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S1226.......................................by COMMERCE AND HUMAN RESOURCES
UNEMPLOYMENT INSURANCE - EXPERIENCE RATING - Amends and adds to existing
law to revise the method used to compute the experience rating account for
unemployment insurance for a business when ownership of the business is
transferred from a covered employer and there is a continuity of business
activity by the successor; and to make technical adjustments to the
employment security law.
01/23 Senate intro - 1st rdg - to printing
01/26 Rpt prt - to Com/HuRes
02/11 Rpt out - rec d/p - to 2nd rdg
02/12 2nd rdg - to 3rd rdg
02/17 3rd rdg - PASSED - 31-0-4
AYES -- Bailey, Bunderson, Burkett, Calabretta, Cameron, Compton,
Darrington, Davis, Gannon, Geddes, Goedde, Hill, Ingram, Kennedy,
Keough, Little, Lodge, Malepeai, Marley, McKenzie, McWilliams, Noble,
Noh, Pearce, Richardson, Schroeder, Stegner, Stennett, Sweet, Werk,
Williams
NAYS -- None
Absent and excused -- Andreason, Brandt, Burtenshaw, Sorensen
Floor Sponsor - Goedde
Title apvd - to House
02/18 House intro - 1st rdg - to Com/HuRes
02/24 Rpt out - rec d/p - to 2nd rdg
02/25 2nd rdg - to 3rd rdg
02/27 3rd rdg - PASSED - 64-0-6
AYES -- Andersen, Barraclough, Barrett, Bauer, Bayer, Bedke, Bell,
Black, Block, Boe, Bolz, Bradford, Campbell, Cannon, Clark, Collins,
Cuddy, Deal, Denney, Douglas, Edmunson, Ellsworth, Field(18),
Field(23), Gagner, Garrett, Harwood, Henbest, Jaquet, Kellogg,
Kulczyk, Lake, Langford, Langhorst, Martinez, McGeachin, McKague,
Meyer, Miller, Mitchell, Moyle, Naccarato, Nielsen, Pasley-Stuart,
Raybould, Ridinger, Ring, Ringo, Roberts, Robison, Rydalch, Sali,
Sayler, Shepherd, Shirley, Skippen, Smith(30), Smith(24), Smylie,
Snodgrass, Stevenson, Trail, Wills, Wood
NAYS -- None
Absent and excused -- Crow, Eberle, Eskridge, Jones, Schaefer, Mr.
Speaker
Floor Sponsor - McKague
Title apvd - to Senate
03/01 To enrol
03/02 Rpt enrol - Pres signed
03/03 Sp signed
03/04 To Governor
03/05 Governor signed
Session Law Chapter 24
Effective: 03/05/04 Section 4;
07/01/04 All others
]]]] LEGISLATURE OF THE STATE OF IDAHO ]]]]
