Original Notice.

     Preproposal statement of inquiry was filed as WSR 04-21-085.

     Title of Rule and Other Identifying Information: Unemployment insurance rules concerning predecessor and successor employers, employer penalties, tax rates, and industry classifications.

     Hearing Location(s): Employment Security Department, 4th Floor Conference Room A, 212 Maple Park, Olympia, on August 2, 2005, at 1:30 p.m.

     Date of Intended Adoption: August 23, 2005.

     Submit Written Comments to: Larry Oline, P.O. Box 9046, Olympia, WA 98507-9046, e-mail loline@esd.wa.gov, fax (360) 438-3226, by August 1, 2005.

     Assistance for Persons with Disabilities: Contact Mary Mendoza by August 1, 2005, TTY (360) 902-9589 or (360) 902-9281.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: Chapter 4, Laws of 2003 2nd sp.s. (2ESB 6097) made substantive changes to the unemployment insurance program. A number of those changes became effective in 2005. The proposed rules are intended to clarify the requirements of employers, define terms, update penalties, and revise existing rules consistent with the amended statutes.

     Reasons Supporting Proposal: To provide clarity for employers, claimants, and staff regarding how the department will administer the changes to the unemployment insurance program made by 2ESB 6097 and effective in 2005. The proposal also updates the penalties for employers who report or pay taxes improperly, and replaces obsolete rules with language consistent with the amended statute.

     Statutory Authority for Adoption: RCW 50.12.010, 50.12.040, and 50.12.042.

     Statute Being Implemented: Chapter 4, Laws of 2003 2nd sp.s. (2ESB 6097).

     Rule is not necessitated by federal law, federal or state court decision.

     Name of Proponent: Employment Security Department, governmental.

     Name of Agency Personnel Responsible for Drafting: Juanita Myers, 212 Maple Park, Olympia, (360) 902-9665; Implementation and Enforcement: Annette Copeland, 212 Maple Park, Olympia, (360) 902-9303.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. The requirements placed on employers are established in statute. The rules simply provide additional clarification concerning the circumstances under which the statutory penalties will be imposed.

     A cost-benefit analysis is not required under RCW 34.05.328. The provisions concerning reporting and payment of taxes, and transfers of ownership, are contained in state law. These rules are interpretive and simply clarify the situations under which the statutory penalties will be imposed. The revised tax rates are also contained in state law, while the rules simply clarify the calculations the department will use. The transition from the standard industrial classification to the North American classification system is required by statute, while the rules explain how that transition will be accomplished.

Karen T. Lee

Commissioner

     (1) Predecessor. You are a "predecessor" if, during any calendar year, you transfer any of the following to another individual or organization:

     (a) All, or a portion, of your operating assets as defined in subsection (3) below; or

     (b) A separate unit or branch of your trade or business.

     (2) Successor. You are a "successor" if, during any calendar year, you acquire substantially all of a predecessor employer's operating assets. You are a "partial successor" if, during any calendar year, you acquire:

     (a) A portion of a predecessor employer's operating assets, or

     (b) A separate unit or branch of a predecessor employer's trade or business.

     (3) Operating assets. "Operating assets" include the properties you use in the normal course of business operations to generate your operating income. They may include properties that are real or personal, and tangible or intangible. Examples include land, buildings, machinery, equipment, stock of goods, merchandise, fixtures, employees, or goodwill. ((Employees are not operating assets.))

     (4) Transfer of assets. Transfers from a predecessor to a successor employer may occur by sale, lease, gift, or any legal process, except those listed in subsection (6) below.

     (5) Simultaneous acquisition. For purposes of successor simultaneous acquisition, the term "simultaneous" means all transfers that occurred as a result of the business acquisition or reorganization, beginning when the acquisition started and ending when the primary entity is transferred.

     (6) Exceptions. A predecessor-successor relationship will not exist:

     (a) For the purposes of chapter 50.24 RCW (payment of taxes), when the property is acquired through court proceedings, including bankruptcies, to enforce a lien, security interest, judgment, or repossession under a security agreement unless the court specifies otherwise;

     (b) For the purposes of chapter 50.29 RCW (experience rating), when any four consecutive quarters, one of which includes the acquisition date, pass without reportable employment by either the predecessor, successor, or a combination of both.

[Statutory Authority: RCW 50.12.010, 50.12.040, 50.12.042. 04-23-058, § 192-300-050, filed 11/15/04, effective 12/16/04. Statutory Authority: RCW 50.12.010, 50.12.040. 00-05-068, § 192-300-050, filed 2/15/00, effective 3/17/00.]

     Reviser's note: The bracketed material preceding the section above was supplied by the code reviser's office.
AMENDATORY SECTION(Amending WSR 04-23-058, [filed 11/15/04,] effective 12/16/04)

WAC 192-310-010   Employer reports--RCW 50.12.070.   (1) Master application. Every person or entity, which has one or more individuals performing services for it in the state of Washington, must file a master application with the department in a format prescribed by the commissioner.

     (2) Quarterly tax and wage reports:

     (a) Tax report. Each employer must file a quarterly tax report with the commissioner listing the total wages paid to all individuals in its employ during that calendar quarter.

     (b) Report of employee's wages. Each employer must file a quarterly report of employee's wages with the commissioner. This report must list each employee by name, social security number, total hours worked for the quarter, and wages paid during that calendar quarter.

     (i) Social security numbers are required for persons working in the United States;

     (ii) If an individual has a social security card, he or she must present the card to the employer at the time of hire or shortly thereafter, except agricultural workers who, under federal rules, are permitted to show their social security card on the first day they are paid;

     (iii) If the individual does not have a social security card, Internal Revenue Service rules permit an employer to hire the individual with the clear understanding that the individual will apply for a social security number within seven days of beginning work for the employer. The individual must provide the employer with a document showing they have applied for a social security card and, upon receipt, a copy of the card itself. An employer should retain copies of the document(s) for his or her records; and

     (iv) If the employee does not show his or her social security card or application for a card within the seven day window allowed by the Internal Revenue Service and the employer continues to employ the worker, the employer does not meet the reporting requirements of this section and no waiver of the incomplete report penalty will be granted (see WAC 192-310-030).

     (c) