Next Meeting - Election Night!

Please RSVP to the NCBA office by Friday, November 3rd if you wish to attend.

President's Message

I would like to reflect on the name of our organization “Niagara County Builders Association” and what the words in the title really mean. The words “Niagara County” speak for themselves-the geographical area which we represent. The word “Builders” does not just represent home builders but all those professions that are in the business of building construction. The final product is the result of very creative people and products producing a final quality product for interested consumers. The word “Association” is meant to define a collection of individuals having common interests who join in companionship and connect in thought with each other.

With this in mind, we as members of the Niagara County Builders Association have many regulatory issues and concerns not only at the State Legislature but at the local level dealing with the various departments. For example, when a developer purchases property intending to build a subdivision, he must first review the Comprehensive Master Plan and then meet with the Planning Department for approval. Our association is suggesting that, as much as possible, our members be current with all applicable regulatory requirements by attending Planning Board Meetings to see how the process works. There may be a point in time when a developer/association member has difficulty getting a project approved for various reasons. I encourage our members to show support because some decisions may delay a project’s getting off the ground. This not only affects the developer but all those professionals involved to make a project happen.

We must not only do business with our fellow members but also always be supportive of each other. We do what is needed to bring a better quality of life to many communities.

News from the NYSBA

LEGISLATIVE UPDATE: Recently, NYSBA Executive Vice President Philip LaRocque and NYSBA 240 Bill Sponsor Assemblyman Joseph Morelle met with New York State Gubernatorial candidate Eliot Spitzer’s Senior Policy Advisor Paul Francis. The meeting regarding reform of Section 240 of the New York State Labor Law (see October issue of NCBA Newsletter) was encouraging with Paul Francis listening to builders’ concerns on this important issue. Francis reiterated that Eliot Spitzer’s goals are to revitalize the upstate New York economy, to improve the business climate throughout the state, and to make regulatory reform a priority. He stated that issues of concern to business community advocates such as Workers’ Compensation Reform and Reform of Section 240 of the New York state Labor Law are also concerns of the Spitzer campaign. Although Assemblyman Morelle outlined the NYSBA supported legislation combining workers’ compensation reform with 240 reform and there was a lengthy question-and-answer session on the details of the bill, it appears that Spitzer would keep the reform of each separate. NYSBA will provide more facts and figures to Francis as requested at the meeting; we were assured that the issues would be addressed based on their merits. Assemblyman Morelle assured us also that he would remain strongly committed to combining workers’ compensation reform with section 240 reform.

Legislative News

Final Section 199 Regulations Include Favorable Changes for Builders

On June 1, 2006, the U.S. Department of the Treasury Published final regulations for the section 199 domestic production activities deduction. This deduction provides a reduction in tax liability for businesses that manufacture goods or construct property in the United States. The final regulations include a number of changes that are favorable to the construction industry, including the home building business.

The American Jobs Creation Act of 2004 established a new deduction for domestic production activities, including construction. The congressional intent of section 199 was to promote job-creating domestic business. For tax year 2006, the deduction is equal to 3 percent of a business’ qualified production activities income (QPAI). The percentage will rise from 3 to 6 percent for the tax years 2007, 2008, and 2009, and then increase to 9 percent for the tax years after 2009. As modified by the Tax Increase Prevention and Reconciliation Act 2005 (TIPRA), the deduction is limited to 50% of wages paid by the tax payer that are allocable section 199 qualified activities. QPAI is equal to the excess of qualified domestic production gross receipts (DPGR) over the sum of business expenses associated with such receipts. DPGR is defined as the taxpayer’s gross receipts derived form any lease, rental, license, sale, exchange, or other disposition of qualifying production property manufactured, produced, grown, or extracted within the United States. Importantly for builders, DPGR also includes construction, engineering and architectural services performed for domestic construction projects.

The initial guidance for implementing section 199 (IRS Notice 2005-13 and draft regulations REG-105-847-05) created a number of potential obstacles for builders attempting to use the deduction. However, due to comments submitted to the Department of the Treasury by several coalitions of home builders and NAHB, the final regulations offer several improvements that should help builders use this tax incentive to its fullest extent. These regulatory changes to the initial guidance allow for the following activities to be included in or associated with the definition of DPGR:

• Construction of certain land improvements(e.g. roads and sidewalks)
• Installation of property produced by the builder
• Construction/installation of building components (e.g. heating systems, pipes, and ducts)
• Builders do not have to be officially designated as a general contractor or subcontractor to claim DPGR

The final regulations also provide favorable changes to the definition of construction, by including in that definition:

• Certain management and administrative support tasks
• Land grading, demolition, and landscaping if these occur as a part of the construction of a building (and not necessarily by the same taxpayer)

The final regulations also incorporate certain administrative or technical rules that will reduce the compliance cost and administrative burden associate with section 199. They include:

• Establishment of a de minimis rule for non-construction receipts
• Creation of a safe harbor for non-qualified land sales
• Limited improvements to the pass-through entity allocation rules
• Elimination of the rules concerning the source of certain building supplies
• Creation of a safe harbor for new construction ventures with respect to the industry membership test
• Exclusion of the option period for the definition of land ownership

Internal Revenue Service officials have indicated that additional guidance concerning section 199 is forthcoming. This guidance includes regulations regarding the TIPRA modification to the wage limitation, rules for changing elections associated with the deduction, procedures for using statistical sampling, and special rules for businesses with less the $5 million in assets. The IRS guidance is expected by the end of 2006. Rules regarding the treatment of disallowable losses will be published in 2007.

