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Overview
Employers engage in State Unemployment Tax Act (SUTA) dumping when they attempt to lower the amount of their unemployment insurance taxes by circumventing the experience rating system.
SUTA dumping compromises experience rating systems by eliminating the incentive for employers to keep employees working and to return unemployment benefit claimants to work as soon as possible. SUTA dumping also unfairly shifts costs to other employers.
In order to maintain the integrity of state experience rating systems and unemployment funds, federal law required that states enact legislation to deter Unemployment Insurance (UI) tax rate manipulation schemes, to ensure they are detected early and to immediately correct the problem when found.
Texas SUTA Dumping Rules
The Texas Legislature mandated the transfer of compensation experience when certain conditions and certain relationships exist between the previous and new owners of a business. To accomplish this, changes to sections of the Texas Unemployment Compensation Act (TUCA) were adopted, which incorporated provisions mandated by federal legislation.
Chapters 201 and 204 of TUCA
Chapters 201 and 204 of TUCA were revised in an attempt to strengthen the financial integrity of the unemployment insurance program by reducing tax avoidance due to manipulation of unemployment experience.
Section 201.022 expanded employer liability to include all acquisitions, whether total or partial. "Employer" means an individual or employing unit that receives, by any means, all or part of the organization, trade, business, or workforce of another that was an employer subject to this subtitle at the time of the acquisition.
Section 204.081 added two new definitions. The term "person" is defined as an individual, trust, estate, partnership, association, company, or corporation. It provides that "substantially common management or control" exists if the predecessor continues to:
- Own or manage the organization that conducts the organization, trade, or business
- Own or manage the assets necessary to conduct the organization, trade, or business
- Control through security or lease arrangement the assets necessary to conduct the organization, trade, or business
- Direct the internal affairs or conduct of the organization, trade, or business
Section 204.083 requires the transfer of compensation experience in acquisitions of all or part of an experience-rated organization, trade or business in which there is substantially common management or control or substantially common ownership.
Section 204.084 addresses approval of compensation experience for partial acquisitions of business that do not have substantially common management or control or substantially common ownership. In addition, this section states the conditions under which the businesses involved in those partial acquisitions may apply for a transfer of compensation experience and the conditions under which the Commission shall approve or deny such a transfer. The method used to calculate the successor employer’s initial contribution rate is outlined for both experience-rated and non-experience rated successor employers.
Section 204.085 addresses the contribution rate for successor employers that acquire part of the organization, trade, or business that is definitely identifiable and can be separated, when there is substantially common management or control or substantially common ownership. It details the computation of an experience rate for a partial acquisition and clarifies when a new computation of experience rate will take effect for a successor employer with an experience rate and without an experience rate.
Section 204.0851 addresses the contribution rate for total acquisitions and partial acquisitions in which there is substantially common management or control or substantially common ownership. This section excludes partial acquisitions that meet the requirements to be identifiable and able to be separated. It details the computation of experience rates and clarifies when a new computation of experience rate will take effect for a successor employer with an experience rate and without an experience rate.
Section 204.087 defines an offense and sets the penalties for persons that commit violations or advise others to violate the provisions of this subchapter. Violations are Class A misdemeanors.
Section 204.088 charges the Texas Workforce Commission with adopting a rule that establishes procedures for identifying the transfer or acquisition of a business. TWC Rule 815.116 requires the agency to use an electronic method to track and monitor employee movement between companies. TWC uses SUTA software to track and monitor employee transfers from one company to another.
Section 204.089 requires that the Texas Workforce Commission administer this subchapter in conformity with federal regulations prescribed by the United States Secretary of Labor.
