In September 2005 House Bill 3250 passed in the Regular Session of the 79th Texas Legislature. This legislation became effective September 1, 2005. The law in effect on the date of the acquisition governs all acquisitions occurring before that date.

The purpose of this legislation was to amend the Texas Unemployment Compensation Act to incorporate provisions mandated by federal legislation in regards to SUTA dumping. Employers engage in SUTA dumping when they unlawfully attempt to lower the amount of their unemployment insurance taxes by altering their experience ratings. Chapters 201 and 204 of the Texas Unemployment Compensation Act were revised to strengthen the financial integrity of the unemployment insurance program by reducing tax avoidance due to the manipulation of unemployment experience.

Liability under Section 201.022 of the Labor Code was broadened to include all acquisitions, total or partial. “Employer” means an individual or employing unit that receives, “by any means,” all or part of the organization, trade, business, or “workforce” of another that was an employer subject to this subtitle at the time of the acquisition.

Section 204.081 was amended by adding two new definitions. The term “person” is defined as an individual, trust, estate, partnership, association, company, or corporation. “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.
  
• control through security or lease arrangement the assets necessary to conduct the organization, trade, or business.
  
• direct the internal affairs or conduct of the organization, trade, or business.

Section 204.083 requires the transfer of compensation experience in acquisitions of all or part of an experience-rated organization, trade or business in which there is substantially common management or control or substantially common ownership.

Section 204.084 was changed to address approval of compensation experience for partial acquisitions of businesses that do not have substantially common management or control or substantially common ownership. In addition, this section states the conditions under which the businesses involved in those partial acquisitions may apply for a transfer of compensation experience and the conditions under which the commission shall approve or deny such a transfer. The method used to calculate the successor employing unit’s initial contribution rate is outlined for both experience-rated and non-experience rated successor employers.

Section 204.085 addresses the contribution rate for successor employers that acquire part of the organization, trade, or business that is definitely identifiable and segregable when there is substantially common management or control or substantially common ownership. It details the computation of an experience rate for a partial acquisition and clarifies when a new computation of experience rate will take effect for a successor-employing unit with an experience rate and without an experience rate. In addition, this section sets the contribution rate for a successor engaging in a partial acquisition solely to obtain a lower contribution rate at the initial contribution rate in Section 204.006.

The new Section 204.0851 addresses the contribution rate for total acquisitions and partial acquisitions in which there is substantially common management or control or substantially common ownership. This section excludes partial acquisitions that met the identifiable and segregable requirements under section 204.085. It details the computation of experience rates and clarifies when a new computation of experience rate will take effect for a successor-employing unit with an experience rate and without an experience rate. It also addresses the computation of the predecessor employing unit’s contribution rate.

The new Section 204.087 defines an offense and sets the penalties for persons that advise others to violate the provisions of this subchapter, or commit violations of the subchapter. Violations are Class A misdemeanors.

The new Section 204.088 charges the commission with adopting a rule that establishes procedures for identifying the transfer or acquisition of a business.

The new Section 204.089 requires that the commission administer this subchapter in conformity with federal regulations prescribed by the United States Secretary of Labor.

[ 16.2.1 - Verifying Successors in New Accounts, Established Accounts, and Closes ] [ 16.2.2 - Verifying Rate Transfer ] [16.2.3 - Multiple Acquisitions in Same Quarter ]

Mandatory transfer of compensation experience applies to all acquisitions, total or partial, which involve common management or control or substantially common ownership occurring after September 1, 2005. The successor employer is to be informed in their C-198 Employer Liability Notice, of the right to submit an application to transfer only the compensation experience of the portion of the predecessor business acquired, if it is identifiable and segregable. Partial applications submitted by successors without common management, control, or ownership will continue to be handled in the same manner as under the current law.

It is every tax department examiners responsibility to verify whether or not a mandatory transfer is mandated when establishing, amending, auditing, or reviewing an account.

When establishing a new account, the accounts examiner should investigate if a predecessor account exists. There are several ways to verify successor liability including:

1. Asking the employer for the information.
   
2. Cross-reference the employer master file with business name, address, and telephone number.
   
3. Cross-reference the employer with the owners’ social security number.
   
4. If employees for successor have been identified, check TWR of the employer master file and verify where those employees were before.

When closing an account the examiner should verify in every case whether there is a successor account by:

1. Obtaining the information from the employer.
   
2. Verifying through TWC wage records where the employees have gone.

State Law requires the transfer of the predecessor employer’s compensations experience to the successor employer if the predecessor transfers, through any means, all or part of the organization, trade, or business, to the successor employer and there is substantially common management or substantially common ownership

It is the examiner’s responsibility to verify whether the rate transfers in every acquisition recorded. There are instances where additional information is required to make the determination. The employer’s contention or a signed form C-38 is no longer sufficient in some cases.

Sources available to the examiner to further investigate a rate transfer are:

1. Secretary of State records. These records usually indicate who the officers are.
   
2. Employers web site. Employer web sites can have valuable information in regard to the transfer.
   
3. When employer contends that there is no common ownership, then there must exist a bill of sale documenting the transfer. This documentation will assist the examiner in their determination.

Reference section 204.082 - Effective date of Acquisition.

"an acquisition is effective on the first day of the calendar quarter in which the acquisition occurs".

