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[ Tax Law Manual - TOC ] [ Ch 1 - Employing Unit ] [ Ch 2 - Employment ] [ Ch 3 - Employer ] [ Ch 4 - Taxes ] [ Ch 5 - Reports & Records ]
[ 4.1 - Liability for Taxes ] [ 4.2 - Basis of Tax ] [ 4.3 - Rate of Taxes ] [ 4.4 - Federal Certifications ] [ 4.5 - Due Dates ] [ 4.6 - Interest ] [ 4.7 - Penalties ] [ 4.8 - Freeze & Levy ] [ 4.9 - Collection of Contribution by Civil Suit or Notice of Assessment ] [ 4.10 - Refunds ] [ 4.11 - Electric Cooperatives, Inc ] [ 4.12 - Federal Credit Unions ] [ 4.13 - Phone Cooperatives ] [ 4.14 - Labor Agent ] [ 4.15 - Special Rate - Cotton Ginners ] [ 4.16 - Rulings ] [ Ch 4 - Index ]

Chapter 4:  Taxes

comments to: Tax Department

4.3     Rate of Taxes

[ 4.3.1 - History of Rates ][ 4.3.2 - Standard Rates ][ 4.3.3 - Eligibility for an Experience Rate ][ 4.3.4 - Computation of Experience Rates ][ 4.3.5 - Loss of Experience Rate ][ 4.3.6 - Transfer of Compensation Experience ][ 4.3.7 - Acquisition Prior to Eligibility ][ 4.3.8 - Acquisition in Computation Quarter ][ 4.3.9 - Resumption of Employment After Waiver ][ 4.3.10 - Finality of Transfer ][ 4.3.11 - Application of Sec 204.082 ] [ 4.3.12 - Governmental Employers / Sec 204.103 ][ 4.3.13 - Voluntary Contributions / Sec 204.048 ]

This section discusses the aspects of the law that specifically apply to the rate of taxes.

4.3.1     History of Rates

YEAR BASED ON TAX RATE
1936 Wages payable 0.9%
1937 Wages payable 1.8%
1938 Wages payable 2.7%
1939 Wages payable 2.7%
1940 Wages payable 2.7%
1-1-41 to 6-30-43,incl Wages payable 2.7% or experience rate, if eligible
7-1-43 to 1-1-86 Wages paid 2.7% or experience rate, if eligible
1-1-86 to present Wages paid Applicable entrance rate, or experience rate, if eligible
1-1-95 to present Wages paid 2.6 or experience rate, if eligible

4.3.2     Standard Rates

[ 4.3.2.1 - Tax Rate (Entry Level) ][ 4.3.2.2 - In General ][ 4.3.2.3 - Employment and Training (ETA) Assessment ]

This section discusses the aspects of the law that specifically apply to standard rates.

4.3.2.1     Tax Rate (Entry Level)

Under Section 204.006:

  1. A person's contribution rate for the calendar year in which the person becomes an employer is the greater of:
  1. the rate established for that year for the major group to which the employer is assigned under Section 204.004; or
  2. two and seven-tenth percent.
  1. A rate established under Subsection (a) applies to the employer until the date the experience rate computed under Section 204.041 takes effect for the employer.

Comment: Section 204.006 prescribes the ‘entrance’ rate for new employers will be the greater of 2.7% or the average rate assigned to their applicable standard industrial classification (S.I.C.) The 2.7% rate is applicable until the employer qualifies for an experience rate based upon his own compensation experience or through rate transfer due to an acquisition under of the provisions of Section 204.083.

Under Section 204.065:
"Notwithstanding Section 204.006, on and after January 1, 1994, a person's contribution rate shall be two and six-tenths percent until the date the experience rate computed under Section 204.041 takes effect for the employer. "

Comment: Effective January 1, 1994 the entry-level rate was reduced to two an six-tenths percent.  At the same time a employment and training (ETA) assessment tax of one-tenth percent was added to all tax rates.  This left the effective entry tax rate for all new employers at tow an seven-tenths percent.

4.3.2.2     In General

Overview of Sections 204.004, 204.005, 204.006 and 204.041:

As of October 1 of each year, the Commission shall establish by industry an average contribution rate for the immediately succeeding calendar year for each Major Group listed in the Standard Industrial Classification Manual published by the United States Office of Management and Budget. The Commission shall establish the annual contribution rates paid by employers in that industry over the preceding year ending September 30, based on the employment records maintained by the Commission. The Commission shall assign each employer to a Major Group in accordance with the definitions contained in the manual. An employer shall pay contributions at the rate established for that year for the Major Group to which the employer is assigned, or at two and six-tenths percent (2.6%) plus one-tenth (.1%) smart job assessment, of the taxable wages paid by that employer, whichever is greater, until his account has been chargeable with benefits throughout each calendar month of the four (4) consecutive calendar quarters immediately preceding the date as of which such employer's rate is determined. The contribution rate of each employer who has had at least four (4) such calendar quarters of compensation shall be determined as indicated in Sections 204.042 and 204.043 of the Texas Unemployment Compensation Act.

4.3.2.3     Employment and Training  (ETA) Assessment

Legislature, Workforce Development Incentive Program; Section 7 and Section 9-E of the TUCA established a separate one-tenth (0.10%) assessment to fund the Employment and Training (ETA) Assessment.  The Employment and Training (ETA) Assessment provides grant funds to employers for training new employees.  All regular taxed employers have received a one-tenth (0.10%) reduction in their unemployment insurance tax rate to offset this assessment.  Note: This law applies to all regular taxed employers beginning with the first quarter of 1995.


The collected assessment will be maintained in a holding, separate from the Trust Fund, until it is determined if, on October 1, the Unemployment Insurance Trust Fund is above the statutory floor.  If it is, all of the collected assessments will be used to fund the Employment and Training (ETA) Assessment training grants.  If the Trust Fund is below the floor, the collected Employment and Training (ETA) Assessment will be transferred to the Trust Fund to the extent necessary to bring the balance up to the statutory floor.

4.3.3     Eligibility for an Experience Rate

  1. In General

    A thorough knowledge of Chapter 204 and the relationship of one section to another must be taken into consideration when computing an employer's tax rate.

    An employer is not eligible for an experience rate, effective January 1, 1984, referred to as 'General Tax Rate,' except as provided in Sections 204.083 and 204.084, until the account has been chargeable with benefits throughout each calendar month of the four consecutive calendar quarters immediately preceding the date as of which such employer's rate is determined.

    An employer's account is first chargeable when wages can be charged as benefit wages to the account. This cannot occur until the employer becomes subject to the Act as an 'employer.' Also, it cannot occur until wages which the employer has paid (or which were transferred to him as a result of transfer of compensation experience) can be used in a claimant's base period. It is not necessary that a claim be filed and produce an actual charge; only that it be possible for the employer's account to be charged.

  2. Computation Dates for Experience Rates

    Under Section 204.047:
  1. The computation date for the tax rate for the contribution under Section 204.041 is October 1 of the year preceding the calendar year for which the rate takes effect, except as provided by Subsection (b).

