills are always complicated jigsaw puzzles to compile so I expect session 2014 to be no different.

Q:  Session is starting unusually late; how might that impact lawmakers’ legislative agendas and pacing?

A:  It is worth mentioning the constitutionally required deadline for when session must end. The Minnesota Constitution says, “the legislature shall not meet in regular session, nor in any adjournment thereof, after the first Monday following the third Saturday in May of any year.” Translated that means lawmakers must complete their work by May 19th, 2014. Legislators set their official start date for February 25th, 2014 leaving less than three months to complete their work.

This will be my 19th session and I don’t remember a start date this late. What this means in a practical sense is that in order for most legislation to be successful, it must be introduced early in session (or even before it starts), vetted quickly, and pass aggressive committee deadlines. While committee deadlines are not yet set, policy deadlines will likely be mid-March.

Given that compressed timeline, we are likely to see legislative hearings in January and February to accelerate the public vetting process. In fact, House leadership has set a “pre-filing” date of January 13, 2014 for bill introductions. That means pre-filed bills will be posted publically and available for interim committee hearings, though no official action may be taken until after session convenes and the bills are given their first reading on Tuesday, February 25. While session’s pace is typically described as moving from a walk to a jog to a sprint, this session will likely start with a sprint.

Q: The term “Unsession” has been used. What is that and what are your thoughts on the impact of the “Unsession” discussions?

A: While legislators will be engaging in the usual plate spinning necessary to move multiple priorities simultaneously, Governor Dayton has added another “plate” in the form of “Unsession” reforms. Earlier this year, he began floating the idea of eliminating outdated statutes and improving government efficiencies. He has since instructed his administration to gather ideas along those lines, and has asked the public and the legislature to do the same. A website has been created to collect suggestions and I’m told around 1,600 ideas have been offered. It is too soon to tell how much traction this reform initiative will get.

Q: Despite pressure on lawmakers to keep the 2014 agenda limited to bonding and “Unsession” work, what other issues are likely to surface?

A: Even with talk of limited time and legislative appetite, expect to see activity on a broad suite of issues such as increasing the minimum wage, changes to MNSure (Minnesota’s healthcare website portal) and tweaking all or some of the controversial business-to-business (B2B) taxes implemented last session. All of these issues will be controversial.

Minimum Wage

The Legislature will try to increase the minimum wage above the current $6.15 per hour. The Senate legislation was at $7.75 per hour and the House was at $9.50 per hour, but both bodies could not come to agreement on a final package before session ended in 2013.

Healthcare

As you know, Minnesota has launched its own version of the Accountable Care Act (federal health care law). Expect adjustments to that rollout to continue, and much debate to follow.

B2B Taxes

The B2B issue will certainly be an issue of discussion. Some legislators have expressed an interest in adjusting or eliminating the new B2B taxes on warehousing, labor, and telecom. The challenge will be to find the money to pay for the adjustment (through more taxes and/or new cuts) since those new dollars were used to craft the FY 2014-2015 budget.

Q: How does the 2014 election factor in to the 2014 session?

A: We can’t talk about this session without anticipating the upcoming 2014 elections in November. Every House seat and all the constitutional offices (Governor, Lieutenant Governor, Attorney General, State Auditor, and Secretary of State) are up for re-election in 2014, and there will be great desire for those up for election to leave the marbled halls of the capitol as soon as possible to get to the doorsteps of their constituents. Senators will not be up for reelection as they will only be halfway through their four-year terms.

Democrats will be fighting to maintain majority control of the House and keep Governor Dayton in office while Republicans will hope to take advantage of a non-presidential election to wrest control of the House and Governor’s residence from the Democrats. Look for both sides to use every opportunity to explain their priorities to the voters.

Session will surely be about the legislative issues before them in 2014, but it will also be about trying to set the table for 2015 and beyond. Elections may be a year away, but for legislators and candidates, they are just around the corner, or at the doorstep, to put it in campaign parlance.

Brian Halloran has been successfully representing clients on behalf of Redmond Associates since 1996. He specializes in lobbying and client strategy development. Mr. Halloran was recognized in MN Law and Politics “Top Lobbyists” story as an “Up and Comer” in the field early in his career. Mr. Halloran was also selected as a Humphrey Policy Fellow and is a regular speaker to groups about lobbying and public affairs.

New Legislation Restricting Indemnity Provisions in Effect Aug. 1, What Now?

By Rob Moschet
McCollum, Crowley, Moschet, & Miller, Ltd.

