SUTA dumping is a tax evasion plan used by some employers to lower their Unemployment Insurance (UI) tax rate to avoid paying higher UI taxes.
SUTA dumping compromises the experience rating system. This eliminates the incentive for employers to keep employees working. This also eliminates the incentive for benefit claimants to return to work promptly. SUTA dumping can also shift costs to other employers.
Federal law required states to pass legislation to:
- Maintain the integrity of state experience rating systems and unemployment funds
- Deter UI tax rate manipulation schemes
- Ensure early detection of UI tax rate manipulation schemes
- Immediately correct UI tax rate manipulation schemes
he Texas Legislature mandated the transfer of compensation experience in certain situations. The situations apply when certain relationships exist between the previous and new owners of a business. The Texas Unemployment Compensation Act (TUCA) was changed to meet both Texas Legislature and federal law requirements. The changes safeguard the state experience rating system and unemployment fund.
Chapter 201.022 covers total and partial acquisitions. This section defines an "Employer" as any individual or employing unit that receives all or part of a liable employer's:
- Business, or
Section 204.081 added two new definitions:
"Person" means an:
"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
- Own or lease the assets needed to run the organization, trade, or business through security or lease arrangement
- Direct the internal affairs or conduct of the organization, trade, or business
Section 204.083 requires the transfer of the compensation experience in total or partial acquisitions with substantially common:
- Control, or
Section 204.084 allows the transfer of compensation experience for partial acquisitions without substantial common ownership or management. It explains how parties to a partial acquisition can apply for a transfer of compensation experience. It further outlines the factors used by the Commission to approve or deny the transfer. It also outlines the method used to calculate the successor's starting tax rate. The method is outlined for both experience-rated and non-experience rated successor employers.
Section 204.085 addresses experience transfers in partial acquisitions with common ownership or management. The part acquired must be distinct and separate from the predecessor's other businesses. 204.085 includes the computation of the experience rate. It also outlines when the experience rate will take effect for the successor with or without an experience rate.
Section 204.0851 addresses the tax rate for total and partial acquisitions with common ownership or management. Experience rates for acquisitions of distinct and separate parts are not included in this section. It details the computation of experience rates. It also outlines when the tax rate will take effect for the successor with or without an experience rate.
Section 204.087 defines an offense and sets penalties for people who violate this subchapter or advise others to do so. Violations are Class A misdemeanors.
Section 204.088 requires Texas Workforce Commission (TWC) to adopt procedures to identify business transfers. TWC Rule 815.116 requires the agency to electronically track and monitor employee movement. TWC uses SUTA software to track and monitor employee transfers.
Section 204.089 requires TWC to administer this subchapter according to federal regulations. The United States Secretary of Labor prescribes the federal regulations.