  2. The computation date for the tax rate for the contribution under Section 204.041(a) for an employer who becomes subject to that tax rate for the first time is the date on which the rate takes effect under Section 204.041(c).

Under Section 204.041:

  1. The rate for an employer who becomes subject to contributions... for the first time at the close of a calendar quarter takes effect on the first day of the next calendar quarter and continues in effect until the January 1 of the next calendar year.

Comment: An employer who has waived all compensation experience or whose coverage is terminated (Section 206.004) and who again becomes subject is eligible for another ‘interim’ tax rate computation. Waiver of all compensation experience has the same experience rating effects as termination in that in either event the employer must begin anew to accumulate compensation experience.

  1. October 1 Computation Date for Rates Effective the Following January 1:

    The annual computation date for experience tax rates is October 1 of the year preceding the calendar year for which the rates are to be effective. The rates are effective on January 1 following the computation date. This annual October 1 computation date for rates to be effective the following January 1, includes computations for those employers for whom an interim experience tax rate was computed for the first time on January 1, April 1, July 1, or October 1 of the same calendar year. In other words, the computation date for the 2001 experience tax rate for the employer who first became eligible for an experience rate computation on January 1, 2000, April 1, 2000, July 1, 2000, or October 1, 2000, will be October 1, 2000.
  2. January 1 Computation Date:

    Experience rates are computed on January 1 for those employers who, for the first time, complete four consecutive calendar quarters of chargeability after December and before April 1. January 1 is the first time these employers accumulated their fourth consecutive calendar quarters throughout which their accounts were chargeable with benefits.

  3. April 1, Computation Date:

    The most common fact situation which will produce an experience tax rate computation effective April 1 involves voluntary election of coverage during the first quarter of a year with respect to employment in the preceding year.

    EXAMPLE: Employing unit first had employment and paid wages in the fourth quarter of 2000. Employer files an Application for Voluntary Election of Coverage during the first quarter of 2001 requesting coverage beginning January 1, 2001. The Application is approved by the Commission before April 1, 2001, and the employer files reports and pays the tax due for 2000.

    In this fact situation the employer's account could be charged with benefit wages resulting from a claim filed on April 1, 2001, because wages paid in the fourth quarter of 2000 would be in the claimant's base period. Four consecutive calendar quarters of chargeability will be completed March 31, 2002, and the employer will be eligible for an experience tax rate effective April 1, 2002.

    Paragraph 3.2.7, 'Subject Date', is a fact situation which would also result in an April 1 computation date. In that example, the corporation paid no wages until December 2000. These wages would be chargeable on April 1, 2001. Four consecutive calendar quarters of chargeability would be completed on March 31, 2000, and the corporation would be eligible for an experience tax rate effective April 1, 2000.

  4. July 1, Computation Date:

    Experience rates are computed on July 1 for those employers who for the first time complete four consecutive calendar quarters of chargeability after March and before July 1. For example, an employing unit becoming subject on May 19, 2001 is eligible for an experience rate computation as of July 1, 2002, provided the employer paid wages during the first quarter of 2001.

    EXAMPLE: Employer 'Y' became a subject employer on March 23, 2000, and paid wages in March 2000. The employer is chargeable throughout each month of four consecutive calendar quarters immediately proceeding July 1, 2001, and thus, is eligible for an experience rate computation effective July 1, 2001. The rate will be effective July 1, 2001, through December 31, 2001, will be computed on the basis of his experience during the period from March 1, 2000, through June 30, 2001.

    EXAMPLE: Employer Y became a subject employer on May 25, 1998. The employer sold the business and transferred the compensation experience on August 10, 1998. Employer 'Y' reacquired the business on June 10, 1999, and transfer of compensation experience is in order. Since Y reacquired the compensation experience when reacquired the business, is eligible for an experience tax rate effective July 1, 1999, because that is the first date on which the account has been chargeable with benefit wages for the required four consecutive calendar quarters.

    An employing unit which becomes an employer under the twenty-week provisions of Sections 201.021, 201.023 or 201.047 is shown on the Commission's records as having become an employer on the last day in the calendar week during which the employer completed the twenty (20) weeks of employment with the requisite number of employees. An employer who is shown as having become subject at the end of a calendar week which includes June 30 will be eligible for a rate computation the following July 1 even though the subject date is shown as being on or after July 1 of the preceding year. For example, June 30, 1991, is a Sunday, which is within the calendar week ended July 6. Employing units who are recorded as having become employers on July 6, 1991, may actually have become employers on any day from June 30 to July 6. As of July 1, 1992, experience rates are computed for all employers who became subject under either Sections 204.021, 201.023 or 201.047 on July 6, 1991.

  5. October 1, Computation Date for Employers Who, for the First Time, Are Eligible for Rate Computation on October 1:

    Experience rates are computed on October 1 for those employers who, for the first time, complete four consecutive calendar quarters of chargeability after June and before October 1. An employer who is shown on TWC records as having become subject under Sections 201.021, 201.023 or 201.027 and 201.047 at the end of a calendar week, which includes September 30, will be eligible for a rate computation the following October 1. This is true even though the subject date on Commission records is shown as being on or after October 1 of the preceding year.

    EXAMPLE: Employer 'Z' became a subject employer on September 1, 1996 (or any date during the period from July 1 through September 30, 1996). If 'Z' paid wages during the period from January 1 through June 30, 1996, 'Z' has been 'chargeable' throughout each month of the four consecutive calendar quarters immediately preceding October 1, 1997. 'Z' is eligible for the first time for an interim experience rate computation effective October 1, and it is computed on the basis of the experience during the period from January 1, 1996 through September 30, 1997, using the 1997 State Replenishment Ratio. The 1998 experience tax rate for this employer Z will be computed during the last quarter of 1997. The 1998 rate will be computed on the basis of his experience during the period from January 1, 1996 through September 30, 1997 (the same experience which was used in computing his interim rate applicable for the period from October 1 through December 31, 1996) and uses the 1998 State Replenishment Ratio. This could possibly produce a different rate for 1998 than he had in 1997.

4.3.4     Computation of Experience Rates

The formula for computing experience tax rates is found in Chapter 204 of the TUC Act:

  1. Benefit Ratio System: Experience tax rates for employers are in accordance with the Benefit Ratio system. Rates are based upon (1) the employer's ‘benefit ratio’ and (2) the ‘replenishment ratio.’

1. Benefit Ratio:
    Section 204.044 provides:

  1. The benefit ratio for an employer is equal to the total amounts of the employer's chargebacks for the 36 consecutive months preceding the tax rate computation date divided by the total of the employer's taxable wages for the same months.

  2. The benefit ratio of an employer whose account has been chargeable with benefits for less than 36 consecutive months but throughout each month of at least four calendar quarters is equal to the total amount of the employer's chargebacks for those months preceding the tax rate computation date divided by the total of the employer's taxable wages for those months.