We will only record the first (Total or Partial with total rate transfer, 1-5 T-JA-A and 4-5 C-JA-A.) acquisition in any given quarter.
For Example: Commonly owned Company A acquires part of Company B on 1-1-09. Another partial acquisition occurs between the same companies on 2-1-09, and then on 3-1-09.

In this case the first transfer of employees on 1-1-09 was deemed to have occurred on 1-1-09. The second and any subsequent acquisitions of the same account, within the same quarter, are deemed to have occurred on 01-01-09 also.

There might be situations in which company A acquires part of company B on 01-01-09 and then acquires the remaining (total on 03-01-09). If we are recording both acquisitions at the same time, we will only record the total as this will have the same effect as the partial with rate transfer. Status would not approve a partial application of the first partial acquisition, as our determination is that the predecessor was totally acquired effective the first day of that quarter for rate computation purposes. If the partial is already recorded, just close the predecessor reason code 4 and document FTC the subsequent total. The total rate has already transferred.

Put FTC comments on the account that you talked to your Supervisor about any unusual circumstances.

[ 16.3.1 - Using SDDS ] [ 16.3.2 - SDDS Home Page ]

In order to facilitate the detection of SUTA dumping, the Department of Labor along with the State of Carolina developed software that would identify changes in employment, wages, taxes, and benefits charges of Texas employers. The State Unemployment Tax Act Dumping Detection System (SDDS) is available to TWC users that have been given access.

Link for reporting SUTA: http://sutax101p/SUTAv2/default.aspx

The System requires all users to login. Tax department administration will be responsible for granting user access to SDDS.

The SDDS home page allows you to search for an employer and view data that relates to that employer. The home page consists of a Quick Search and 10 different Search Options.

Quick Search will allow you to search for an employer by UI Account Number, FEIN, SSN ( Employer), Telephone, or Company Name.

The 10 Search Options available are:

1. Social Security Number Search - This option will search employment history of a specific individual.
   
   
2. Tax Information Screen Search –This search is based on a single year. Options allow you to search for employers that meet certain criteria such as annual total wages, annual taxable wages, annual taxes paid, tax rate, account balance, experience rating and benefit charges. For example, in this search you could review all employers that have a tax rate between 6% and 7% and total taxable wages between 200,000 and 1,000,000.
   
   
3. Filter Screen Search – Allows you to see results of employers that meet certain changes such as number of employees moving from account to account, percentage changes in employment and wages prior to moves, changes in tax rates from entities involved in employment moves, and type of ownership and industry sector. For example, you could identify employers in this search that are corporations in the construction business in which the predecessor company had between 5,000 and 10,000 employees and the predecessor had a high rate and the successor had a low rate.
   
   
4. Flagged Records Search – Accounts that have been flagged for ongoing review can be easily accessed through this option.
   
   
5. Rapid Growth Search - This search will allow you to view records of companies that have experienced rapid growth in employment in a given quarter. The search allows you to choose a quarter, the percentage of growth and the number of employees causing the rapid growth. For example one could search for rapid growth in the 4th quarter 2004 of companies that growth was caused by more than 2000 employees.
   
   
6. Voluntary Contribution Search - This search will allow you to view all companies that have made a voluntary contribution in a given year. It also allows you to narrow your search by the amount of contribution and any payments made over the required contribution.
   
   
7. Employer Information Search - Will allow you to search for an employer by UI account number - 10 digit, Federal Employer ID number, Employer Name, Telephone Number, SSN of Company Owner or Company Address.
   
   
8. View Standard Queries - This search will allow you to view the top 250 employers by number of employees, number of employees moved, most negative account balance, most negative account balance and no taxable wages, highest taxable wages, highest voluntary contribution amount, growth rate, highest benefit charges and total wages with no taxable wages (private ownership only).
   
   
9. View Saved Searches - Allows you to view previously saved searches.
   
   
10. View Saved Result Sets – Allows you to view saved result sets.

The Tax department will use all resources available to identify SUTA dumping by:

• Identifying transfers, total or part, through registration forms, field offices, SUTA software, quarterly queries, etc.
  
  
• Verifying possible tax rate fluctuations minimizing tax liability to employers.
  
  
• If tax liability fluctuations are found, verifying common ownership or common management or control by accessing all available resources (Status forms, Secretary of State, U. S. Security and Exchange Commission (SEC), Internet and contact with employer.)
  
  
• If common ownership or common management or control is found, process rate transfer accordingly.
  
  
• If information obtained clearly indicates no common ownership exists, investigation is complete.
  
  
• If there is still an indication of possible SUTA dumping: Continue investigation by issuing field assignments and/or requesting from employer, records that could identify common owners or common management or control. (Bill of Sale, Corporate minutes, Federal filings, Lease agreements, Insurance policies, etc)
  
  
• Making a tax determination based on all information gathered.

If the acquisition is keyed per SUTA Dumping Detection System send e-mail to Assistant Section Manager with predecessor and successor account numbers and if Section 204.083 applies.

If an FL-163 was sent to an out-of-state employer and no response has been received, the accounts examiner needs to check the SUTA Dumping Detection System to determine if acquisition can be verified and keyed. The accounts examiner can also check the WRIE screens to verify Section 201.022.

Verify common ownership or common management or control by accessing all available resources: SON screens, C-1, SOS, Internet – website of employers and employer contacts.

See Chapter 2 – "Acquisitions Documentation – Minimum Requirements".