Fifty-seventh Legislature Second Regular Session - 2004
IN THE SENATE
SENATE BILL NO. 1226
BY COMMERCE AND HUMAN RESOURCES COMMITTEE
1 AN ACT
2 RELATING TO THE EMPLOYMENT SECURITY LAW; AMENDING SECTION 72-1316, IDAHO CODE,
3 TO CLARIFY THE DEFINITION OF LOCALIZED SERVICE; AMENDING SECTION 72-1346,
4 IDAHO CODE, TO CLARIFY REFERENCES TO THE FEDERAL UNEMPLOYMENT TRUST FUND,
5 TO PROVIDE THAT REED ACT APPROPRIATIONS ARE SUBJECT TO CERTAIN STATUTORY
6 CONDITIONS AND TO DELETE OBSOLETE LANGUAGE; AMENDING SECTION 72-1348,
7 IDAHO CODE, TO PROVIDE A CORRECT CODE REFERENCE; AMENDING SECTION 72-1351,
8 IDAHO CODE, TO PROVIDE A LONGER PERIOD OF TIME TO REQUEST A TRANSFER OF AN
9 EXPERIENCE RATING ACCOUNT, TO PROVIDE THAT WHENEVER AN INDIVIDUAL OR ORGA-
10 NIZATION SUCCEEDS TO OR ACQUIRES ALL OR PART OF THE BUSINESS OF A COVERED
11 EMPLOYER THE TRANSFER OF THE PREDECESSOR'S EXPERIENCE RATING ACCOUNT SHALL
12 BE MANDATORY IF THE MANAGEMENT OR OWNERSHIP OR CONTROL OF THE BUSINESS IS
13 SUBSTANTIALLY THE SAME FOR THE SUCCESSOR AS FOR THE PREDECESSOR AND THERE
14 IS A CONTINUITY OF BUSINESS ACTIVITY BY THE SUCCESSOR AND TO DEFINE THE
15 TERM "EXPERIENCE RATING ACCOUNT"; AND DECLARING AN EMERGENCY FOR SECTION 4
16 OF THIS ACT.
17 Be It Enacted by the Legislature of the State of Idaho:
18 SECTION 1. That Section 72-1316, Idaho Code, be, and the same is hereby
19 amended to read as follows:
20 72-1316. COVERED EMPLOYMENT. (1) "Covered employment" means an
21 individual's entire service performed by him for wages or under any contract
22 of hire, written or oral, express or implied.
23 (2) Notwithstanding any other provision of state law, services shall be
24 deemed to be in covered employment if a tax is required to be paid or was
25 required to be paid the previous year on such services under the federal unem-
26 ployment tax act or if the director determines that as a condition for full
27 tax credit against the tax imposed by the federal unemployment tax act such
28 services are required to be covered under this chapter.
29 (3) Services covered by an election pursuant to section 72-1352, Idaho
30 Code, and services covered by an election approved by the director pursuant to
31 section 72-1344, Idaho Code, shall be deemed to be covered employment during
32 the effective period of such election.
33 (4) Services performed by an individual for remuneration shall, for the
34 purposes of the employment security law, be covered employment unless it is
35 shown:
36 (a) That the worker has been and will continue to be free from control or
37 direction in the performance of his work, both under his contract of ser-
38 vice and in fact; and
39 (b) That the worker is engaged in an independently established trade,
40 occupation, profession, or business.
41 (5) "Covered employment" shall include an individual's entire service,
42 performed within or both within and without this state:
43 (a) If the service is localized in this state; or
2
1 (b) If the service is not localized in any state but some of the service
2 is performed in this state, and:
3 (i) The individual's base of operations or the place from which
4 such service is directed or controlled is in this state; or
5 (ii) The individual's base of operations or place from which such
6 service is directed or controlled is not in any state in which some
7 part of the service is performed, but the individual's residence is
8 in this state.
9 (c) Service shall be deemed to be localized within a state if:
10 (i) The service is performed entirely within such state; or
11 (ii) The service is performed both within and without such state,
12 but the service performed without such state is incidental, temporary
13 or transitory in nature or consists of isolated transactions, as com-
14 pared to the individual's service within the state. is temporary,
15 transitory in nature, or consists of isolated transactions.
16 (d) "Covered employment" shall include an individual's service, wherever
17 performed within the United States, or Canada, if:
18 (i) Such service is not covered under the unemployment compensation
19 law of any other state, the Virgin Islands, or Canada; and
20 (ii) The place from which the service is directed or controlled is
21 in this state.
22 (6) "Covered employment" shall include the services of an individual who
23 is a citizen of the United States, performed outside the United States,
24 (except in Canada) in the employ of an American employer (other than service
25 which is deemed "covered employment" under the provisions of subsection (5) of
26 this section or the parallel provisions of another state's law), if:
27 (a) The employer's principal place of business in the United States is
28 located in this state; or
29 (b) The employer has no place of business in the United States; but
30 (i) Is an individual who is a resident of this state; or
31 (ii) Is a corporation which is organized under the laws of this
32 state; or
33 (iii) Is a partnership or a trust and the number of the partners or
34 trustees who are residents of this state is greater than the number
35 who are residents of any other state; or
36 (c) None of the criteria of provision (a) or (b) of this subsection is
37 met but the employer has elected coverage in this state, or the employer
38 having failed to elect coverage in any state, the individual has filed a
39 claim for benefits based on such service, under the law of this state;
40 (d) An "American employer" for purposes of this subparagraph means a per-
41 son who is:
42 (i) An individual who is a resident of the United States; or
43 (ii) A partnership if two-thirds (2/3) or more of the partners are
44 residents of the United States; or
45 (iii) A trust if all of the trustees are residents of the United
46 States; or
47 (iv) A corporation organized under the laws of the United States or
48 of any state.