There has been much discussion, and some confusion, about the effects of the amendments to the statute restricting indemnity provisions in building and construction contracts which become effective on August 1, 2013.  This article hopes to highlight the issues raised by the new amendment and to provide members of BAM with ideas to discuss with their legal and insurance advisors concerning building and construction contracts entered into after August 1, 2013.  To begin, it is helpful to have some basic understanding of what indemnity is, the historical context in which the broad use of indemnity provisions in construction contracts arose, and the original statutory scheme adopted to regulate the use of such provisions.

The Indemnity Concept

Basically, indemnity is a promise to be or become responsible or liable  for the fault of some other person or entity.  The promise is often expressed in terms of an obligation by the person making the promise (the “indemnitor”) to “save, hold harmless, indemnify, and defend” another person (the “indemnitee”) from liability which the indemnitee may face because of the actions of the indemnitor.  The indemnity concept arises in many circumstances besides building and construction contracts.  For example, a landowner who permits others on his or her lands for purposes of hunting may seek to be indemnified against liability for accidents that may happen while the hunters are on the land.  So, if an accident does happen under circumstances in which the landowner might be at fault (because a landowner owes certain duties to entrants on the land), the indemnified landowner would not be liable for resulting claims; the indemnitor would assume and become responsible for the fault of the landowner.

Historical Context of Indemnity in Construction Contracts

Case law in Minnesota generally holds that a residential builder has a contractual duty to provide its customer with a product which substantially conforms to what the customer bargained and paid for.  Importantly for this discussion, the law also holds that this duty cannot be delegated to some other entity which may have performed part of the work.  For example, the law will not allow a homebuilder which contracts with a customer to provide a home with 40-year roof shingles to escape liability to the customer where only 20-year shingles are installed by arguing that the roofing subcontractor was the party liable for the mistake.   In that situation, the homebuilder is still liable to the customer, but has a corresponding right to be reimbursed for that liability from the at-fault party.

A homebuilder/general contractor has the right to control the manner, methods, and means of construction of its own employees, and where this right of control is present it is fair to  hold the homebuilder/general contractor liable for the fault of its employees.  But a homebuilder/general contractor does not have the right to control the manner, methods, and means of construction of the work performed by subcontractors, yet the non-delegable duty doctrine still imposes liability on the homebuilder/general contractor for the faulty work of its subcontractors.

In order to minimize the effects of the non-delegable duty doctrine the use of indemnity agreements by homebuilder/general contractors became more widespread. If done properly, a homebuilder/general contractor could make an at-fault subcontractor directly liable to a customer by providing in the applicable subcontract that the subcontractor would indemnify the home builder/general contractor against faulty work of the subcontractor.  And, because a general contractor does not have the right to control the manner, methods, and means of work many subcontracts also required the subcontractor to indemnify the general contractor against its own fault as well as the fault of the subcontractor.

However, courts held that as a matter of public policy such “broad form” indemnity provisions had to clearly and unequivocally indicate an intent to indemnify against the indemnitee’s own fault.  If such an intent was not made clear, then the attempt to shift responsibility for the general contractor’s fault to the subcontractor would not be enforced.

Additional Statutory Restrictions

In addition to the strict review standard, in 1984 the Minnesota legislature restricted the use of indemnity agreements in building and construction contracts further, by basically mandating that contract provisions that required a subcontractor to indemnify against the fault of the general contractor were unenforceable unless the promise to indemnify was coupled with an agreement to provide insurance coverage to insure that obligation (Minn. Stats. Chpt. 337). So, even after the enactment of the 1984 legislation indemnity agreements which clearly and unequivocally provided indemnity for a homebuilder/general contractor’s own fault and required insurance for that obligation were enforceable.  Subcontractors were able to insure that indemnity obligation by procuring Commercial General Liability (CGL) policies which provided coverage for “insured contracts.”

In addition to requiring the indemnity obligation to be insured, homebuilder/general contractors could also require a subcontractor to name the homebuilder/general contractor as an “additional insured” in the subcontractor’s CGL policy.  This was usually done by means of an endorsement to the subcontractor’s policy, and gave the homebuilder/ general contractor the status of an insured under that policy, with the same rights to coverage as the subcontractor “named insured,” depending on the wording of the endorsement.  Most contractors requiring these types of endorsements also specified the use of endorsements that gave them the broadest possible coverage.

But, when the flood of construction defect lawsuits hit, the insurance industry greatly restricted the coverage provided by additional insured endorsements, and made such coverage, as well as coverage for subcontractor’s direct liability, more costly to procure.  As a result, several subcontractor associations began to lobby for changes to the statutory scheme which had allowed general contractors to “pass through” liability claims by means of indemnity provisions and additional insured requirements.

