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H0002.......................................by COMMERCE AND HUMAN RESOURCES EMPLOYMENT SECURITY LAW - Adds to existing law relating to employment security law to provide for assignment of rates and transfers of experience; to provide civil penalties for specified violations; to provide a felony penalty for specified violations; to provide definitions; to provide that the director shall establish procedures to identify the transfer or acquisition of a business; and to provide for interpretation and application of the law in accordance with federal guidelines. 01/14 House intro - 1st rdg - to printing 01/17 Rpt prt - to Com/HuRes 01/18 Rpt out - rec d/p - to 2nd rdg 01/19 2nd rdg - to 3rd rdg 01/20 3rd rdg - PASSED - 62-6-2 AYES -- Anderson, Barraclough, Barrett, Bastian, Bedke, Bell, Bilbao, Black, Block, Boe, Bolz, Bradford, Cannon, Chadderdon, Collins, Crow, Deal, Denney, Edmunson, Ellsworth, Eskridge, Field(18), Field(23), Garrett, Harwood, Henderson, Jaquet, Jones, Kemp, Lake, LeFavour, Loertscher, Martinez, Mathews, McGeachin, McKague, Miller, Mitchell, Moyle, Nielsen, Nonini, Pasley-Stuart, Pence, Raybould, Ring, Ringo, Roberts, Rusche, Rydalch, Sayler, Schaefer, Shepherd(2), Shirley, Skippen, Smith(30), Smith(24), Smylie, Snodgrass, Stevenson, Trail, Wills, Wood NAYS -- Andrus, Clark, Hart, Henbest, Sali, Shepherd(8) Absent and excused -- Bayer, Mr. Speaker Floor Sponsor - Kemp Title apvd - to Senate 01/21 Senate intro - 1st rdg - to Com/HuRes 02/04 Rpt out - rec d/p - to 2nd rdg 02/07 2nd rdg - to 3rd rdg 02/09 3rd rdg - PASSED - 33-0-2 AYES -- Andreason, Brandt, Broadsword, Bunderson, Burkett, Burtenshaw, Coiner, Compton, Corder, Darrington, Davis, Gannon, Geddes, Goedde, Hill, Jorgenson, Kelly, Keough, Langhorst, Little, Lodge, Marley, McGee, McKenzie, Noble, Pearce, Richardson, Schroeder, Stegner, Stennett, Sweet, Werk, Williams NAYS -- None Absent and excused -- Cameron, Malepeai Floor Sponsor - Coiner Title apvd - to House 02/10 To enrol 02/11 Rpt enrol - Sp signed 02/14 Pres signed 02/15 To Governor 02/18 Governor signed Session Law Chapter 12 Effective: 07/01/05
]]]] LEGISLATURE OF THE STATE OF IDAHO ]]]] Fifty-eighth Legislature First Regular Session - 2005 IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 2 BY COMMERCE AND HUMAN RESOURCES COMMITTEE 1 AN ACT 2 RELATING TO THE EMPLOYMENT SECURITY LAW; AMENDING CHAPTER 13, TITLE 72, IDAHO 3 CODE, BY THE ADDITION OF A NEW SECTION 72-1351A, IDAHO CODE, TO PROVIDE 4 FOR CONFORMITY TO FEDERAL REQUIREMENTS GOVERNING TRANSFERS OF EXPERIENCE 5 AND ASSIGNMENT OF RATES, TO PROVIDE CIVIL PENALTIES FOR SPECIFIED VIOLA- 6 TIONS, TO PROVIDE A FELONY PENALTY FOR SPECIFIED VIOLATIONS, TO PROVIDE 7 DEFINITIONS, TO PROVIDE THAT THE DIRECTOR SHALL ESTABLISH PROCEDURES TO 8 IDENTIFY THE TRANSFER OR ACQUISITION OF A BUSINESS AND TO PROVIDE FOR 9 INTERPRETATION AND APPLICATION OF THE LAW IN ACCORDANCE WITH FEDERAL 10 GUIDELINES AND REGULATIONS. 11 Be It Enacted by the Legislature of the State of Idaho: 12 SECTION 1. That Chapter 13, Title 72, Idaho Code, be, and the same is 13 hereby amended by the addition thereto of a NEW SECTION, to be known and des- 14 ignated as Section 72-1351A, Idaho Code, and to read as follows: 15 72-1351A. FEDERAL CONFORMITY PROVISIONS REGARDING TRANSFERS OF EXPERIENCE 16 AND ASSIGNMENT OF RATES. Notwithstanding any other provision of this chapter, 17 the following shall apply regarding transfers of experience and assignment of 18 rates: 19 (1) (a) If a covered employer transfers its trade or business, or a por- 20 tion thereof, to another covered employer and, at the time of the trans- 21 fer, there is substantially common ownership, management or control of the 22 two (2) employers, then the experience rating account attributable to the 23 transferred trade or business shall be transferred to the employer to whom 24 such business is so transferred. The rates of both employers shall be 25 recalculated using the methods provided in section 72-1351(5)(b) and 26 (c)(i), Idaho Code. 27 (b) If, following a transfer of experience under paragraph (a) of this 28 subsection (1), the director determines that a substantial purpose of the 29 transfer of the trade or business was to obtain a reduced liability for 30 contributions, then the experience rating accounts of the employers 31 involved shall be combined into a single account and a single rate shall 32 be assigned to such account. 