  3. In computing the benefit ratio, only taxable wages on which contributions have been paid to the commission not later than the last day of the month in which the computation date occurs may be used.

  4. The benefit ratio is expressed as a percentage.

The following is an example of the computation of an employer's ‘Benefit Ratio’:

 

$10,000
------------- =

$100,000 		Benefits Payments(Chargebacks) for not less than 4 quarters nor more than 12 quarters

------------------------

Payroll for not less than 4 quarters nor more than 12 quarters on which tax has been paid.		 = 10% Benefit Ratio

Only wages on which tax has been paid by the due date of the last quarter will be used in computation of an employer's ‘Benefit Ratio.’ The following illustrations show the various periods used in computing a Benefit Ratio and the dates on which the tax must be paid in order to be used in the computation.

EMPLOYER'S COMPUTATION
DATE:		 PERIODS USED: TAX MUST BE PAID ON OR BEFORE:
October 1, 1996

Rate effective 10-1-96 		Four or more consecutive calendar quarters ending 9-30-96 10-31-96
October 1, 1996

Rate effective 1-1-97 		10-1-93 thru 9-30-96** 10-31-96
January 1, 1997 Four or more consecutive calendar quarters ending 12-31-96 1-31-97
April 1, 1997 Four or more consecutive calendar quarters ending 3-31-97 4-30-97
July 1, 1997 Four or more consecutive calendar quarters ending 3-31-97 7-31-97

** The period used in the computation of the benefit ratio on October 1 to be effective the following January 1 will vary according to the situation. The period will never be less than the four consecutive calendar quarters immediately preceding October 1 and will never be more than the twelve calendar quarters immediately preceding October 1.

All compensation experience from four calendar quarters up to twelve calendar quarters is used in computing a rate. It is not necessary that the account be chargeable throughout a quarter in order to use the compensation experience of that quarter.

  1. Replenishment Ratio

    Section 204.045 provides:

The replenishment ratio is the result obtained by dividing the total effectively charged benefits paid during the 12 month period preceding the October 1 rate computation date plus one half of the ineffectively charged benefits for the same period by the total amount of benefits paid for the same period that are effectively charged. Cancelled benefit warrants, repaid benefits which were overpaid, and benefits paid which are repayable from reimbursing employers, the Federal Government, or any other governmental entity are excluded from this computation.

The replenishment ratio is computed yearly and applies to all taxed employers except for governmental entities.

Following is an example of the computation of employer's experience tax rate or general rate:

Total amount of benefits paid to former employees of a taxed employer and charged to his account for the period from October 1, 1993, through September 30, 1996 = $400

Total taxable wages paid by an employer during above period on which the tax was paid = $40,000

The employer's Benefit Ratio is, therefore, $400 divided by $40,000 = 1.00%

Assume that the state wide Replenishment Ratio for Texas for 1997 tax rates = 1.31

Then, the employer's general tax rate will be 1.00% x 1.31 = 1.31%

The Texas Unemployment Compensation Act contains a table in Section 204.042 which provides an easy method to determine the computed experience tax rate or general rate. The table shows the various computed experience tax rates depending upon the replenishment ratios and the employer's benefit ratio. These rates vary from 0.0 percent to 0.9 percent. An employer's maximum experience rate or general rate is 6 percent with the exception of employers with SIC Code 0724, cotton ginners, whose maximum rate is 5.4 percent.

  1. Statewide Blanket Increases and Credits:

In addition to the general tax rate computed under the benefit ratio system, an employer's experience rating is also composed of statewide blanket increases. An employer may also receive a credit against contributions.

Sec. 204.062. Replenishment Tax

All employers entitled to an experience rate shall pay a replenishment tax.

The numerator in the replenishment tax formula is the amount equal to one-half of the amount of benefits paid by all employers during the 12 months ending the preceding September 30 that are not effectively charged.

The denominator is the amount equal to the taxable wages paid by all employers during the four quarters ending the preceding June 30.

The replenishment tax is calculated by dividing the numerator by the denominator, multiplying that result by 100 to obtain a percentage, and rounding that result to the nearest hundredth.

The replenishment tax rate is the minimum rate an experience rated employer will be charged if their general tax rate is -0-.

Sec. 204.061. Ceiling and Floor of Compensation Fund

Computation of the deficit tax or surplus credit is dependent on the balance of the Unemployment Compensation Fund and whether the balance in the fund on the rate computation date is above the ceiling or below the floor of the fund.

  1. the ceiling of the compensation fund is two percent of the total taxable wages for the four calendar quarters ending the preceding June 30; and

  2. the floor of the compensation fund is equal to the greater of:
  1. $400 million; or

  2. one percent of the total taxable wages for the four calendar quarters ending the preceding June 30.

If on the rate computation date the trust fund balance is above the ceiling of the compensation fund, a blanket credit will be issued to experience rated employers. If on the rate computation date the trust fund balance is below the floor of the compensation fund, a blanket tax rate increase will be charges to experience rated employers.

Sec. 204.063. Deficit Tax

A deficit tax is added to the general tax rate of each employer entitled to an experience rate for that year if the balance in the compensation fund is less than the floor of the fund.

The deficit tax for a calendar year is the lesser of:

  1. the rate computed by multiplying the deficit ratio, as computed under Section 204.064, by the sum of the employer's general tax rate, the replenishment tax rate, and the deficit tax rate for the previous calendar year; or

  2. two percent.

Sec. 204.064. Deficit Ratio

  1. The deficit ratio is computed by dividing the numerator by the denominator and rounding that result to the nearest hundredth.

  2. The ‘numerator’ in the deficit ratio formula ‘is computed by subtracting the balance of the compensation fund, considering any federal advance or other liability of the fund, from the floor of the compensation fund’.

  3. The denominator is the amount of contributions due under the general tax rate and the replenishment rate for the four calendar quarters ending the preceding September 30 from employers entitled to an experience rate on the tax rate computation date.

Sec. 204.065. Surplus Credit.

If on the rate computation date the compensation fund balance is above the ceiling of the fund, an experience rated employer is entitled to a surplus credit to be applied to contributions beginning with the first quarter of the following year.

The surplus credit is not used in calculating the tax rate, but is directly applied to future taxes due.

The amount of the credit is computed by multiplying the surplus ratio by the employer's contributions due for the four calendar quarters ending the preceding September 30.

An employer may not apply a credit against delinquent contributions. A credit may not be applied until the employer has paid any delinquent contributions.

Calculation of surplus tax credit: Each eligible employer’s credit will be calculated by adding the contributions due for the preceding fourth, first, second and third quarters and multiplying the total by the surplus ratio. For example: An employer’s contributions of

4-01 of $1,000

1-02 of $4,000

2-02 of $3,000

3-02 of $2,000

and the surplus ratio would be $3,500 ($10,000 contributions due x 0.35).

Sec. 204.066 Surplus Ratio

The numerator used in calculating the surplus ratio is computed by subtracting the ceiling of the compensation fund from the balance of the compensation fund.

