Topeka ? A bipartisan coalition has pushed through legislation in the House that would make it illegal for employers to classify an employee as an independent contractor to avoid paying state taxes.

“This is a business-driven bill,” said state Rep. Tom Holland, D-Baldwin, the major sponsor of the bill.

“There are companies that thrive on cheap labor, and they will do anything they can to keep doing that,” he said.

Rep. Anthony Brown, R-Eudora, said he had seen old family businesses go out of business because they were undercut by those businesses that cheated on taxes and other required costs.

“I get pretty emotional about this,” he said.

The measure was opposed in committee by powerful interest groups such as the Kansas Chamber of Commerce and Kansas Livestock Assn. The groups said the proposal was well-intentioned, but factors distinguishing an independent contractor from an employee are sometimes difficult to discern.

But numerous businesses, big and small, testified in support of the measure.

“Unscrupulous contractors who are not providing benefits, pensions, liability and workers’ compensation insurance, business licensing fees or fair wages and their associated taxes put fair contractors at a huge competitive disadvantage,” said Jim Wilkinson, vice president of Image Flooring of Lenexa.

According to businesses and labor studies, a growing number of companies are misclassifying their workers to avoid paying state income tax withholding or unemployment insurance.

Holland said the increasing abuse of misclassification was costing the state upward of $40 million per year in lost taxes.

“Unscrupulous employers who cheat to avoid paying their fair share hurt both employees as well as the vast majority of businesses that do play by the rules,” Holland said. “This bill provides an equal playing field for Kansas businesses.”

The measure now goes to the Senate where Holland said it had a good chance of passing.

Under the bill, if an employer can be proven to have knowingly and intentionally misclassified an employee to avoid taxes, that employer faces a civil penalty of $500 per day per misclassified employee. There would be no fine on the first violation.

The measure also requires the state departments of Revenue and Labor to establish a Web site to receive information on employers who misclassify employees.

The Revenue Department would be allowed to share confidential taxpayer information with staff attorneys of the Labor Department to investigate alleged violations.