ATTACHMENT II

 

DRAFT LEGISLATIVE LANGUAGE

 

The following language is provided for state use in developing language that meets the requirements of Section 303(k), SSA, as added by P.L. 108-295, on SUTA dumping. 

 

States will need to modify the language to accord with state usage.  For example, “Commissioner” should be changed to the name of the agency administering the state’s UC program if that is the state convention.  Similarly, legal usages, such as “Chapter” to refer to the state’s UC law, should be changed to accord with state convention.

 

The following language assumes the state wishes to add a separate section addressing SUTA dumping.  States may chose instead to integrate the following provisions into existing state law.  If this is the case, states should use this language in conjunction with the Checklist in Attachment III to assure all necessary amendments are made.  Similarly, states modifying the language should test such modifications against the Checklist.

 

Section _____________.   Special Rules Regarding Transfers of Experience and Assignment of Rates.   Notwithstanding any other provision of law, the following shall apply regarding assignment of rates and transfers of experience:

 

(a)  If an employer transfers its trade or business, or a portion thereof, to another employer and, at the time of the transfer, there is substantially common ownership, management or control of the two employers, then the unemployment experience attributable to the transferred trade or business shall be transferred to the employer to whom such business is so transferred.  The rates of both employers shall be recalculated and made effective immediately upon the date of the transfer of trade or business. [1] 

(b)  Whenever a person[2] who is not an employer[3] under this Chapter at the time it acquires the trade or business of an employer, the unemployment experience of the acquired business shall not be transferred to such person if the Commissioner finds that such person acquired the business solely or primarily for the purpose of obtaining a lower rate of contributions.  Instead, such person shall be assigned the [applicable][4] new employer rate under section [insert section of state law].  In determining whether the business was acquired solely or primarily for the purpose of obtaining a lower rate of contributions, the Commissioner shall use objective factors which may include the cost of acquiring the business, whether the person continued the business enterprise of the acquired business, how long such business enterprise was continued, or whether a substantial number of new employees were hired for performance of duties unrelated to the business activity conducted prior to acquisition.

 

(c)(1)  If a person knowingly violates or attempts to violate subsections (a) and (b) or any other provision of this Chapter related to determining the assignment of a contribution rate,[5] or if a person knowingly advises another person in a way that results in a violation of such provision, the person shall be subject to the following penalties:

 

(A)  If the person is an employer, then such employer shall be assigned the highest rate assignable under this Chapter for the rate year during which such violation or attempted violation occurred and the three rate years immediately following this rate year.   However, if the person’s business is already at such highest rate for any year, or if the amount of increase in the person’s rate would be less than 2 percent for such year, then a penalty rate of contributions of 2 percent of taxable wages shall be imposed for such year.

 

(B)  If the person is not an employer, such person shall be subject to a civil money penalty of not more than $5,000.  Any such fine shall be deposited in the penalty and interest account established under [insert appropriate section of state law]. [6]

 

(2)  For purposes of this section, the term “knowingly” means having actual knowledge of or acting with deliberate ignorance or reckless disregard for the prohibition involved.

 

(3)  For purposes of this section, the term “violates or attempts to violate” includes, but is not limited to, intent to evade, misrepresentation or willful nondisclosure.[7]

                             

(4)  In addition to the penalty imposed by paragraph (1), any violation of this section may be prosecuted as a [insert appropriate language; for example “a class A felony” or “a Class B misdemeanor”] under Section [insert appropriate section] of the Criminal Code.[8]

 

(d) The Commissioner shall establish procedures to identify the transfer or acquisition of a business for purposes of this section.

 

(e)  For purposes of this section—

(1) “Person” has the meaning given such term by section 7701(a)(1) of the Internal Revenue Code of 1986, and

(2) “Trade of business” shall include the employer’s workforce.[9]

 

(f)  This section shall be interpreted and applied in such a manner as to meet the minimum

requirements contained in any guidance or regulations issued by the United States Department of Labor.[10]


1  See Question and Answer 8, which contains the Department’s recommendation that rates be recomputed immediately.

[2]   The term “person” is used consistent with the usage in Section (k)(1)(B), SSA.  It encompasses a broad range of entities who are not “employers.”  It includes both entities who are not “employers” because they have no payroll or insufficient payroll.  Note the definition of “person” given in subsection (e)(1) of the draft language.

[3]   States should determine if “employer” is the appropriate term here and in other appearances in this draft language. For example, a state may use the term “employing unit, “subject employer,” or “employer liable for contributions” to describe an entity that is subject to taxation under the state’s UC law.

[4]   The word “applicable” is intended to address situations where not all “new” employers receive the same rate.  For example, many states assign new employer rates by industry code.

[5]   See Question and Answer 24 regarding payrolling.

[6]   This provision permits a penalty to be applied to self-employed financial advisors and individual employees of businesses.  See Question and Answer 23 regarding the deposit of the fines in the penalty and interest account.

[7]   This provision – paragraph (3) - is optional.  An actual listing of violations may help to deter these violations.

[8]   States should assure that the criminal penalties cited are applicable to both individuals and corporations. 

[9]   See Question and Answer 5 regarding whether workforce is part of the employer’s “trade or business.”  This definition assures that questions will not arise about whether an employer’s workforce is included in “trade or business.”

[10]   Subsection (f) is optional.  States are encouraged to include such language to avoid potential conflicts with any Federal regulations finalized after enactment of state law.  The language is written in terms of minimum Federal requirements to assure states are free to adopt more stringent protections to avoid SUTA dumping.