The denominator is the amount of contributions due for the four calendar quarters ending the preceding September 30 from employers entitled to an experience rate on the tax rate computation date.

The surplus ratio is computed by dividing the numerator by the denominator and rounding that result to the nearest hundredth.

Sec. 204.062 Replenishment Tax

A Replenishment Tax is assessed against all experience rated employers. The replenishment tax rate is a percentage obtained by using one-half of the ineffectively charged benefits paid during the twelve months preceding the calculation date as the numerator and total taxable wages during this same period as the denominator.

Sec. 203.105 Interest Tax Rate

An Interest tax may be levied against each experience rated employer to be deposited in an advance interest trust fund that may be used by the Governor solely to pay advances from the Federal Unemployment Trust Fund. In the event the amounts collected under the assigned interest tax rate are inadequate to pay interest on advances from the Federal Unemployment Trust Fund, the Governor may, by proclamation, increase the rate. The interest tax is due at the same time as the employer's unemployment tax payment for the second quarter, is to be collected in the same manner as the employer's unemployment tax and is subject to the same penalty for late payment. The tax applies to the same wage base to which the employer's unemployment tax applies.

The last interest tax was levied in 1984, 1985, 1986 and 1988. In 1984 and 1985, this tax was levied against each employer who was entitled to an experience rate for the previous year and who was liable for unemployment taxes for the first quarter of 1984 or 1985. In 1984, the tax rate was twenty-five percent (25%), and in 1985, the tax rate was ten percent (10%), applied to the amount of taxes due from the employer for the portion of the previous calendar year for which the employer was entitled to an experience rate.

In 1986, the rate was one-tenth of one percent (0.1%) of each experience rated employer's taxable wages for that year. In 1988, it was two-tenths of one percent (0.2%) of each experience rated employer's taxable wages for that year. The rate could not exceed thirty percent (30%) in 1984 or twelve percent (12%) in 1985.

Comment: When the wages and tax data from Form C-3 were entered in the EMF, it appeared as a regular (1/86) quarter without the interest assessment. The computation of the tax liability was based on the tax rate shown on the CRT that did not include the 0.10 percent interest tax. A separate posting was made to the account for the interest tax similar to the special interest assessments for the fourth quarter of 1982 and the first quarter of 1983 for employers having an experience tax rate.

For the first quarter of 1986, a 0.10 percent interest tax appeared on the CRT as the fifth quarter of 1986 (5/86). For the second quarter the interest tax was accounted for as a (6/86) quarter, the third quarter was identified as (7/86) and the fourth quarter was identified as (8/86). The same method applied for 1988 data.

  1. Experience Rate if Benefit Ratio is Indeterminable

If an employer is eligible for an experience rate but has no chargebacks and no taxable payroll on which taxes were timely paid for the twelve (or fewer) quarters used as a basis for computing an experience tax rate, his benefit ratio is zero divided by zero, i.e., mathematically impossible. The rate table in the Act not being applicable, the standard rate of 2.6 + .10 (smart job assessment) percent is assigned in accordance with Section 204.006, and an account that was given an industry average rate for an entry level rate, will keep the average rate as a general rate.

COMMENT: In this situation, to the experience rate or 'General Tax Rate' will be added 1) Replenishment Tax Rate, 2) Solvency Tax Rate, 3) Deficit Tax Rate, and 4) Interest Tax Rate.

4.3.5     Loss of Experience Rate

Under Section 206.005:

When an employing unit that ceased to be an employer subsequently becomes an employer, the employing unit is considered to be a new employer without regard to the rights that employing unit acquired when previously an employer.

Comment: Under the wording of Section 206.005, an employing unit who ceases to be an employer and who again becomes an employer loses all rights acquired during the previous period of being an employer. This provision is extremely important in connection with the experience rating sections of the Act.

4.3.6     Transfer of Compensation Experience

  1. Acquisition of All The Organization, Trade, or Business:

    Section 204.083 mandates transfer of compensation experience occurs only if, as of the date of the acquisition, a shareholder, officer, or other owner of a legal or equitable interest in the predecessor or the spouse or a person within the first degree of consanguinity or affinity of such an individual, is a shareholder, officer, or other owner of a legal or equitable interest in the successor, or holds an option to purchase such an interest.

    Legal Interest - Black's law defines this as "interest in property or in claim cognizable (capable of being "know") at law in contrast to equitable interest."

    Equitable Interest - Black's law defines this as "the interest of a beneficiary under a trust is considered equitable as contrasted with the interest of the trustee which is a legal trust."

  2. Compensation Experience:

    The law does not provide for the transfer of an experience tax rate, but it provides for the compensation experience of one employer being treated as compensation experience of another employer under certain circumstances, and experience tax rates are computed on the basis of compensation experience. Compensation experience includes:
  1. Duration of chargeability with benefits, that is, the length of time an employer has been chargeable with benefit wages;

  2. Employer's charged benefits, that is, chargebacks;

  3. Total taxable payroll on which taxes have been paid.
  1. Continuation of Organization, Trade or Business:

    Section 204.084(c)(1) requires that immediately after the acquisition the successor employing unit continue operation of substantially the same part of the organization, trade or business or part thereof acquired.
  1. Immediately:

    The term ‘immediately’ is not defined in the law, but is thought to mean the day after the acquisition.

  2. Continued Operation:

    The fact that the doors of a business are open or closed on the day following the acquisition may be indicative of whether operation of the business was continued, but this fact is not conclusive evidence. The doors of a business may be open to the public but the owner may be in the process of closing down or liquidating the business. Thus, a joint application for total or partial transfer of compensation experience cannot be approved where the successor acquired assets used in operating all or a part of a business for the purpose of liquidating the business and with no idea of continuation of the business. On the other hand, the doors of a business may be closed for a period of time after the acquisition for repairs or remodeling, etc., in preparation for continuation of the business at a later date. In this type of case, the cleaning and remodeling operation does not preclude a finding that the business was continued immediately after the acquisition. All of the facts are needed in order to make a decision if there is a question with regard to the continuation of a business.

  3. Substantially the Same Business:

    The word ‘substantially’ is not defined in the Act, and it is difficult to lay down ironclad rules which can be used in interpreting the meaning of the word as it is used in this subsection. In most cases, it is obvious whether or not the successor has continued substantially the same business. In cases where there appears to be some question as to whether this requirement has been met, all of the facts should be obtained with regard to any change in the business or in the operation of the business by the successor. Information with regard to the following factors will, in most cases, develop the type of evidence which is needed in order to determine the question of whether or not the organization, trade or business was acquired and continued:
  1. Type or nature of business before and after acquisition;
  2. Location of the business before and after acquisition;
  3. Trade name of the business before and after acquisition;
  4. Details with regard to any periods of inactivity of the business before and after acquisition;
  5. Details with regard to use of a franchise before and after acquisition;
  6. Information with regard to advertisements, letterheads, or any other media by which the public was notified that the previously existing business was continued without change other than a change in ownership.
  1. Acquisition of a Part of the Organization, Trade or Business:

    If a Joint Application is filed in a case where the successor acquired only a part of the business the predecessor owned at the time of acquisition, such Joint Application is referred to as an application for partial transfer of compensation experience. A partial transfer is permissible even though the successor acquires the only business being operated (currently at the point in time of the acquisition) by the predecessor if the predecessor and successor elect to file a partial transfer application rather than a total transfer application.