The 2013 Legislative Amendments to Chapter 337

Since broad-form indemnity provisions (i.e. provisions requiring indemnity for the general contractor’s own fault)  in building and construction contracts are unenforceable except to the extent those obligations are insured, a consortium of subcontractors proposed to make the insurance obligations unenforceable, reasoning that if the insurance obligations are unenforceable, then the broad-form indemnity provisions would also be unenforceable.  The resulting amendment is now codified at Minn. Stat. § 337.05 Subd. 1 which, in relevant part provides (amended language underlined):

Subdivision 1. Agreements valid. (a) Except as otherwise provided in paragraph (b), section 337.01 to 337.05 do not affect the validity of agreements whereby a promisor agrees to provide specific insurance coverage for the benefit of others.

 (b) A provision that requires a party to provide insurance coverage to one or more other parties, including third parties, for the negligence or intentional acts or omissions of any of those other parties, including third parties, is against public policy and is void and unenforceable.

(c) Paragraph (b) does not affect the validity of a provision that requires a party to provide or obtain workers’ compensation insurance, construction performance or payment bonds, or project specific insurance, including, without limitation, builder’s risk policies or owner or contractor-controlled insurance programs or policies.

(d) Paragraph (b) does not affect the validity of a provision that requires the promisor to provide or obtain insurance coverage for the promisee’s vicarious liability, or liability imposed by warranty, arising out of the acts or omissions of the promisor.

Proponents of the legislation testified that the intent of paragraph (b) is to make broad-form indemnity obligations unenforceable by making unenforceable contractual provisions which require insurance to be procured to insure those obligations.  Opponents of the legislation argued for the inclusion of paragraph (c) to allow existing practice to require the referenced insurance and bonds, and paragraph (d) to allow insurance for provisions requiring broad-form indemnity for warranty liability and vicarious liability to be procured.  These amendments apply to all building and construction contracts entered into on or after August 1, 2013.

Whether and to what extent these amendments actually accomplish the stated intent remains to be seen, however.

Potential Issues With the Amended Language

There are several important issues concerning the scope of these new provisions which may have to be decided by the courts, among which are the following:

1. Paragraph (b) by its terms invalidates a provision “that requires a party to provide insurance coverage to one or more other parties, including third parties, for the negligence or intentional acts or omissions of any of those other parties…” This language may restrict contractual provisions which would require a subcontractor to add a general contractor as an additional insured to the subcontractor’s policy – at least insofar as liability for the sole negligence or intentional acts or omissions of the general contractor.  But it may not invalidate a provision that would require the subcontractor to provide coverage to insure a broad-form indemnity obligation, because such a provision only requires the subcontractor to provide insurance coverage for its own obligations under the contract, which would be insurable under the “insured contract” coverage of most CGL policies whether or not additional insured coverage is required or procured.

2. Paragraph (b) also allows contractual provisions which require a party to provide or obtain “project specific insurance.”  Builder’s risk policies and owner or contractor-controlled insurance programs or policies are listed as examples of such “project specific insurance” but the list is not exclusive.  Owner- Contractor Protective policies, which are sometimes mandated in lieu of additional insured endorsements, may also qualify as permitted “project specific insurance.”  And the phrase “project specific insurance” could also be broad enough to allow the same broad-form indemnity provisions currently in use, as long as the contract is tied to a specific project.

So, What To Do?

Whether you are a homebuilder/general contractor or a subcontractor, this amended statute is going to require careful discussion with your legal and insurance advisors.

If you are a homebuilder/general contractor, you will want to discuss whether your subcontracts can be revised to fit within the “project- specific insurance” exception of paragraph (b) to allow your contracts to require you to be added as an additional insured in subcontractor policies.  You will also want to explore whether other “project-specific insurance” may be available for your protection, and whether the indemnity provisions in your existing subcontracts need to be revised.

If you are a subcontractor, you will want to fully understand the extent of any indemnity provisions that you may be asked to sign in connection with projects to be undertaken, and to verify with your insurance advisors that your insurance program fully complies with the requirements of your contractual promises.

 

New Radon Disclosures Required for Minnesota Residential Sales

By Joseph G. Springer, Chair, Construction Group
Fredrikson & Byron, P.A.

