GOVERNOR BREDESEN SIGNS LEGISLATION TO PENALIZE EMPLOYERS
INVOLVED IN TAX EVASION SCHEMES
Law Will Save State Millions a Year in Lost Revenue
NASHVILLE—Governor Phil Bredesen signed into legislation late last week the SUTA Dumping Prevention Act. SUTA (state unemployment tax act) dumping is a scheme perpetrated by some companies and accounting firms to avoid an employer's fair share of unemployment insurance taxes by moving employees from company to company to avoid paying unemployment insurance premiums at their true rate and to fraudulently acquire a lower rate.
Mandated by the Federal SUTA Dumping Prevention Act of 2004, the Tennessee SUTA Dumping Prevention Act will strengthen existing laws and provide for increased efforts for the prevention and detection of SUTA dumping. It also provides penalties sufficiently severe to discourage employers who might be tempted to manipulate their premium rates. The new law will be enforced by the Tennessee Department of Labor and Workforce Development.
“Law-abiding employers get hurt by SUTA dumping,” said Tennessee Department of Labor and Workforce Development Commissioner James Neeley. “When every employer does not pay their fair share of premiums, all other employers have to cover their unemployment insurance costs in the form of higher rates. Honest employers can be put at a competitive disadvantage in marketing their products and services and also find themselves with fewer funds available to expand their businesses.”
Unemployment insurance auditors have already identified $2.5 million in lost revenue to Tennessee’s Trust Fund resulting from SUTA dumping. The Tennessee Department of Labor & Workforce Development’s legal section has recovered $1.4 million from offending employers. The state expects to find millions of dollars more in underpaid premiums once advanced detection and prevention programs are put in place. The U.S. Department of Labor estimates that SUTA dumping costs states' trust funds millions a year in lost revenue.
When the Tennessee Department of Labor and Workforce Development discovers an employer has engaged in a form of SUTA dumping, the following will occur:
The new law's provisions will become effective January 1, 2006 and will be enforced against all employers and individuals who are found to be involved in the practice of SUTA dumping. It would be advantageous to employers to come forward prior to the enactment of the new legislation so they would not be subject to the severe financial penalties described in the SUTA dumping law.
- Both the predecessor and successor employers will be assigned the actual applicable premium rate, effective back to the first quarter of violation, and will immediately owe the difference between the premiums determined to be due at the applicable premium rate and the premiums previously paid plus all interest owed on the difference
- Both the predecessor and the successor will be subject to a penalty rate of 2% of their annual taxable payroll for a minimum of three years and
- Persons involved will be subject to a Class A misdemeanor with a maximum sentence of 11 months, 29 days imprisonment and a maximum fine of $2,500.
- In addition, any person who advises others to violate the law, or who violates the law but is not an employer against whom the 2% penalty rate can be levied, is subject to Class A misdemeanor charge plus a civil monetary penalty of up to $50,000.