  2. Joint Application:

    Section 204.084 makes the filing of a Partial Application for Transfer of Compensation Experience optional. The law requires that when an Application for Transfer of Compensation Experience is filed, such application must be filed jointly by the predecessor and the successor, and the application must be in writing as required under Rule 815.11.
  1. Waiver of Partial Compensation Experience by Predecessor

    A joint application for partial transfer of experience rate cannot be approved unless the predecessor employer has waived, in writing, all of his rights to an experience rating based on the compensation experience attributable to that part of the organization, trade or business acquired by the successor employing unit. The waiver (C-82) which is a Commission form, when properly signed and notarized, and when submitted with properly completed supplemental forms, meets the requirements that the employer has waived his rights.
  1. Effect of Waiver When Application is Approved:

    By signing the ‘waiver,’ the predecessor employing unit gives up his rights to an experience rating based upon the compensation experience which has been waived. The compensation experience which is waived by the predecessor is transferred to the successor provided that the joint application is approved.

  2. Effect of Waiver in Cases of Partial Transfer:

    In the case of a partial transfer, the predecessor waives only his rights with respect to the compensation experience attributable to the part of the business which was acquired and continued by the successor. The Wage Distribution Section of Joint Application for Partial Transfer of Compensation Experience (C-83) which is attached to and made a part of this type of joint application should show what compensation experience is waived and transferred to the successor and what compensation experience is not waived and is retained by the predecessor.
  1. Identifiable and Segregable Part of Predecessor's Compensation Experience:

    Section 204.084(c)(3) requires that the part of the organization, trade or business acquired be a part to which a definitely identifiable and segregable part of the predecessor's compensation experience was and is attributable. Section 204.084(c)(3) only applies to a joint application where a partial transfer of compensation experience is requested.
  1. Wages Identifiable and Segregable in the Records:

    The records of the predecessor must show that the wages paid for the services performed in the operation of the part of the business acquired are identifiable and segregable. This statement means that identification and segregation must be something of record over the past periods during which compensation experience can be segregated for rate purposes. Payrolls for employees who have been performing services in two parts of a predecessor's business, only one part of which has been transferred, may have been identified and segregated during past periods in any one of several ways. The record of segregation in the past could have been by actual time reports or by some basis of estimating the time spent in performing service in each part of the business. If the segregation in the past has been made by an estimation throughout the past periods, and the records show this fact, the reasonableness and accuracy of the records maintained throughout the past periods will not be questioned. A Joint Application for a partial transfer of compensation experience based upon this recorded identification and segregation of wages could be approved. On the other hand, a Joint Application for a partial transfer of compensation experience would be denied for failure to meet the requirements of Section 204.084(c)(3) if identification and segregation was not a matter of record during past periods but had been attempted for all past periods at a time subsequent to the transfer of the business. Even though the reasonableness or accuracy of segregations which have been made for the purposes of the predecessor's records during past periods is not questioned, it is believed that, on its face, segregation attempted at a date after the transfer of the business cannot have a definiteness in the absence of records to support the basis of the segregation. Following are examples involving Section 204.084(c)(3):

    Example 1:  Predecessor A, an individual who became a liable employer in 1981, owned a gasoline refinery and certain properties on which producing oil wells were located and new wells were being drilled. The refinery was not operated by the predecessor but was operated by a corporation under a lease agreement. The producing wells were operated by certain individuals under operating contracts and the new wells were drilled by drilling contractors. Predecessor A's business consisted of two parts, watching over his refinery property and ownership management of the oil producing properties. He employed several petroleum engineers, geologists and an office force in his business. On January 1, 1994, Corporation X acquired and continued that part of the predecessor's business consisting of ownership and management of the refinery property. On the same date Corporation Y acquired and continued the other part of Predecessor A's business. Corporations X and Y each elected coverage and filed a joint application for a partial transfer of compensation experience. An investigation revealed that all of Predecessor A's employees had performed some service in connection with both parts of the business during past periods. However, his records had been maintained in the past so that they showed the percentage of service performed for him in each part of the business. After this record of segregation was found, the Joint Applications were approved without a detailed examination of the records to determine the reasonableness or accuracy of the segregation which had been made.

    Example 2: Employer A owned and operated two retail furniture stores in the same town but at different locations for several years prior to July 1, 1993. A had been an employer since 1977 and had an experience rate on July 1, 1993. Prior to July 1, 1993, Employer A had transferred employees from one store to the other without maintaining any record of where the employees performed service. In fact, an employee might perform service in both stores during one working day. His records were maintained just as if he operated only one establishment. He could not segregate or identify wages paid for services performed in either store.

    On July 1, 1993, Employer A conveyed one store to son X and one store to son Y. Each son continued operation of the store he acquired. Each son filed a joint application with the father (Employer A, the predecessor) for partial transfer of compensation experience. The compensation experience was not identifiable and segregable in the records and the applications were denied.
  1. Business Must Consist of Parts

    In some cases there may be a transfer of employees from one employing unit to another with the representation that ‘organization’ was acquired and continued by the successor or with the representation that a part of the business was acquired. However, it must be found that the function transferred was a part of the business. The business must have distinct parts and it must be found that a distinct and separate part of the business was transferred before the question of whether or not the compensation experience is identifiable and segregable becomes important. Possibly the following examples will help clarify this thought:

    Example 1: Corporation X, an employer since January 1, 1936, was engaged in the general construction business. The employer was engaged in the construction of large buildings. The corporation contended that its business consisted of two parts; namely, an executive or supervisory department and a field department.

    The corporation also contended that the executive or supervisory department included accounting personnel, superintendents, and the corporation's executives, and that the field department consisted of skilled and unskilled laborers who actually performed services on the buildings being constructed. It was stated that, on a certain date, the field personnel were transferred to the payroll of a subsidiary corporation. This subsidiary corporation voluntarily elected coverage and filed a joint application with the predecessor for a transfer of the compensation experience attributable to the service performed by the field personnel.

    Careful investigation of the case revealed that, even though the employees in the field department were transferred to the payroll of the subsidiary corporation, the predecessor, or parent corporation, continued to supervise, direct and control the service performed by the field personnel. Investigation also revealed that the parent corporation planned to hire other employees and open another field department.

    The joint application was denied. It was held that the successor did not acquire a part of the business of the predecessor. It is true that some employees were transferred from the payroll of the predecessor to that of the successor but this did not constitute acquisition of a part of a business. The predecessor retained a field department and could have resumed operations of such department at any time. The successor did not acquire a part of a business which could be continued independently from the business of the predecessor. The type of transfer attempted in this case was not contemplated in the provisions of Section 204.084.