Builders should be sure to check with their tax professionals to determine how section 199 will benefit their businesses.

NAHB will continue to monitor the operation of section 199 for builders and examine new rules and regulations as they are published. For more information on this or other tax issues, please contact NAHB’s tax advocacy staff: Robert Dietz(x8235; rdietz@nahb.com) and Greg Brown (x8421; gbrown@nahb.com).

The final regulations for section 199 may be examined at the following link: www.irs.gov/pub/irs-regs/td_9263.pdf.

NYSBA Helps Preserve Indemnity Contracts

In a case called Rodrigues v. N&S Building Contractors Inc. the New York State Appellate Division with jurisdiction throughout upstate New York east of Utica, ruled that a blanket indemnity agreement which required: “To the fullest extent permitted by law the subcontractors indemnify and hold harmless [the general contractor] and owner against any claims, damages, lawsuits and expenses, including legal fees, arising out of a resulting performance of the subcontractors work to the extent caused in whole or in part by the subcontractor or anyone directly or indirectly employed by the subcontractor” was invalid and held that the general contractor would be responsible for all liability to the subcontractor’s injured employee. The written indemnity agreement was a blanket agreement between the general contractor and the subcontractor for all job sites. The general contractor and the subcontractor had a longstanding relationship and had worked together on approximately 20 job sites prior to the one where the subcontractor’s employee was injured.

Nevertheless, the Appellate Division ruled that the indemnity agreement was invalid because it did not specifically refer to the job site where the worker was injured, and the agreement did not specifically state that it was intended to cover liability on the part of the owner and general contractor for injuries to the subcontractor’s employees. The result of this decision called into question the validity of most indemnification clauses throughout the construction industry because most do not specifically include language regarding injuries to the subcontractor’s employees.

The New York State Builders Association (NYSBA) agreed to submit an Amicus (Friend-of-the-Court) brief supporting the reversal of this decision. On October 20, 2005, the Court of Appeals reversed the decision of the Appellate Division. It held that given the evidence of the longstanding relationship between the general contractor and the subcontractor, the general contractor’s testimony that the indemnification agreement was intended for all sites that the subcontractor worked on, and there was no evidence on the part of the subcontractor disputing this claim, that the contract between the parties was intended to cover the job site where the worker was injured.

Only the indemnity agreement between the parties was in writing. The rest of the terms of the subcontract were oral. Nevertheless, the Court found that only the indemnification agreement needed to be in writing to satisfy the requirements of the Workers’ Compensation Law §11, which bars third-party claims against employers except where there is a written indemnification agreement or where the worker has sustained a “grave injury.”

The court then found that the language in the indemnity agreement to indemnify the general contractor and owner “against any claims, damages, losses, and expenses…arising out of or resulting from performance of subcontracted work to the extent caused in whole or in part by the subcontractor…” was sufficiently clear and unambiguous, ruling that “so long as a written indemnification provision encompasses an agreement to indemnify the person asserting the indemnification claim for the type of loss suffered, it meets the requirements of [Workers’ Compensation Law §11].”

The effect of this decision is that it should clarify the enforceability of indemnity agreements contained in construction contracts. Care should be taken. Use of blanket indemnity agreements for multiple, unidentified job sites is not recommended. It is clear from this decision that if the subcontractor had denied the verbal agreement between the parties that the indemnification agreement was intended to cover all job sites, the general contractor would not have received indemnification without first having to go to trial and have a jury decide who to believe on the subject.

--reprinted from Empire State Builder

Welcome new members

The NCBA is proud to welcome our newest members:

Wells Fargo Home Mortgage 300 Red Creek Drive Suite 210, Rochester, NY 14623.
Phone 585-267-8876 Fax 585-317-3864. Contact Rick S. Daniels.

Sharp General Contracting Inc. 558 Oliver St. N. Tonawanda, NY 14120.
Phone 716-743-2050 Fax 716-743-2025. Contact Mike Tucker or Jim Sharpe.

NCBA Officers & Directors

NCBA Events

Home & Garden Show:

The dates have now been confirmed. Mark your calendars February 16, 17 and 18th 2007 at The Summit. NCBA members will receive a $50.00 discount on booth rentals. Mailers will be going out shortly. Call Cathy at 639-5736 for more information.

Holiday Party:

This year's Holiday Party plans are in process. The date is December 13, 2006 at Suzanne’s Fine Dining on Niagara Falls Blvd. Invitations will be sent out soon. This is a great event that includes a basket auction.

Congratulations to John Ennis

CONGRATULATIONS TO JOHN ENNIS, our Executive Director, who is being inducted into the Western New York Softball Hall of Fame on November17, 2006! He first started playing fast pitch softball at the age of 15 and joined a men’s team at 17. He played Air Force while stationed in Texas and in South Dakota after his discharge. He also played in leagues and tournaments all over Western NY. In league play, his teams won approximately 16 championships. John coached fast pitch softball from 1973 to 1978. 90% of his playing career was spent behind home plate as catcher. He also played third base and shortstop and even pitched when the team really got desperate!