49 (e) For purposes of this subsection, "United States" means the states,
50 the District of Columbia, the Commonwealth of Puerto Rico, and the Virgin
51 Islands.
52 SECTION 2. That Section 72-1346, Idaho Code, be, and the same is hereby
53 amended to read as follows:
3
1 72-1346. EMPLOYMENT SECURITY FUND. (1) Establishment and Control. There
2 is established in the state treasury, separate and apart from all other funds
3 of this state, an "Employment Security Fund," which shall be perpetually
4 appropriated to the director to be administered pursuant to the provisions of
5 this chapter and the social security act. This fund shall consist of all con-
6 tributions collected pursuant to this chapter, payments in lieu of contribu-
7 tions, interest earned upon any moneys in the fund, any property or securities
8 acquired through the use of moneys belonging to the fund, all earnings of such
9 property or securities, moneys temporarily deposited in the clearing account,
10 and all other moneys received for the fund from any other source.
11 (2) Accounts and Deposits. The state controller shall maintain within the
12 fund three (3) separate accounts: (i) a clearing account, (ii) an unemployment
13 trust fund account, and (iii) a benefit account. Upon receipt by the director,
14 all moneys payable to the fund shall be promptly forwarded to the state trea-
15 surer for immediate deposit in the clearing account. After clearance, all
16 moneys in the clearing account shall, except as otherwise provided, be depos-
17 ited promptly with the secretary of the treasury of the United States to the
18 credit of this state's account in the federal unemployment trust fund estab-
19 lished and maintained pursuant to section 904 of the social security act (42
20 U.S.C. 1104), any provisions of law in this state to the contrary notwith-
21 standing. The benefit account shall consist of all moneys requisitioned for
22 the payment of benefits from this state's account in the federal unemployment
23 trust fund. in the treasury of the United States. Moneys in the clearing and
24 benefit accounts may be deposited by the state treasurer under the direction
25 of the director in any depository bank in which general funds of the state may
26 be deposited, but no public deposit insurance charge or premium shall be paid
27 out of the fund. Moneys in the clearing and benefit accounts shall not be com-
28 mingled with other state funds and shall be maintained in separate accounts on
29 the books of the depository bank. Such moneys shall be secured by the deposi-
30 tory bank in the same manner as required by the general public depository law
31 of this state and collateral pledged for this purpose shall be kept separate
32 and distinct from collateral pledged to secure other funds of the state. The
33 state treasurer shall be liable on his official bond for the faithful perfor-
34 mance of his duties in connection with the employment security fund.
35 (3) Withdrawals. Moneys requisitioned by the director through the trea-
36 surer from this state's account in the federal unemployment trust fund shall
37 be used exclusively for the payment of benefits and for refunds pursuant to
38 section 72-1357, Idaho Code, except that Reed act moneys credited to this
39 state's account pursuant to section 903 of the social security act (42 U.S.C.