33 (2) Whenever a person who is not a covered employer under this chapter at 34 the time such person acquires the trade or business of a covered employer, the 35 experience rating account of the acquired business shall not be transferred to 36 such person if the director finds that such person acquired the business pri- 37 marily for the purpose of obtaining a lower rate of contributions. Instead, 38 such person shall be assigned the standard rate for new employers under sec- 39 tion 72-1350, Idaho Code. In determining whether the trade or business was 40 acquired primarily for the purpose of obtaining a lower rate of contributions, 41 the director shall use objective factors which may include, but are not lim- 42 ited to, the cost of acquiring the business, whether the person continued the 43 business enterprise of the acquired business, how long such business enter- 2 1 prise was continued, or whether a substantial number of new employees were 2 hired for performance of duties unrelated to the business activity conducted 3 prior to acquisition. 4 (3) (a) It shall be a violation of this section if a person: 5 (i) Makes any false statement to the department when the maker 6 knows the statement to be false or acts with deliberate ignorance of 7 or reckless disregard for the truth of the matter or willfully fails 8 to disclose a material fact to the department in connection with the 9 transfer of a trade or business; 10 (ii) Prepares any false or antedated report, form, book, paper, 11 record, written instrument, or other matter or thing in connection 12 with the transfer of a trade or business with the intent to submit it 13 or allow it to be submitted to the department as genuine or true; 14 (iii) Knowingly violates or attempts to violate subsection (1) or (2) 15 of this section or any other provision of this chapter related to 16 determining the assignment of a contribution rate or an experience 17 rate; or 18 (iv) Knowingly advises another person in a way that results in a 19 violation or an attempted violation of subsection (1) or (2) of this 20 section or any other provision of this chapter related to determining 21 the assignment of a contribution rate or an experience rate. 22 (b) If a person commits any of the acts described in paragraph (a) of 23 this subsection (3), the person shall be subject to the following penal- 24 ties: 25 (i) If the person is a covered employer, a civil money penalty of 26 ten percent (10%) of such person's taxable wages for the four (4) 27 completed consecutive quarters preceding the violation shall be 28 imposed for such year and said penalty shall be deposited in the 29 state employment security administrative and reimbursement fund as 30 established by section 72-1348, Idaho Code. 31 (ii) If the person is not a covered employer, such person shall be 32 subject to a civil money penalty of not more than five thousand dol- 33 lars ($5,000) for each violation. Any such penalty shall be deposited 34 in the state employment security administrative and reimbursement 35 fund as established by section 72-1348, Idaho Code. 36 (4) Every person who knowingly makes any false statement to the depart- 37 ment or knowingly fails to disclose a material fact to the department in con- 38 nection with the transfer of a trade or business, or knowingly prepares any 39 false or antedated report, form, book, paper, record, written instrument, or 40 other matter or thing in connection with the transfer of a trade or business 41 with the intent to submit it or allow it to be submitted to the department as 42 genuine or true, or knowingly violates or attempts to violate subsection (1) 43 or (2) of this section or any other provision of this chapter related to 44 determining the assignment of a contribution rate or an experience rate, or 45 knowingly advises another person to act in a way that results in a violation 46 or an attempted violation of subsection (1) or (2) of this section or any 47 other provision of this chapter related to determining the assignment of a 48 contribution rate or an experience rate, shall be guilty of a felony punish- 49 able as provided in section 18-112, Idaho Code. 50 (5) For purposes of this section: 51 (a) An employer's experience rating account shall consist of the actual 52 contribution, benefit and taxable payroll experience of the employer and 53 any amounts due from the employer under this chapter. When a transferred 54 experience rating account includes amounts due from the employer under 55 this chapter, both the predecessor employer and the successor employer 3 1 shall be jointly and severally liable for those amounts. 