State slaps Duluth firm for unpaid taxesA Duluth electrical contractor whose high-profile public projects have included work on the new Interstate 35W bridge in Minneapolis fell nearly $1.2 million behind on its taxes, the News Tribune has learned.
By: Candace Renalls and Brandon Stahl, Duluth News Tribune
A Duluth electrical contractor whose high-profile public projects have included work on the new Interstate 35W bridge in Minneapolis fell nearly $1.2 million behind on its taxes, the News Tribune has learned.
While Polyphase Electric Co. Vice President Tim Harkonen claims most of the taxes have been paid, the company has been prohibited from working on many state projects for at least a year as a result.
With government contracts 25 percent of their business, according to Harkonen, the prohibition is bound to hurt.
Records show a total of $1,158,492 in state and federal tax liens against the company.
Polyphase Electric Company owed $622,017 to the Internal Revenue Service dating from 2005 and 2006, $403,003 to the Minnesota Department of Employment and Economic Development for unpaid unemployment taxes and $133,472 to the Minnesota Department of Revenue for unpaid withholding taxes.
The company, which is part of Mesaba Electric Group with offices at 2515 W. Superior St. in Duluth, has been a family owned business for more than
50 years. It currently has about 55 core employees, company officials say.
The company fell behind despite completing its largest project ever in 2008, a $7 million contract installing electrical work on the new I-35W bridge in Minneapolis. Polyphase also upgraded the air quality monitoring system in the Leif Eriksen Interstate 35 tunnel in Duluth in 2006 and helped the city fix its faulty sirens in 2005.
Brett Cahoon of Kraus-Anderson Construction Co. in Duluth has worked with Polyphase and has no complaints. Last year, in a $400,000 contract, Polyphase replaced the street and parking lot lighting at the Duluth International Airport as part of Phase I of the new airport terminal project.
“The work is done now,” said Cahoon, who is the construction manager on the project. “They came in, their site staff did a really good job. They did what they needed to do to get the job done.”
Harkonen says the recession has affected his business, but it didn’t cause its current tax problems. Rather, he says the company’s tax issues stem from a seven-month delay in getting paid $2 million for a 2007 federal-state project, which he declined to identify. Payment arrived in nine months rather than two, setting the company back.
“How are we supposed to pay our taxes if the government doesn’t pay us?” he said.
Harkonen also maintains that most of the taxes owed have actually been paid. Copies of monthly checks indicate a total $720,000 out of the $1,158,492 was paid in monthly installments from May 20, 2008, to Nov. 24, 2009.
Then the payments stopped, leaving about $440,000 owed. Harkonen says most of it is in penalties and interest that they’re appealing.
Those payments aren’t reflected in tax lien records at the St. Louis County Courthouse. But the IRS generally can’t issue a “Certificate of Release of Federal Tax Lien” until all the taxes, penalties and interest are paid. Records show that previous tax liens against the company, for $62,716 and $13,114, were paid off in 2006 and 2007.
Polyphase’s debarment from doing state contracts was effective May 5. It will expire May 5, 2011. But the company can’t apply for reinstatement until May 5, 2012, essentially barring them from entering into state contracts for two years.
“It’s unusual,” said Jim Schwartz, a Minnesota Department of Administration spokesman of the action taken by the department’s Materials Management Division. “Typically there is significant reason for debarment and suspension. Obviously in this case, it was failure to pay unemployment insurance.”
The company’s appeal of the debarment was unsuccessful. In its appeal, Polyphase argued that the action was premature and not in the best interest of the state. The company needs to generate funds from state projects to pay the money owed, it argued. Moreover, the company argued that it had negotiated a repayment agreement with Department of Employment and Economic Development.
The appeal was denied July 22.
Still, the company continues to work state contracts.
“We still have contracts going,” said Harkonen. They include a couple of big ones, including a $2.5 million contract for work on the Lowry Avenue bridge project in Minneapolis, he said. They are allowed to complete the contract and conclude projects, but they’re not able to solicit new ones, Schwartz said.
But the company got lucky that the Minnesota Department of Transportation has not taken similar steps against it, he said.
“Had they done that, Polyphase would have been barred from local government contracts, anything to do with roads, streets, sidewalks,” Schwartz said. So the company can still bid and work on many state-funded local projects, he said.
A series of lawsuits filed in county court by various labor organizations against the company also show a pattern of default. The lawsuits filed over years typically were over missed fringe benefits contributions for workers that the company had agreed to make in collective bargaining agreements and promissory notes.
In cases reviewed by the News Tribune, once sued, the company typically acknowledged it owned the money and apparently paid it. In some cases, it amounted to less than $10,000.
“It’s a total non-issue,” Harkonen said. “The unions file a lawsuit on any contract the moment they’re late. It sounds horrible, but it’s really nothing. We’re not the only ones. It’s a way of life. They file it. We pay it. They dismiss it.”
It is routine, agreed Jody Roe-Hardie, administrator for the International Brotherhood of Electrical Workers Local 292 Trust Office in Maple Grove, Minn., which manages the union’s fringe benefit plans. The trustees have sued Polyphase for missed payments.
“We have to sue contractors for delinquent employer contributions,” Roe-Hardie said. “It’s the law. Any contractor that’s delinquent, no matter where or who, we are required to sue them. It’s due on the 15th of the month. By the 16th, we’re already doing legal process.”
And, she said, many companies are sued on a regular basis.
Several current and former employees contacted Friday said Polyphase is a good place to work. Although some paychecks have bounced over the years, they said the company always made good on the checks. Two workers who voluntarily took a layoff recently said they want to work for Polyphase again.