My firm has a contract with a California state agency. Due to California's budget mess, some of my invoices weren't paid in a timely manner as defined in the state's Prompt Payment Act. My agency project manager told me yesterday that I'll be getting a check for penalties as prescribed by the Act. Are these penalties taxable income?
P.S. I'm seeking answers from some more pertinent resources, and thought I'd ask here in case any of you has had direct experience with this.
If it lands in the profit column it is taxable.
You may call it penalty pay for being late and I would think that the man would call it interest.
It is also feasible to include your efforts to collect your fees that would fall into the deduction column, and of course there would be a form for that :-S
They are paing extra money, because the requirement to pay extra money is in the contract. Because it is a delayed payment the firm may have some offsetting interest charges if it was necessary to borrow money for payrol or other obligations.
If the penalty were the result of damages from a lawsuit, I believe they syill would be taxable.
Paul in PA
LPL
Jim is receiving payment due to the California Prompt Payment Act. The State has 45 days to pay a valid invoice (and I think it's 30 days for a certified small business). The State Controller requires 15 days so the agency has to get the approved invoice to State Controllers within 30 days. The fun part is if the legislature and governor haven't figured out the budget yet then the agency can not approve the payment so our chronically late budgets cost the State a lot of money.
The vendor does not invoice for the late fees, the State Controller automatically pays them and they accrue daily after 45 days.
yes, they would be taxable.
> My firm has a contract with a California state agency. Due to California's budget mess, some of my invoices weren't paid in a timely manner as defined in the state's Prompt Payment Act. My agency project manager told me yesterday that I'll be getting a check for penalties as prescribed by the Act. Are these penalties taxable income?
I'd say wait for the 1099. If they show up as reported income on the 1099, is it really going to be worth the trouble to claim otherwise?
Automatically? Maybe...
> The vendor does not invoice for the late fees, the State Controller automatically pays them and they accrue daily after 45 days.
It's supposed to be automatic, but my experience suggests otherwise. I've had to make multiple requests to and followups with my agency PM as well as the agency's Small Business Advisor to investigate and report on the progress of my claim under the Act. The check that's supposed to be coming soon is for delayed payments in 2009. I'm not sure the 2010 late payments have even been looked at yet.
Automatically? Maybe...
In training they told us penalty payment is automatic but I'm not surprised it really isn't automatic. Maybe someone at Controllers has to "automatically" key it in which didn't happen.
I think making a claim (State Board of Control?) is not really the same as invoicing for it so in a sense you had to push them to do what is supposed to be automatic.
Confused yet?
Automatically? Maybe...
> Confused yet?
Confused by the process, yes. The most frustrating thing about it is there doesn't appear to be a formal means of tracking the assessment and payment of penalties under the Act. My requests got shuffled around within 2 state agencies, with each interim response amounting to "Gee, I don't really know. I'll see if I can find someone who does." Sometimes months would pass between replies, with follow-up contacts by me appearing necessary to trigger any activity at all.
I came very close to taking my case to my Assembly member -- her office was across the street from mine when she was a county supervisor, so we're not complete strangers -- in order to shake the tree from the top, but now it looks like I won't have to do that.
Automatically? Maybe...
The extent of the training is "it's automatic, you don't do anything." That's probably why staffers are confused.
Fortunately I'm not in procurement and my Cal Card never showed up. I don't want one, I'd rather eat the little I spend here and there than deal with the headaches. I get most things reimbursed on my travel expense claim.