The newly enacted Minnesota Radon Awareness Act becomes effective January 1, 2014.  The Act requires sellers of residential real property in Minnesota to make certain disclosures pertaining to the seller’s knowledge of radon levels within the residential dwelling.  Disclosure is required for both newly-constructed and existing homes.  Failure to comply with the detailed requirements of the Act may subject sellers to civil liability and could possibly lead the invalidation of the transfer by a court.

Radon is a colorless, odorless radioactive gas produced by the natural decay of uranium in nearly all soils.  When inhaled, the radon gas releases radioactive particles that can damage the cells that line the lungs.  Long-term exposure to radon gas can lead to lung cancer.  High levels of radon exist in nearly every state in the United States, including Minnesota.  In fact, according to the Minnesota Department of Health, radon levels that pose a significant risk to human health can be found in one in three homes in Minnesota.  Nearly 80% of Minnesota counties are rated as “high radon zones.”

The Minnesota Radon Awareness Act applies only to transfers of residential real property.  Residential real property for purposes of the Act includes single family homes and units in Common Interest Communities, such as condominiums and town homes.  The Act applies to most agreements and contracts that will result in the transfer of title of these properties.  This includes transfer of title by sale, exchange, deed, contract for deed, a lease with an option to purchase, or any other purchase option.  However, there are exceptions to when the Act applies.  For instance, the Act does not apply to transfers by gift, foreclosure or deed in lieu of foreclosure, transfers upon death, and transfers made between certain family members or between spouses resulting from a divorce decree or settlement agreement.

The Act requires that before signing an agreement to sell or transfer residential real property, the seller must make certain disclosures, in writing, to the buyer.  The seller must disclose any knowledge that the seller has of radon concentrations within the dwelling, including any records or reports that the seller has pertaining to radon concentrations.  The disclosure must include:

  • Whether radon testing has been performed.
  • A description of any known radon concentrations.
  • A description of any mitigation or remediation efforts taken to reduce radon concentrations within the home.
  • If a radon mitigation system has been installed in the home, a description of the system and any relevant documentation.
  • A “Radon Warning Statement,” that includes the specific language provided in the statute.

The seller must also provide the buyer with a copy of the Minnesota Department of Health publication, Radon in Real Estate Transactions.  Notably, the Act does not require or mandate radon testing within the residence.

The consequences for failing to comply with the requirements of the Act can be serious.  If a buyer is injured by a failure to make a required disclosure and the seller is aware of material facts about radon concentrations in the home, the buyer may bring a civil action against the seller to recover damages and other relief.  This action must be brought within two years after the date of the transfer.  Also, although the Act provides that the transfer will not be invalidated solely for failure to make the required disclosures, the statute leaves open the possibility that a court may invalidate the transfer on this basis.  Whether courts will actually do so is uncertain, and will likely require further clarification by the judicial system or the legislature.

 

A Tax Brief: Changes in Tax Law from the MN 2013 Session

 

Significant changes to the tax law resulted from the 2013 Legislative Session in Minnesota. Below are a sample of some of the changes Minnesotans will now face.

Individual Tax Rates

A new 9.85 percent tax bracket was created for the top Minnesota taxable incomes. This new rate affects joint filers with taxable income over $250,000, married filing separate filers with taxable income over $125,000 and single taxpayers with taxable income over $150,000. For some individuals – those affected by the 39.6 percent new federal rate – the combination of federal and state taxes will be approximately 50 percent.

Alternative Tax Rate

The alternative minimum tax rate for individuals, estate and trusts is increased to 6.75 percent from 6.4 percent.

Estimated Income Tax Penalties

The new tax law exempts from penalty and interest the underpayment of estimated taxes before September 15, 2013 for taxes resulting from the new 9.85 percent rate. If the estimated taxes have been set using safe harbor rules of prior year taxes, this change will have no effect.

Sales and Use Tax

Effective for sales or purchases made after June 30, 2013, Minnesota will now be following the “Amazon Rule,” which states that out-of-state businesses making retail sales (with no other Minnesota presence) are presumed to have a Minnesota sales tax collection requirement. As a result, after June 30, 2013 Minnesota residents and businesses who purchase online from vendors such as Amazon should expect to find sales tax imposed by the vendor on those orders.

Capital Equipment Exemption

The exemption for capital equipment has been amended to allow the purchase of the equipment tax-free, rather than paying the tax first and then applying for a refund, as it’s been in the past. The effective date is September 1, 2014.

New Digital Tax on Sales and Purchases

Specified digital products that are transferred electronically are now included in the definition for tangible personal property for sales and use tax. Essentially, digital audio, audiovisual, books and other goods such as electronic greeting cards would be subject to tax after June 30, 2013.

