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#183343 - 01/05/09 03:17 PM California referal fee legal question
bwise121 Offline
Member
Registered: 09/11/03
Posts: 114
Loc: Sacramento, CA USA
I've been approached by a local lighting company to do their installs for fixtures they sell. They only ask for a "referal fee." I wanted to see what other contractors have experienced with this sort of relationship and if this is legal in California.

Thanks,
Byron
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Business, Office, Estimating, Legal:
#183346 - 01/05/09 05:58 PM Re: California referal fee legal question [Re: bwise121]
renosteinke Offline
Cat Servant
Member
Registered: 01/22/05
Posts: 5316
Loc: Blue Collar Country
I'd check with both your accountant, AND the contractors' board as to how this relationship should be set up.

For example, if they are selling the job, then hiring you to do the work, this puts them in the position of being a general contractor ... for which they need to be licensed.

Or, conversely, suppose the salesman gets in a wreck ... are you on the hook for the workman's comp claim of your "agent?"

Maybe there's a legal way to do this, but you need to CYA.
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#183350 - 01/05/09 06:41 PM Re: California referal fee legal question [Re: renosteinke]
brsele Offline
Member
Registered: 07/29/08
Posts: 88
Loc: Northern Ontario
I do installs for a local lighting company.
The way that we work it is he sells the fixture(s) and gives them one of my cards.
Whether or not the customer uses my services is between the customer and myself.
The store owner's only concern is that he doesn't get any complaints about my service. If he does, then our relationship is terminated.
It's worked this way for a couple of years without any problems. He has happy customers. I have happy customers. Neither of us owes the other person anything.
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#183351 - 01/05/09 06:47 PM Re: California referal fee legal question [Re: brsele]
Trumpy Offline


Member
Registered: 07/05/02
Posts: 8211
Loc: SI,New Zealand
So Bruce,
Do you give an estimate as to what the work will cost?
How is the pricing sorted out?
Also, is this for totally new work or for retro-fits of new lighting in existing installations?

Sorry about all the questions, just curious.
_________________________
Let's face it, these days if you're not young, you're old - Red Green grin
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#183384 - 01/07/09 06:59 PM Re: California referal fee legal question [Re: renosteinke]
bwise121 Offline
Member
Registered: 09/11/03
Posts: 114
Loc: Sacramento, CA USA
Accountant is a good thing to consider. The way I have been doing a few jobs for the lighting store is they sell the product and send me the name of the client. I contact them, bid the job and then do the work. They then pay the lighting store and the lighting store in turn pays me. The quote I give the customer includes the lighting store's mark up.
The lighting store now wants to have the customer pay me and then I pay the lighting store at the end of the month their mark up.
Question: Is that considered a "kickback" or referal fee? Difference and is it legal?

I certainly don't want to pay the taxes on the "mark up" as my income. So how do we classify this in accounting?

Thanks for your experiences!
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#183389 - 01/07/09 07:23 PM Re: California referal fee legal question [Re: bwise121]
HotLine1 Offline


Member
Registered: 04/03/02
Posts: 6776
Loc: Brick, NJ USA
Anyone that I have paid, be it referral fees, or whatever received a IRS 1099. It was a expense for me, and income for the receiver of the fee.

Do you have an accountant? A good accountant is an important business asset!

_________________________
John
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#183406 - 01/08/09 12:30 PM Re: California referal fee legal question [Re: Trumpy]
brsele Offline
Member
Registered: 07/29/08
Posts: 88
Loc: Northern Ontario
Originally Posted By Trumpy
So Bruce,
Do you give an estimate as to what the work will cost?
How is the pricing sorted out?
Also, is this for totally new work or for retro-fits of new lighting in existing installations?

Sorry about all the questions, just curious.


No problem asking questions... that's why we're on a forum, to learn from each other.

Most people do ask for estimates, but I do get the odd customer that justs wants it done and doesn't care how much it costs. Those people usually get charged less than people that ask for an estimate.
With an estimate, I assume the worst and charge accordlingly.

These jobs are replacement of existing light fixtures or adding lights where none existed before.

Orginally I approached the shop owner about doing installs for him. We agreed to try, but he made it perfectly clear that if he recommended me, then just one customer complaint and I was gone because he felt that if he recommended me, then problems would reflect badly on him.

In 2-1/2 years, never had one complaint. Its a win-win for both of us.

Bruce
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#183489 - 01/11/09 04:42 AM Re: California referal fee legal question [Re: bwise121]
ramsy Offline
Member
Registered: 01/09/07
Posts: 35
Loc: LA basin, CA
Originally Posted By bwise121
The lighting store now wants to have the customer pay me and then I pay the lighting store at the end of the month their mark up. ..I certainly don't want to pay the taxes on the "mark up" as my income. So how do we classify this in accounting?


If customers pay you, any future IRS red flag/audit can go back 5-years; to track fixture sales, lack of resale permit with CA State BOARD OF EQUALIZATION (BOE), lack of re-sale profit declaration for income taxes, and punitive fines for fraud and tax evasion.

The CA BOE legal department appeared clueless to my reasonable effort to find how building-trade contractors can best implement re-sale tax laws. They want to sell permits, not tell you how to avoid it. Further, there are different rules for each industry, its confusing, and perhaps unlikely the youthful clerks can master all of it.

They refered me to www.boe.ca.gov , pub9.pdf and pub73.pdf, which summarizes Cal_Bus_&_Prof_Code__7045 (resale permit laws for the building trades).

Supplier clerks aren't much better, deflecting me to business experts, or certified-public accountants specializing in my industry. Suppliers, aren't required to assume nor explain re-sale liability, especially if contractor's voluntarily assume the burden. IMO, Its a business strategy to stick someone else with the re-sale burden, which you previously appear to have done well.

Permitting and accounting burdens may be worthwhile for the right volume of fixtures/projects. Otherwise, getting customer/owners to buy fixtures themselves may be the only legal way to avoid accounting burdens, or re-sale taxes.
_________________________
Roger Ramjet NoFixNoPay.info
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#183490 - 01/11/09 05:24 AM Re: California referal fee legal question [Re: renosteinke]
ramsy Offline
Member
Registered: 01/09/07
Posts: 35
Loc: LA basin, CA
Originally Posted By renosteinke
suppose the salesman gets in a wreck ... are you on the hook for the workman's comp claim of your "agent?" Maybe there's a legal way to do this, but you need to CYA.


Without any good contractor schools, or on-line courses to help, this appears to be another subject for the industry-specific lawyer.

All too often, without proper accounting/legal referral availing itself dependable, tradesmen in the wild may default to the school of hard knocks, hard audits, hard stings, or good luck.

There is no level playing field, where contractors play catch me if you can, much less when they finance local elections for public servants.
_________________________
Roger Ramjet NoFixNoPay.info
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