Construction companies that work near one or more state borders may eventually want or need to bid on out-of-state projects. Should you win one of those jobs, you’ll have a lot to think about. How will we get our workers there and our supplies delivered? Yet, before you can even answer those questions, you’ll need to back up even further to determine just how you’ll get licensed.
Assessing the requirements
Contractors who put off licensing until they land their jobs may be in for an unpleasant surprise: Some states allow only licensed contractors to bid on work. Licensing requirements for bidders may depend on a project’s size. One state may require that contractors be licensed if they’re bidding on a project that’s, say, $50,000 or more, while another may set the cutoff at $25,000 or more.
The lead time required for licensing also varies widely, which can trip you up if you want to start a job quickly. Some states review license applications only during official meetings, and those meetings may be held quarterly. If your job is time-sensitive, check on the state’s licensing timetable so you don’t miss a deadline.
Navigating the process
When it comes to performing the work, each state has its own twist on the licensing process — so research the details closely. Not all states require licenses for contractors, and license requirements may vary based on the municipality where you’ll be working and the scope of work.
In some states, a license to work isn’t required if a job falls below a certain dollar threshold. That threshold varies from state to state — for example, it might be only $2,000 or it might be $50,000.
Other states don’t license contractors at the state level but have alternative requirements that you’ll need to meet. For example, you could be required to register with the state and then apply for licenses in the specific towns or counties where you’ll be working.
While you’re researching the specifics, don’t forget your subcontractors (assuming you’re a general contractor). Some states require subs to be licensed separately — even if they’re working under a general contractor’s supervision. Other states require licenses only for certain trades, such as plumbing or electrical work.
Doing the paperwork
When you apply for an out-of-state license, prepare for a mountain of paperwork. Some commonly requested documents for license applications include financial statements prepared by your CPA and summaries of your assets, including equipment.
You could also need copies of your general liability and workers’ compensation insurance certificates that list the state licensing board as an additional insured. Some states might ask for references from your suppliers. If you’re involved in any lawsuits or a disciplinary action has been taken against you, you’ll likely need to provide a detailed explanation.
States also typically require contractors to qualify to do business in the state, and obtain a tax identification number, before they’ll issue a license. In addition, you may need to take exams or participate in training.
Certain states have license reciprocity agreements with one another. This means that, if you’re licensed in one state, you may qualify for a license in a reciprocating state without having to sit for that state’s trade exam. While reciprocity doesn’t mean you’ll be automatically waived in, it generally accelerates the licensing process a bit.
Obtaining an out-of-state license also means dealing with related tax and financial issues. Some states and municipalities assess an annual license tax based on a percentage of the contractor’s gross receipts, while others charge an annual fee that goes toward a recovery fund for project owners who have financial disputes with licensed contractors.
Covering all the details
Naturally, licensing is just one piece of the puzzle. You’ll also need to sort out the payroll, property, and sales and use taxes you may owe for the out-of-state project. Work with your CPA and attorney to ensure that you’ve covered all the details.
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