40 1103), shall be used exclusively as provided in subsection (4) of this sec-
41 tion. The director through the treasurer shall requisition from the federal
42 unemployment trust fund such amounts, not exceeding the amounts standing to
43 this state's account therein, as he deems necessary for the payment of bene-
44 fits and refunds for a reasonable period. Upon receipt, such moneys shall be
45 deposited in the benefit account. Expenditures of moneys in the benefit and
46 clearing accounts shall not require the approval of the board of examiners or
47 be subject to any provisions of law requiring specific appropriations or other
48 formal release by state officers of money in their custody. The residual daily
49 balance in the benefit account may be invested in accordance with the cash
50 management improvement act of 1990, and earnings on those investments may be
51 used to pay the related banking costs of maintaining the benefit account. Any
52 earnings in excess of the related banking costs shall be returned to the
53 state's account in the federal unemployment trust fund annually. All warrants
54 issued for the payment of benefits and refunds shall bear the signature of the
55 director. Upon agreement between the director and state controller, amounts in
4
1 the benefit account may be transferred to a revolving account established and
2 maintained in a depository bank from which the director may issue checks for
3 the payment of benefits and refunds. Moneys so transferred shall be deposited
4 subject to the same requirements as provided with respect to moneys in the
5 clearing and benefit accounts in subsection (2) of this section. Any balance
6 of moneys requisitioned from the federal unemployment trust fund which remains
7 unclaimed or unpaid in the benefit account or revolving account after the
8 expiration of the period for which such sums were requisitioned, may be uti-
9 lized for the payment of benefits and refunds during succeeding periods, or,
10 in the discretion of the director, shall be redeposited with the secretary of
11 the treasury of the United States to the credit of this state's account in the
12 federal unemployment trust fund.
13 (4) Reed Act Moneys. Reed act moneys credited to this state's account in
14 the federal unemployment trust fund by the secretary of the treasury of the
15 United States pursuant to section 903 of the social security act (42 U.S.C.
16 1103), may be requisitioned and used for the payment of benefits and for the
17 payment of expenses incurred for the administration of this chapter. Moneys
18 may only be requisitioned and used for the payment of expenses incurred for
19 the administration of this chapter if the expenses are incurred and the money
20 is requisitioned after the enactment of a specific appropriation by the legis-
21 lature which specifies the purposes for which such money is appropriated, and
22 the amounts appropriated therefor., and provides that Such appropriation is
23 subject to the following conditions:
24 (a) Such money may not be obligated after the close of the two (2) year
25 period which began on the date of the enactment of the appropriation law;
26 and
27 (b) The amount which may be obligated at any time may not exceed the
28 amount by which the aggregate of the amounts transferred to the account of
29 this state pursuant to section 903 of the social security act (42 U.S.C.
30 1103), exceeds the aggregate of the amounts used by this state and charged
31 against the amounts transferred to the account of this state. For the pur-
32 poses of this subsection, amounts obligated for administrative purposes
33 pursuant to an appropriation shall be chargeable against transferred
34 amounts at the exact time the obligation is entered into.
35 (c5) Reed act moneys requisitioned for the payment of benefits shall be
36 deposited in the benefit account established in this section. Reed act moneys
37 requisitioned for the payment of administrative expenses pursuant to a spe-
38 cific appropriation shall be deposited in the employment security administra-
39 tion fund, section 72-1347, Idaho Code, except that moneys appropriated for
40 the purchase of lands and buildings shall be deposited in the state employment
41 security administrative and reimbursement fund in accordance with section
42 72-1348, Idaho Code. Money so deposited shall, until expended, remain part of
43 the employment security fund and, if not expended, shall be promptly returned
44 to this state's account in the federal unemployment trust fund.
45 (5) Special Reed Act Distributions. Notwithstanding subsection (4) of
46 this section, Reed act moneys credited with respect to federal fiscal years
47 2000, 2001 and 2002 shall be used solely for the administration of the unem-
48 ployment insurance program and are not subject to appropriation by the legis-
49 lature.
50 SECTION 3. That Section 72-1348, Idaho Code, be, and the same is hereby
51 amended to read as follows:
52 72-1348. STATE EMPLOYMENT SECURITY ADMINISTRATIVE AND REIMBURSEMENT FUND.
53 (1) There is created in the state treasury the "State Employment Security
5
1 Administrative and Reimbursement Fund." Notwithstanding the provisions of sec-
2 tions 72-1346 and 72-1347, Idaho Code, the fund shall consist of:
3 (a) All penalties, and all interest on judgments or accounts secured by
4 liens, collected pursuant to the provisions of sections 72-1347A, 72-1347B
5 and 72-1354 through 72-1364, Idaho Code, but only after such interest and
6 penalties have been deposited in the clearing account and are thereafter
7 transferred to this fund in such amounts as, in the discretion of the
8 director, will leave a sufficient balance of interest and penalties in the
9 clearing account to pay refunds; and
10 (b) Reed act moneys appropriated for the purchase of land and buildings
11 pursuant to section 72-1346(45), Idaho Code.