    ‘Overhead Service’ is that service performed by general office employees, including clerical, accounting, and planning personnel and the executive personnel concerned with the operation of the whole business and not devoting all efforts to the operation of just one part of the business. In certain types of cases, the existence of ‘overhead service,’ even though not segregable, will not prevent approval of a joint application for partial transfer of compensation experience.

    Example 2: Individual A has owned and operated three grocery stores (Store Number 1, Store Number 2, and Store Number 3) since 1936, and has been an ‘employer’ since that time. On July 1, 1993, Store Number 1 was acquired by Corporation X; Store Number 2 was acquired by Corporation Y, and Store Number 3 was acquired by Corporation Z. Each corporation continued operation of the store acquired, and each corporation filed a joint application with the predecessor for transfer of compensation experience attributable to the store acquired and continued. The service performed in the operation of each store during periods prior to July 1, 1993, was definitely identifiable and segregable, with the exception of service performed by three office employees and two executives who assisted the owner in conducting the whole business. These employees performed service in connection with the operation of each store or each part of the business. However, it is impossible to determine the exact amount of service performed by these individuals in connection with the operation of each store. Under such circumstances, it is permissible to segregate this ‘overhead service’ experience on an estimated basis. This estimate should be made on the most logical or the most nearly accurate basis applicable to the facts in the particular case. In this example, each store was about the same size and had about the same number of employees and did about the same amount of business. Therefore, the ‘overhead service’ experience should be divided equally, or one-third to each successor corporation. The joint application for partial transfer of compensation experience filed by Corporation X, Y, and Z would be approved, and the compensation experience definitely identifiable and segregable, as well as the estimated ‘overhead service’ experience attributable to each part of the business acquired by each corporation, would be treated as compensation experience of such corporation.

    The application of this ‘overhead service’ theory must not be abused. It cannot be used as a basis for approval of an application in which the facts show that all, or a majority of the compensation experience, is not identifiable and segregable.
  1. Election of Coverage by Successor:

    Section 204.084(4) requires that the successor must have been an employer at the time of the acquisition, or elected to become an employer as of the date of the acquisition, or otherwise become an employer during the year in which the acquisition took place.
  1. Cases in Which Voluntary Election of Coverage is Necessary:

    The employing unit (not subject) which acquires and continues a part of an employer's business and files a joint application for a partial transfer of compensation experience must file a Voluntary Election of Coverage on the appropriate Commission form (C-1/C-1FR) and must elect coverage for the year in which the acquisition occurred; otherwise, the joint application cannot be approved. If the employing unit has become an employer under any subsection of 201.021 during the year in which the acquisition occurred, at the time the joint application is filed, the Voluntary Election of Coverage is not necessary. This provision of Section 204.084 has not caused a change of policy with regard to the date to use in computing penalties in voluntary compliance cases. The date of the approval of the Voluntary Election of Coverage will continue to be used in computing penalties, regardless of the date of coverage listed in the Election.

  2. Application for Voluntary Election Can be Withdrawn:

    An Application for Voluntary Election of Coverage filed in connection with a Joint Application for Transfer of Compensation of Experience is not a part of the joint application, but the voluntary election is made for the specific purpose of meeting one of the requirements of Section 204.084. Therefore, a denial of a Joint Application for Transfer of Compensation Experience will cause action to be withheld with respect to an Application for Voluntary Election of Coverage. The applicant can withdraw the Voluntary Election of Coverage by notifying the State Office Status Section of his desire to do so in cases where the Joint Application for Transfer of Compensation Experience has been denied.
  1. Applicable Rates When Transfer Of Compensation Experience Applies:

  1. Successor Was an Experienced Rated Employer Prior to Acquisition:

    If the application for transfer of compensation experience is approved and the successor employing unit was an experience rated employer on the date of the acquisition, such successor shall usually pay contributions from the day of the acquisition until the end of the calendar year in which the acquisition occurred at the rate applicable to the successor on the date of the acquisition. However, a successor employer may possibly become eligible for an interim rate computation during the year.

  2. Successor Employing Unit Was Not an Experience Rated Employer Prior to Date of Acquisition

    If an application is approved and the successor employing unit was not an experience rated employer on the date of acquisition such successor shall pay contributions from the date of acquisition until the end of the calendar year in which the acquisition occurred at the highest rate applicable at the time of the acquisition to any predecessor employer who was a party to the acquisition with respect to which the joint application was made. However, a successor employer may become eligible for an interim rate computation during the year.

    EXAMPLE 1: Successor 'A', an individual who was not an employer immediately prior to July 15, 1993, succeeded Predecessor B who became a subject employer in 1980. Successor 'A' became subject on July 15, 1993, under Section 201.022 and there was a mandatory total transfer of the compensation experience of Predecessor B. Predecessor B's rate on July 15, 1993, the date of the acquisition, was 0.55 percent. Therefore, Successor A is assigned the 0.55 percent rate for the entire year of 1993.

    EXAMPLE 2: Assume that Successor 'A', in Example Number 1, operated a small business with two employees during the period from January 1, 1999, to July 15, 1999, the date on which 'A' succeeded, Predecessor B. Since 'A' became an employer on July 15, 1999, 'A' was liable under Section 206.001 for tax covering wages paid during the entire year of 1999. The new employer rate of 2.70% (2.60% + 0.10% Smart Jobs) is assigned until July 1, 1999. Since 'A' was not experience rated, successor A was assigned the rate of the predecessor for July 1, 1999 forward.

    EXAMPLE 3: Successor A acquired Grocery Store Y from Predecessor B on July 18, 1999. Predecessor B became an employer in May 1975, under Section 201.021. At the time B became a subject employer, 'B' owned and operated only one store, which was Store X, and this was all of 'B' business until February 1, 1993, on which date 'B' opened Store Y which was acquired by Successor A on July 18, 1999. Successor A was joined by Predecessor B in filing a joint application for partial transfer of compensation experience. This joint application was approved and the compensation experience attributable to Grocery Store Y was transferred to Successor A. Predecessor B retained in the account the compensation experience attributable to Grocery Store X. Predecessor B's experience rate on July 18, 1999, was 0.35 percent. Therefore, Successor A was assigned the 0.35 percent rate for the year 1999, and Predecessor B continued to use the 0.35 percent rate for the remainder of the year 1999. Successor A acquired only the compensation experience attributable to Grocery Store Y, which was first opened on February 1, 1999. Successor A will be assigned the 2.7 percent (2.60% + 0.10% Smart Jobs) rate on January 1, 1999, and will not be eligible for an experience rate until July 1, 1999, even though 'A' was assigned the 0.35 percent rate of the predecessor for the year 1999, the year in which the acquisition occurred. For the purpose of determining when Successor A will become eligible for an experience rate, the date of first payment of wages in the store acquired by Successor A (February 1, 1999, in this case) is considered just as if 'A' had become a subject employer on that date. Predecessor B will still be eligible for an experience rate on January 1, 1999. The rate will be computed on the basis of the experience, which 'B' retained and which was attributable to the operation of Store X.

