California Campaigns for U.S. House Skirt Payroll-Tax Laws.

Knight Ridder/Tribune Business News

Oct. 14--Rep. Loretta Sanchez, her challenger Robert K. Dornan and Assembly candidate Lou Correa do not deduct taxes from their campaign workers' pay, a practice some legal and payroll experts say breaks state and federal tax laws.

An informal Register survey of Orange County candidates found that at least two other local congressional campaigns also may be violators.

Campaign spokesmen for Sanchez, Dornan and Correa say paying workers as independent contractors rather than employees -- thus exempting them from automatic deductions -- is widespread and accepted by the Internal Revenue Service. The IRS declined to comment on the cases. Others familiar with payroll rules said the three campaigns are in clear violation of tax laws.

"They're cheating the other taxpayers," said Mark Bucher, president of Employers Resource, a Tustin firm that provides payroll services to political campaigns and other small businesses. "They pass laws that they expect us to follow and then they break the laws themselves."

Dana Reed, treasurer for the pro-Proposition 5 Indian gaming initiative campaign and legal adviser to Senate candidate Matt Fong's campaign, agreed.

"They're hiring these kids and are not giving …