12 (2) Moneys referred to in subsection (1)(a) of this section are perpetu-
13 ally appropriated to the director and may be used upon written authorization
14 of the board of examiners for any lawful purpose, including, but not limited
15 to:
16 (a) As a revolving fund to cover expenditures for which federal funds
17 have been duly requested but not yet received, subject to reimbursement
18 upon receipt of the federal funds;
19 (b) For the payment of costs of administration including costs not val-
20 idly chargeable against federal grants;
21 (c) For the payment of refunds of penalties pursuant to section 72-1357,
22 Idaho Code; and
23 (d) For the purchase of land and buildings for the purpose of providing
24 office space for the department.
25 (3) Moneys referred to in subsection (1)(b) of this section may be used
26 by the department to acquire for and in the name of the state by term purchase
27 agreement lands and buildings for office space for the department at such
28 places as the director finds necessary. An agreement made for the purchase of
29 premises pursuant to this subsection shall be subject to the approval of the
30 attorney general as to form and title.
31 Premises purchased pursuant to this section shall be used for the depart-
32 ment, or if it is desirable to move the department, similar space will be fur-
33 nished by the state to the department without further payment therefor by the
34 United States.
35 SECTION 4. That Section 72-1351, Idaho Code, be, and the same is hereby
36 amended to read as follows:
37 72-1351. EXPERIENCE RATING. (1) Subject to the other provisions of this
38 chapter, each eligible and deficit employer's (except cost reimbursement
39 employers) taxable wage rate shall be determined in the manner set forth below
40 for each calendar year:
41 (a) (i) Each eligible employer shall be given an "experience factor"
42 which shall be the ratio of excess of contributions over benefits
43 paid on the employer's account since December 31, 1939, to his aver-
44 age annual taxable payroll rounded to the next lower dollar amount
45 for the four (4) fiscal years immediately preceding the computation
46 date, except that when an employer first becomes eligible, his
47 "experience factor" will be computed on his average annual taxable
48 payroll for the two (2) fiscal years or more, but not to exceed four
49 (4) fiscal years, immediately preceding the computation date. The
50 computation of such "experience factor" shall be to six (6) decimal
51 places.
52 (ii) Each deficit employer shall be given a "deficit experience fac-
53 tor" which shall be the ratio of excess of benefits paid on the
6
1 employer's account over contributions since December 31, 1939, to his
2 average annual taxable payroll rounded to the next lower dollar
3 amount for one (1) or more fiscal years, but not to exceed four (4)
4 fiscal years, for which he had covered employment ending on the com-
5 putation date; provided, however, that any employer who on any compu-
6 tation date has a "deficit experience factor" for the period immedi-
7 ately preceding such computation date but who has filed all reports,
8 paid all contributions and penalties due on or before the cut-off
9 date, and has during the last four (4) fiscal years paid contribu-
10 tions at a rate of not less than the standard rate applicable for
11 each such year and in excess of benefits charged to his experience
12 rating account during such years, shall have any balance of benefits
13 charged to his account which on the computation date immediately pre-
14 ceding such four (4) fiscal years were in excess of contributions
15 paid, deleted from his account, and the excess benefits so deleted
16 shall not be considered in the computation of his taxable wage rate
17 for the rate years following such four (4) fiscal years. For the rate
18 year following such computation date, he shall be given the standard
19 rate for that year.
20 (iii) In the event an employer's coverage has been terminated because
21 he has ceased to do business or because he has not had covered
22 employment for a period of four (4) years, and if said employer
23 thereafter becomes a covered employer, he will be considered as
24 though he were a new employer, and he shall not be credited with his
25 previous experience under this chapter for the purpose of computing
26 any future "experience factor."