Additional Business-to-Business Services

Repair of electronic and precision equipment such as computer-related hardware, TV’s and Radios, communication equipment, scientific instruments and medical equipment are subject to tax from business to business (B2B). Repair and maintaining commercial and industrial equipment (excluding furniture and fixtures) are also subject to tax from B2B. Warehousing and storage of personal property are subject to B2B tax, except for agricultural products, refrigerated storage, electronic data and self-storage services. The warehousing tax does not take effect until April 1, 2014. The other items take effect July 1, 2013.

Contractor Registration Program Update

BAM received an update from the Minnesota Department of Labor and Industry on the Contractor Registration pilot-program. Registration is free and online at www.dli.mn.gov/register.

Beginning September 15, 2012, the next phase of the contractor registration program begins.  In addition to registering, contractors will also need to comply with the subcontracting requirements of the new law.  This includes subcontracting work to registered or licensed contractors unless the contractor meets an exemption specified in the law.

DLI has created several tools to help construction contractors with the registration program:

For more information about contractor registration contact DLI at:

Phone:  (651) 284-5074

Email:  dli.register@state.mn.us

New Contractor Registration Program Now In Effect

The Minnesota Department of Labor and Industry has implemented a new construction contractor registration pilot project required under Minn. Stat. § 181.723 as amended (Minn. Laws, chapter 295) effective as of July 1, 2012.

In a letter sent July 13, 2012 the Minnesota Department of Labor and Industry (DLI) stated, “Beginning July 15, 2012, building construction contractors not already licensed by the Department of Labor and Industry can begin registering by going to www.dli.mn.gov/register. We have created what we hope is a short and simple two page registration form that can be filled out quickly by construction contractors.”

BAM put together information on the rule for members including a copy of the letter and attachments here under “What’s New?”

New Independent Contractor Rules as of July 1, 2012

The Star Tribune reported today that, “Minnesota is scrapping a four-year-old law intended to curb shady employment practices in the construction industry.” As a result of the passage of Senate File 1653 during the 2012 legislative session, the independent contractor exemption certificate rule and 2% withholding rules put in place in 2008 will be repealed.

2008 ICEC & 2% Withholding Rules

The 2008 rule required contractors to obtain Independent Contractor Exemption Certificates and companies that hired them to collect a two percent withholding tax. But in a report to the Legislature this year the state Department of Revenue reported that instead of the 20,000 contractors it expected to find, only 1,694 had taxes withheld through the system in 2010.

In 2009 alone, more than 7,000 new LLCs formed in the state, many of them with construction related names. The article states, “Thousands of construction workers sidestepped the law by registering themselves as limited liability companies, which exempted them from the law, the mountain of paperwork that went it and the withholding tax.”

A Burdensome Rule

The article quotes BAM Executive Vice President Pam Perri: “It was a debacle,” said Pam Perri, executive vice president of the Builders Association of Minnesota, which presents residential construction companies. To obtain an independent contractors certificate, construction workers had to present no less than 20 documents. Most found it easier to just register as an LLC. “It was too burdensome,” she said of the old system.

New Registration Rule in Effect July 1, 2012

Starting in July the Minnesota Department of Labor and Industry will be phasing in a new two-year pilot program registration system that replaces the ICEC and 2% withholding requirements. The pilot program  requires construction contractors, including independent contractors and business entities, to register with DLI by September 15, 2012.

Exempted from this registration are those who are already licensed, certified or registered with DLI or those who are employees of a company already licensed, certified or registered.

No fee will be charged for initial registration.

For DLI’s explanation of the rule and a link to the MN statute visit: http://www.dli.mn.gov/CCLD/PDF/misclassification.pdf

Full Star Tribune Article

BAM Submits Energy Code Issues & Solutions to DLI

The Builders Association of Minnesota hosted an Energy Code Summit April 3, 2012 in which energy and housing advocates were invited to attend and participate in a discussion. During that summit BAM presented several durability and cost issues we believe need to be address before the 2012 International Energy Conservation Code (IECC) is adopted in Minnesota.

As such, on June 7, 2012 BAM submitted a letter to the Department of Labor and Industry (DLI) including a description of the most important issues with new home building under the proposed code as determined by BAM’s members along with solutions for those issues.

BAM’s goals for Minnesota’s Energy Code include:

1) Preventing known durability issues

2) Reasonable paybacks from energy code requirements

3) Allow technologies that work

Read the full letter here.

Issues and solutions for remodeling under the 2012 IECC will be outlined in a separate letter to DLI.