    EXAMPLE 4: Assume the same facts as those discussed in Example Number 3 with the exception that Successor A acquired Store X instead of Store Y. Under such circumstances, Successor A would be assigned the 0.35 percent rate for the year 1998, and Predecessor B would also use the 0.35 percent rate for the entire year 1998. However, Successor A would be eligible for an experience rate on January 1, 1999, which would be computed on the basis of the compensation experience which 'A' acquired from 'B' for the period from October 1, 1996 through July 18, 1998, combined with 'A' own experience for the period from July 18, 1993 through September 30, 1998. Predecessor B would be assigned the 2.70 percent rate on January 1, 1999, and would not become eligible for an experience rate again until July 1, 1999. For the purpose of determining when Predecessor B would again become eligible for an experience rate, the date of first payment of wages in the store retained (February 1, 1998, in this case) is considered just as if he had become a subject employer on that date.

    EXAMPLE 5: Successor A succeeded Employer B on August 24, 1998. Successor A became subject under Section 201.022, and there was a mandatory total transfer of compensation experience from Predecessor B. Predecessor B became a subject employer on May 22, 1998, by twenty weeks under Section 201.021, and B's rate on August 24, 1998, the date of acquisition, was 2.70 percent. Therefore, Successor A was assigned the 2.70 percent (2.60% + 0.10% Smart Jobs) rate for the year 1998. Successor A would be assigned the 2.70 percent (2.60% + 0.10% Smart Jobs) rate on January 1, 1999; however, 'A' would be assigned an experience rate on July 1, 1999, the date on which Predecessor B would have become eligible for an experience rate.

    EXAMPLE 6: Employer X became subject in May 1998 on the basis of twenty weeks of employment which the employer had in the operation of Grocery Store Number 1. The employer opened Grocery Store Number 2 on September 1, 1998. Employer X filed reports and paid tax on services performed in both stores until June 1, 1999, on which date he sold Store Number 1 to Corporation Y, and sold Store Number 2 to Corporation Z. Neither successor became subject under Section 201.022. However, each successor corporation voluntarily elected coverage and filed a joint application for partial transfer, which was approved. Predecessor X's rate on June 1, 1999, was 2.70 percent (2.60% + 0.10% Smart Jobs). Therefore, both successor corporations were assigned the 2.70 percent (2.60% + 0.10% Smart Jobs) rate. However, Corporation Y became eligible for an experience rate on July 1, 1999, because Corporation Y acquired the store, which was in existence at the time Predecessor X became a subject employer. In other words, Corporation Y became eligible for an experience rate on the same date that Employer X would have become eligible for an experience rate had continued operation of the stores. Corporation Z was assigned the 2.70 percent (2.60% + 0.10% Smart Jobs) rate for the entire year of 1993, and this corporation did not become eligible for an experience rate prior to January 1, 2000. This is because Store Number 2, which was acquired by Corporation Z, first paid wages in September 1998. Therefore, Corporation Z became eligible for an experience rate on January 1, 2000, just as if the corporation had become an employer in September 1999.

    EXAMPLE 7: Predecessor X became an employer in May, 1996, on the basis of twenty weeks of employment experience which he had in Store Number 1. Predecessor X opened Store Number 2 on May 15, 1997, and continued to operate both stores until June 1, 2000, on which date Store Number 2 was sold to Successor Y. Successor Y did not become subject under Section 201.022. However, he filed a voluntary election and a partial transfer application, which were approved. Predecessor X's rate on June 1, 2000, the date of the acquisition, was 0.30 percent. Therefore, Successor Y was assigned the 0.30 percent rate of the predecessor for the period from June 1, 2000 to December 31, 2000. The rate which was computed for Successor Y on January 1, 2001, was based upon the compensation experience which he acquired from Predecessor X, which was attributable to Store Number 2, and his own experience from June 1, 2000 through September 30, 2000.

    EXAMPLE 8: Mr. B acquired on April 1, 2000, one of two establishments previously operated by Mr. A, a subject employer since 1985. The establishment acquired first had employment on February 9, 1992.

    Mr. B filed an application for voluntary election of coverage on August 25, 2000, for the period beginning January 1, 2000, and Mr. A and Mr. B filed a joint application for partial transfer of compensation experience. The voluntary election of coverage was approved October 7, 2000, and the joint application was approved effective April 1, 2000.

    Mr. B was assigned the predecessor's tax rate for the period beginning January 1, 2000. A new experience tax rate was computed for Mr. B effective July 1, 2000, because the transferred experience was of sufficient duration for an 'interim' rate computation based on four quarters of chargeability.
  1. Effect of Termination of Coverage by Predecessor in Section 204.083 Cases:If an acquisition occurs between January 1 and March 31 of a calendar year, and the predecessor terminates coverage after the acquisition and on or before March 31 of such year, a joint application with respect to such acquisition can be approved. As of the date of the acquisition by the successor, the predecessor was an employer and did not lose that status until the Application for Termination of Coverage was filed and approved by the Commission. Therefore, any rights which the predecessor and successor acquired under the provisions of Section 204.083, by reason of the acquisition, are not impaired by any change in status of the predecessor occurring after the date of the acquisition. If a predecessor terminates coverage before the acquisition by a successor, the predecessor was not an employer on the date of the acquisition and no compensation experience can be transferred to the successor for the reason that Section 204.083 is only applicable to acquisitions from employers subject to the Texas Unemployment Compensation Act.

    EXAMPLE: Employing unit 'B' on January 25, 2000 succeeds 'A'. Successor B became subject under Section 201.022. Predecessor A had a 0.35 percent rate on January 25, 2000, the date of the acquisition. On February 25, 2000, Predecessor A filed an application to terminate coverage as of January 1, 2000, which was approved on February 27, 2000. Successor B would be assigned the 0.35 percent rate of Predecessor A for the year 1993, even though Predecessor A terminated his coverage as of January 1, 2000. We believe that this method of handling this type of case is correct because of the fact that Predecessor A was an employer on January 25, 2000, the date of the acquisition. Had Predecessor A filed an application to terminate coverage, and had his account been closed under the provisions of Section 206.004 prior to January 25, 2000, the date of the acquisition, the total transfer could not have been approved because of the fact that Predecessor A would not have been an employer on the date of the acquisition.

4.3.7     Acquisition Prior to Eligibility

A subject employer who is not yet eligible for an experience tax rate on the date the business of another employer is acquired does not lose the right to a rate computation on the date that the employer would have become eligible. Compensation experience transferred from the predecessor, combined with the employer's own experience, will be used in the rate computation at that time, provided there is a relationship as described in section 204.083 effective September 1989.

EXAMPLE 1: Mr. A became a subject employer under Section 201.021 in the first quarter of 1998. He was therefore eligible for an experience tax rate computation effective July 1, 1999. On February 1, 1999, he acquired under Section 204.083 the business of Mr. B, a subject employer eligible for an experience rate computation effective October 1,1999.