27 (b) Schedules shall be prepared listing all eligible employers in inverse
28 numerical order of their experience factors, and all deficit employers in
29 numerical order of their deficit experience factors. There shall be listed
30 on such schedules for each such employer in addition to the experience
31 factor (i) the amount of his taxable payroll for the fiscal year ending on
32 the computation date, and (ii) a cumulative total consisting of the sum of
33 such employer's taxable payroll for the fiscal year ending on the computa-
34 tion date and the corresponding taxable payrolls for all other employers
35 preceding him on such schedules.
36 (c) The cumulative taxable payroll amounts listed on the schedules pro-
37 vided for in paragraph (b) of this subsection shall be segregated into
38 groups whose limits shall be those set out in the table of schedules of
39 taxable wage rates, section 72-1350(7), Idaho Code. Each of such groups
40 shall be identified by the rate class number listed in the table which
41 represents the percentage limits of each group. Each employer on the
42 schedules shall be assigned the taxable wage rate opposite his rate class
43 for the tax schedule in effect for the taxable year.
44 (d) (i) If the grouping of rate classes requires the inclusion of
45 exactly one-half (1/2) of an employer's taxable payroll, the employer
46 shall be assigned the lower of the two (2) rates designated for the
47 two (2) classes in which the halves of his taxable payroll are so
48 required.
49 (ii) If the group of rate classes requires the inclusion of a por-
50 tion other than exactly one-half (1/2) of an employer's taxable pay-
51 roll, the employer shall be assigned the rate designated for the
52 class in which the greater part of his taxable payroll is so
53 required.
54 (iii) If one (1) or more employers on the schedules have experience
55 factors identical to that of the last employer included in a particu-
7
1 lar rate class, all such employers shall be included in and assigned
2 the taxable wage rate specified for such class, notwithstanding the
3 provisions of paragraph (c) of this subsection.
4 (e) If the taxable payroll amount or the experience factor or both such
5 taxable payroll amount and experience factor of any eligible or deficit
6 employer listed on the schedules is changed, the employer shall be placed
7 in that position on the schedules which he would have occupied had his
8 taxable payroll amount and/or experience factor as changed been used in
9 determining his position in the first instance, but such change shall not
10 affect the position or rate classification of any other employer listed on
11 the schedules and shall not affect the rate determination for previous
12 years.
13 (2) For experience rating purposes, all previously accumulated benefit
14 charges to covered employers' accounts, except cost reimbursement employers,
15 shall not be changed except as provided by this chapter. Benefits paid prior
16 to June 30 shall, as of June 30 of each year preceding the calendar year for
17 which a covered employer's taxable wage rate is effective, be charged to the
18 account of the covered employer, except cost reimbursement employers, who paid
19 the largest individual amount of base period wages as shown on the determina-
20 tion used as the basis for the payment of such benefits, except that no charge
21 shall be made to the account of such covered employer with respect to benefits
22 paid under the following situations:
23 (a) If paid to a worker who terminated his services voluntarily without
24 good cause attributable to such covered employer, or who had been dis-
25 charged for misconduct in connection with such services;
26 (b) If paid in accordance with the provisions of section 72-1368(10),
27 Idaho Code, and the decision to pay benefits is subsequently reversed; or
28 (c) For that portion of benefits paid to multistate claimants pursuant to
29 section 72-1344, Idaho Code, which exceeds the amount of benefits that
30 would have been charged had only Idaho wages been used in paying the
31 claim;
32 (d) If paid in accordance with the extended benefit program triggered by
33 either national or state indicators;
34 (e) If paid to a worker who continues to perform services for such cov-
35 ered employer without a reduction in his customary work schedule, and who
36 is eligible to receive benefits due to layoff or a reduction in earnings
37 from another employer.
38 (3) A covered employer whose experience rating account is chargeable, as
39 prescribed by this section, is an interested party as defined in section
40 72-1323, Idaho Code. An experience rating record shall be maintained for each
41 covered employer. The record shall be credited with all contributions which
42 the covered employer has paid for covered employment prior to the cut-off
43 date, pursuant to the provisions of this and preceding acts, and which covered
44 employment occurred prior to the computation date. The record shall also be
45 charged with the amount of benefits paid which are chargeable to the covered
46 employer's account as provided by the appropriate provisions of the employment
47 security law and regulations thereunder in effect at the time such benefits
48 were paid. Nothing in this section shall be construed to grant any covered
49 employer or individual in his service a priority with respect to any claim or
50 right because of amounts paid by such covered employer into the employment
51 security fund.
