State fined illegal businesses $9.5 million in FY 2009

October 3rd, 2009
by Jan Norman, small-business columnist

Small California businesses allegedly working without paying various taxes were hit by fines totaling $9.5 million in 2009

Source: EEEC
the recently ended fiscal year, 6% more than the year before.

That’s according to the state’s underground economy task force, the Economic & Employment Enforcement Coalition, in its newly released 2009 report to the legislative budget committees and California Department of Finance.

California’s Legislative Analyst’s Office estimated in 2005 the underground economy - individuals and businesses doing work but paying no taxes - is $6.5 billion in unreported income every year.

Since the EEEC started in mid-2005, it has inspected more than 5,500 employers, issued 18,700 citations and violations bringing $38.7 million into the state’s coffers from penalties and assessments, according to Doug Hoffner, acting secretary of the Labor & Workforce Development Agency.

Even larger was the $300 million in unreported wages resulting in $46 million in employment tax liabilities. Through follow-up audits, EEEC says 41% of cited businesses complied with the assessments, 31% went out of business and 10% were sold to new owners who brought the businesses into compliance.

The coalition doesn’t audit businesses at random, according to the 2009 report. It targets 7 industries “most likely to have substantial illegal underground operations.â€