Since A is not an experience rated employer on February 1, 1999, the 2.70 percent (2.60% + 0.10% Smart Jobs) rate of B is assigned to A effective January 1, 1999. Since the compensation experience of B does not produce an earlier first chargeable quarter, an experience tax rate is computed for Mr. A effective July 1, 1999. The experience used in the computation was Mr. A's own experience during the period from January 1, 1998, to June 30, 1999, including all compensation experience transferred to him from Mr. B.

NOTE: Prior to 1989 a Joint Application for Total Transfer of Compensation Experience (C-96) was used when a non-experienced rated employer completed a total acquisition of an experienced rated employer and both parties consented to the transfer.

EXAMPLE 2: Employer A became subject in August 1998, under Section 201.021(a)(2). Employer B became subject in March 1992, under 201.021(a)(1). On February 1, 1999, Ms. B sold her business to Ms. A (note: Ms. B and Ms. A are related as required by section 204.083 of the TUCA) with mandatory Transfer of Compensation Experience. Since 'A' was not an experience rated employer on February 1, 1999, the 2.70 percent (2.60% + 0.10% Smart Jobs) rate of 'B' is assigned to 'A' effective January 1, 1999. Since the compensation experience of 'B' lowers the first chargeable quarter from 4/98 to 3/99, an experience tax rate is computed for 'A' effective July 1, 1999.

4.3.8     Acquisition in Computation Quarter

Mr. A became a subject employer under Section 201.021(a)(1) in March 1999. Mr. B became a subject employer under Section 201.021(a)(1) in March 1999. On August 1, 2000, Mr. A sold his business to Mr. B and the mandatory Transfer of Compensation Experience applies. An experience tax rate was computed for Mr. B effective July 1, 2000. The computation included both his own compensation experience and the experience transferred to him from Mr. A.

Mr. B finished four quarters of chargeability on June 30, 2000, making him eligible for an experience tax rate on July 1, 2000. Under Section 204.082, all acquisitions are effective the first day of the acquisition quarter for rate purposes. The compensation experience of a predecessor belongs to the successor on the acquisition date so Mr. B gets a July 1, 2000 interim rate using combined experience.

4.3.9     Resumption of Employment After Waiver

This discussion pertains to an employer who resumes employment (other than by acquisition of another business from a predecessor) subsequent to selling the business and waiving compensation experience to another employer. Likewise pertinent to the discussion is the failure to file an Application for Termination of Coverage.

If a subject employer waives compensation experience and does not file an Application for Termination of Coverage, if eligible to do so, the employer retains the employer's status as a subject employer. This means that in order to have an experience tax rate, the employer must again have sufficient compensation experience subsequent to the transfer to requalify for an experience tax rate. The date which determines when the employer has had the required four consecutive calendar quarters of chargeability with benefit wages is the date on which the employer resumes employment subsequent to the date as of which the employer waived his compensation experience. The date which determines the date on which the employer is eligible for an experience tax rate is not the day following the date on which the employer waived his experience. For example, an employer waives his compensation experience as of April 4, 1997, and resumes employment November 4, 1997. The date that determines his eligibility date is November 4, 1997, which means that the employer becomes chargeable with benefit wages as of April 1, 1998. A claim filed on or after that date will include the fourth quarter of 1997 in its base period. The employer will again be eligible for an experience rate effective April 1, 1999.

4.3.10     Finality of Transfer

A joint application (partial) may be withdrawn by either or both parties prior to approval of the application by the Commission. After approval by the Commission, an application may not be withdrawn and the approval may not be rescinded.

4.3.11     Application of Section 204.082

Section 204.082, as amended effective June 10, 1985, states:

". . for the purposes of this subchapter, an acquisition is effective on the first day of the calendar quarter in which the acquisition occurs."

The acquisition date will be treated as the first day of the quarter only for the purpose of determining the correct tax rates.

4.3.12     Governmental Employers/Section 204.103

Each governmental employer paid contributions equal to one percent (1%) of wages paid by the employer with respect to employment during each quarter for calendar years 1978 and 1979. The contribution rate for 1980 was a percentage adjusted to the next higher one-tenth of one percent (1/10 of 1%) based on a numerator including all benefits paid during the preceding two (2) calendar years based on wage credits earned from taxed governmental employers, and a denominator of the total wages (as defined in Section 201.081), paid by all taxed governmental employers for the same period. The contribution rate for calendar year 1981 and each calendar year thereafter has been determined in a like manner as for 1980, except the numerator and denominator has been based on one calendar year prior to the calendar year for which the rate is computed.

If the total benefits paid during the period used for determining the tax rate are greater than the contributions paid by these employers for the same period the difference will be added to the numerator in determining the contribution rate. If the contributions paid are greater than the total benefits paid during the period, that amount is subtracted from the numerator. The minimum tax rate for taxed governmental employers is 0.1 percent.

4.3.13     Voluntary Contributions/Section 204.048

  1. Notwithstanding any other provision of this subtitle, an employer for whom the commission has computed an experience rate as of October 1 of a calendar year that is effective for the succeeding calendar year, as provided by Section 204.047(a), may elect to make a voluntary payment of contributions to the commission.

  2. The amount of a voluntary contribution may be equal to all or part of the employer's chargebacks during the period ending September 30 that are used in computing the employer's experience rate for the succeeding calendar year. The commission shall allocate a voluntary contribution of less than the full amount of the employer's chargebacks first to the employer's most recent chargebacks.

  3. On receipt of a voluntary contribution during the period prescribed by Subsection (d), the commission shall reduce the employer's chargebacks by an amount equal to the contribution and shall recompute the experience rate applicable to that employer for the succeeding calendar year.

  4. (d) An employer who elects to make a voluntary contribution for the recomputation of the employer's experience rate must make the contribution no later than the 30th day after the date on which the commission mails to the employer the annual notice of the employer's experience rate. NOTE: This notice is generally mailed on or about December 15th. The employer may not revoke the contribution after the date on which the commission uses the contribution to recompute the employer's experience rate.

  5. Notwithstanding Subsection (a), the commission may not compute a new experience rate for an employer or reduce an employer's experience rate based on a voluntary contribution made by the employer after the expiration of the 120th day of the calendar year for which the rate is effective.

  6. The commission shall deposit a voluntary contribution made under this section to the credit of the compensation fund.

This section of the law will allow employers who receive an annual tax rate computation to make voluntary contributions against chargebacks on their account. The chargeback total is reduced by the amount of the voluntary contribution. If the employer contributes only part of the chargebacks, the voluntary contribution applies first to the most recent quarter used in the rate computation. A voluntary contribution applied against a quarter reduces the chargeback total for all future tax rates using that quarter. The employer must submit the voluntary contribution by the 60th day after the mailing of the tax rate notice and may not make a voluntary contribution to reduce the chargeback amount after the 120th day (approximately April 30) of the calendar year for which the rate is effective. This new law starts with the annual 1998 tax rates.

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Last Revision: May 07, 2009