2 (b) "Knowingly" means having actual knowledge of or acting with deliber- 3 ate ignorance of or reckless disregard for the prohibition involved. 4 (c) "Person" has the meaning given such term by section 7701(a)(1) of the 5 Internal Revenue Code of 1986 (26 U.S.C. 7701(a)(1)). 6 (d) A "transfer of a trade or business" occurs whenever a person in any 7 manner succeeds to all or a portion of a trade or business. 8 (e) "Trade or business" includes, but is not limited to, the employer's 9 workforce. The transfer of some or all of an employer's workforce to 10 another employer shall be considered a transfer of a trade or business 11 when, as the result of such transfer, the transferring employer no longer 12 performs trade or business with respect to the transferred workforce, and 13 such trade or business is performed by the employer to whom the workforce 14 is transferred. 15 (f) "Violates or attempts to violate" includes, but is not limited to, 16 intent to evade, misrepresentation or willful nondisclosure. 17 (6) The director shall establish procedures to identify the transfer or 18 acquisition of a business for purposes of this section. 19 (7) This section shall be interpreted and applied in such a manner as to 20 meet the minimum requirements contained in any guidance or regulations issued 21 by the United States department of labor.
STATEMENT OF PURPOSE RS 14504c1 The federal SUTA Dumping Prevention Act of 2004 establishes minimum standards that each state must enact to limit 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. Under experience rating, an employer's U.I. tax rate is based on the accumulated total amount of U.I. contributions paid by an employer and the accumulated amount of U.I. benefits charged to the employer's account. If the total U.I. contributions paid by an employer exceed the benefits charged to the employer's account, the employer is "positive rated" and will have a relatively low U.I. tax rate. If the total benefits charged to an employer's account exceed the total U.I. contributions paid by the employer, the employer is "deficit rated" and will have a relatively high tax rate. 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 that those employers 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.) The federal SUTA Dumping Prevention Act of 2004 requires each state's law to prohibit the following two methods of SUTA dumping as a condition of the state receiving federal administrative grants to administer its U.I. program: 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 entity starting a new business purchases an existing small business with a low U.I. tax rate. Instead of being assigned the higher new employer rate, the entity receives the small business's lower rate. Typically, the new business ceases the business activity of the purchased business and commences a different type of business activity. In addition, each state's law must impose meaningful civil and criminal penalties for knowingly violating or attempting to violate provisions of state law governing experience rate transfers. This bill, which is based on legislative language provided to the states by the U.S. Department of Labor, satisfies these federal requirements and ensures that Idaho will continue to receive federal grants to administer its U.I. program. SUTA dumping is something the Idaho Department of Commerce and Labor considers to be a serious problem. The Department has discovered cases of SUTA dumping in Idaho. The cost to the Trust Fund for this activity is now over $500,000. As the Department continues to investigate suspected SUTA dumping in Idaho, we certainly expect this number to grow. The U.S. Department of Labor estimates that SUTA dumping is a growing problem that is costing the U.I. system billions of dollars nationally. FISCAL IMPACT There is no impact on the State General Fund. If this bill is not enacted, Idaho's Employment Security Law will not conform to federal law and, after conformity proceedings, Idaho will lose approximately $17 million a year in federal grants that it receives to administer the U.I. program. In addition, Idaho's U.I. Trust Fund could suffer a substantial loss of U.I. tax revenue if SUTA dumping isn't stopped. CONTACT Name: Dwight Johnson Agency: Commerce and Labor, Dept. Of Phone: 841 8833 STATEMENT OF PURPOSE/FISCAL NOTE H 2