Combating The Underground Economy
When one hears a term like “underground economy,” one normally thinks of a third-world country or a business run by the mafia. But this term has been used officially by the State of California to refer to legitimate businesses that engage in practices that are designed to avoid payment of employment-related taxes and benefits to workers. According to California’s Employment Development Department (EDD), these businesses “deal in cash and/or use other schemes to conceal their activities and their true tax liabilities from government licensing, regulatory, and tax agencies.”
The EDD has targeted several industries that it has determined are part of this “underground economy.” Among them is the courier and delivery industry. In an effort to crack down on these companies, the EDD created the Underground Economy Operations (UEO) “to reduce unfair business competition and protect the rights of workers.” The State of California seeks to create a level playing field for those companies that voluntarily pay employment related taxes and benefits.
The EDD’s Information Sheet points out that “when businesses operate in the underground economy, they gain an unfair competitive advantage over businesses that comply with the law. This causes unfair competition in the marketplace and forces law-abiding businesses to pay higher taxes.” In addition to unfair business competition and workers’ rights, the State of California is also concerned about the loss of tax revenues caused by the underground economy, and this concern has been heightened by the recent budget crisis in the state.
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