This section of the Act applies when the employer is a state, instrumentality of a state or states or a political subdivision of a state or states. Examples of entities in this Section include: states, counties, school districts, municipal utility districts, water districts, hospitals, etc. Under this Section of the law, the employer is liable simply by having employees and paying wages. No monetary amount or duration of time must be met before liability is incurred.

Contributions are paid to the Commission in two ways; taxes and reimbursements. All Employers except the State of Texas are eligible to pay taxes to the Commission. States, political subdivisions of a state or states and instrumentalities of a state or states are also eligible to pay reimbursements in lieu of paying taxes. However, because it is not possible to determine which option will best benefit an Employer, a Status Section employee should never advise an Employer to be taxed or reimbursing. We merely provide a handout entitled "Advantages and Disadvantages of Reimbursement in Lieu of Taxes for Political Subdivisions," so that the employer may make their own decision.

Liability under this section of the law is based on Form C-1SA for State Agencies and Form C-1P for political subdivisions. The C-1P allows political subdivisions to indicate whether they want to be taxed or elect to pay reimbursements. State Agencies must be reimbursing.

Out-of-state agencies can elect to become reimbursing or taxed.

When setting up a political subdivision it is preferable to obtain a C-1P.

When a regular C-1 is used to establish a Taxed Political Subdivision, you will need to prepare a C-10 and assign it a 99-88 number (Taxed Political Subdivision number). The Accounts Examiner also needs to ask Status Operations Unit (SOU) to send the employer the "Advantages and Disadvantages of Reimbursements in Lieu of Taxes for Political Subdivisions," Supplement to Employer’s Liability Notice and C-6A.

This will give the employer the opportunity to make an informed decision to be a reimbursing employer.

Document the FTC, the comment must state that the "Advantages and Disadvantages of Reimbursements in Lieu of Taxes," and C-6A were sent to the employer along with the C-198 letter. This will verify that the employer has been advised of their option and the 45 day rule in effect.

The first employment date is the subject date.

These accounts can only be set up by the State Office. It is not possible for Field Examiners to establish liability under 201.026.

Taxed political subdivision accounts are issued special numbers beginning with 99-88. These numbers are not assigned by the system. They are assigned by SOU.

11 - Political Subdivision & Out-of-State Governmental Unit

Upon receipt of the C-1P, the Entity Unit will assign it a pending regular taxed account number. To correct Commission records, you must close the erroneous regular taxed account number as established in error and assign the Employer a taxed political subdivision account number. Since taxed political subdivisions are assigned special account numbers, the transaction must be performed using Forms C-10. All taxed political subdivisions are assigned the same tax rate based on the experience of the entire group of taxed political subdivisions.

If a faxed C-1P is received there is no need to assign a regular tax number. If any C-1 is available on TDO, obtain a copy and attach to C-10’s. All status action must be done on C-10’s.

Prepare Form C-10 to close the erroneous taxed account number as a duplicate account.

Reimbursing political subdivisions are issued special account numbers beginning with 99-99. These numbers are not issued by the system. Reimbursing account numbers are assigned by SOU.

20 - State Agencies
21 - Political Subdivision & Out-of-State Governmental Unit
23 - Political Subdivision Group

Upon receipt of the Form C-1SA or Form C-1P, the Entity Unit will assign a pending regular tax account number. State Agencies (C-1SA) should be assigned a reimbursing account number. Form C-1P’s that indicate election to pay reimbursements should be assigned a reimbursing account number. To correct Commission records, you must close the pending taxed account number as established in error and assign the entity a reimbursing account number. Since reimbursing accounts are assigned special account numbers, these transactions must be performed on Forms C-10.

If a faxed C-1SA or C-1P is received there is no need to assign a regular taxed account number. If any C-1 is available on TDO, obtain a copy and attach to C-10’s.

Prepare Form C-10 to close the erroneous taxed account number as a duplicate account.

Political subdivisions may switch their method of contributing from reimbursing to taxed or vice versa. For further information regarding procedures for changing from taxed to reimbursing or from reimbursing to taxed, see Chapter 2 - "Reimbursing Election Process" and Chapter 2 - "Taxed Election Process," respectively.

An acquisition or merger of one political subdivision by another political subdivision is treated the same as any other predecessor/successor acquisition. The only exception being the subject section on the new account. The subject section remains 201.026 instead of becoming 201.022. For further information regarding procedures for acquisitions, see Chapter 2 - "Acquisitions By Established Accounts" and Chapter 1 - "New Accounts 201.022." The acquisition is always recorded with no rate transfer.

When a Regular Taxed account becomes a Political Subdivision (Taxed or Reimbursing) this is a change of legal entity and an acquisition is recorded the same as any other predecessor/successor acquisition. The only exception being the subject section on the new account. The subject section remains 201.026 instead of becoming 201.022. The acquisition is always recorded with no rate transfer.