52 (4) (a) Whenever any individual or type of organization (whether or not
53 a covered employer within the meaning of section 72-1315, Idaho Code) in
54 any manner succeeds to, or acquires all or substantially all, of the busi-
55 ness of an employer who at the time of acquisition was a covered employer,
8
1 and in respect to whom the director finds that the business of the prede-
2 cessor is continued solely by the successor, the separate experience rat-
3 ing account and the actual contribution, benefit and taxable payroll expe-
4 rience of the predecessor shall, upon the joint application of the prede-
5 cessor and the successor within the ninety (90) one hundred eighty (180)
6 days after such acquisition and approval by the director, be transferred
7 to the successor employer for the purpose of determining such successor's
8 liability and taxable wage rate and any successor who was not an employer
9 on the date of acquisition shall as of such date become a covered employer
10 as defined in this chapter.; provided, however, that such ninety (90) Such
11 one hundred eighty (180) day period may be extended at the discretion of
12 the director., and provided further that whenever a predecessor covered
13 employer has a deficit The transfer of the predecessor's experience rating
14 account as of the last computation date such transfer, as herein provided,
15 to the successor shall be mandatory except where it is shown by substan-
16 tial evidence that if the management or ownership or both management and
17 ownership are not control is substantially the same for the successor as
18 for the predecessor, in which case the successor shall begin with the rate
19 of a new employer and there is a continuity of business activity by the
20 successor.
21 (b) Whenever any individual or type of organization, whether or not a
22 covered employer within the meaning of section 72-1315, Idaho Code, in any
23 manner succeeds to, or acquires, part of the business of an employer who
24 at the time of acquisition was a covered employer, and such portion of the
25 business is continued by the successor, so much of the separate experience
26 rating account and the actual contribution, benefit and taxable payroll
27 experience of the predecessor as is attributable to the portion of the
28 business transferred, as determined on a pro rata basis in the same ratio
29 that the wages of covered employees properly allocable to the transferred
30 portion of the business bears to the payroll of the predecessor in the
31 last four (4) completed calendar quarters immediately preceding the date
32 of transfer, shall, upon the joint application of the predecessor and the
33 successor within ninety (90) one hundred eighty (180) days after such
34 acquisition and approval by the director, be transferred to the successor
35 employer for the purpose of determining such successor's liability and
36 taxable wage rate and any successor who was not an employer on the date of
37 acquisition shall as of such date become a covered employer as defined in
38 this chapter.; provided, however, that such ninety (90) Such one hundred
39 eighty (180) day period may be extended at the discretion of the
40 director., and provided further that whenever a predecessor covered
41 employer has a deficit The transfer of the predecessor's experience rating
42 account as of the last computation date, such transfer, as herein pro-
43 vided, to the successor shall be mandatory except where it is shown by
44 substantial evidence that if the management or ownership or both manage-
45 ment and ownership are not control is substantially the same for the suc-
46 cessor as for the predecessor, in which case the successor shall begin
47 with the rate of a new employer and there is a continuity of business
48 activity by the successor. Whenever such mandatory transfer involves only
49 a portion of the experience rating record, and the predecessor or succes-
50 sor employers fail within ten (10) days after notice to supply the
51 required payroll information, the transfer shall be based on estimates of
52 the allocable payrolls.
53 (c) (i) If the successor was a covered employer prior to the date of the
54 acquisition of all or a part of the predecessor's business his tax-
55 able wage rate, effective the first day of the calendar quarter imme-
9
1 diately following the date of acquisition, shall be a newly computed
2 rate based on the combined experience of the predecessor and succes-
3 sor, the resulting rate remaining in effect the balance of the rate
4 year.
5 (ii) If the successor was not a covered employer prior to the date
6 of the acquisition of all or a part of the predecessor's business,
7 his rate shall be the rate applicable to the predecessor with respect
8 to the period immediately preceding the date of acquisition, but if
9 there were more than one (1) predecessor the successor's rate shall
10 be a newly computed rate based on the combined experience of the pre-
11 decessors, becoming effective immediately after the date of acquisi-
12 tion, and shall remain in effect the balance of the rate year.
13 (d) For purposes of this section, an employer's experience rating account
14 shall consist of the actual contribution, benefit and taxable payroll
15 experience of the employer and any amounts due from the employer under
16 this chapter.
17 SECTION 5. An emergency existing therefor, which emergency is hereby
18 declared to exist, Section 4 of this act shall be in full force and effect on
19 and after passage and approval.
STATEMENT OF PURPOSE
RS 13581C1
This bill amends Idaho's Employment Security Law. It would
accomplish the following:
Section 1 clarifies the definition of localized service.
Section 2 clarifies references to the federal unemployment trust
fund. It also provides that Reed Act appropriations are subject to
two statutory conditions and deletes obsolete language pertaining
to past years.
Section 3 corrects a reference to the Idaho Code.
Section 4 will assist in preventing a tax evasion scheme used by a
growing number of employers to lower their Unemployment Insurance
(U.I.) tax rates. All states use experience rating systems to
determine an employer's U.I. tax rate. An employer's U.I. tax rate
is based on their individual experience of accumulated U.I.
contributions paid and the accumulated amount of U.I. benefits
charged to their account. Experience rating helps ensure an
equitable distribution of the costs of the U.I. program among
employers.
Some employers have found ways to manipulate experience rating so
they receive a lower U.I. tax rate than their U.I. experience would
otherwise allow. Nationally, these tax evasion schemes are called
"SUTA dumping" ("SUTA" refers to State Unemployment Tax Acts). SUTA
dumping generally occurs in two ways:
1. To escape a poor experience rating, an employer will
set up a shell company and transfer payroll from the
business with the poor rating to the shell. If it is a
new shell, it will be taxed at the "standard rate"
established for new employers (currently 1.5 percent,
substantially below the current maximum rate of 5.4
percent). A more sophisticated approach to SUTA dumping
reduces the tax burden even further. This involves
transferring a few low turnover positions to the shell,
earning a positive rate (as low as 0.2 percent) over a
few years and then transferring payroll from the
company with the poor experience rating to the shell
company.
2. An employer with a poor experience rating buys a small
business that has a low U.I. tax rate. The new owner
then closes the business activity of the small business
and transfers payroll from the business with the poor
rating, thereby receiving the U.I. tax rate of the
small business.
According to the U.S. Department of Labor, SUTA dumping could
cost the U.I. system billions of dollars nationally if it is not
brought under control, and they have recommended that states
amend their laws to prevent the practice.
Section 4 will assist in preventing SUTA dumping by providing
that whenever an individual or organization succeeds to or acquires
all or part of the business of a covered employer, the transfer of
the predecessor's experience rating account shall be mandatory if
the management or ownership or control of the business is
substantially the same for the successor as for the predecessor and
there is a continuity of business activity by the successor.
Section 4 also enlarges the time period for employers to request a
discretionary transfer of an experience rating account and it
defines the term "experience rating account."
FISCAL IMPACT
There is no impact on the State General Fund. Sections 1, 2 and 3
have no fiscal impact.
If Section 4 is not enacted, Idaho's U.I. Trust Fund could suffer
a substantial loss of U.I. tax revenue. The Idaho Department of
Labor recently discovered four cases of SUTA dumping that have cost
Idaho's U.I. Trust Fund an estimated $436,818. Now that SUTA
dumping has received national attention, more employers may be
encouraged to engage in the practice while it is still legal to do
so. Preventing SUTA dumping is an essential step toward maintaining
an adequate U.I. Trust Fund.
CONTACT
Name: Dwight Johnson
Agency: Department of Labor
Phone: 332-3570 ext. 3209
Statement of Purpose/Fiscal Impact S 1226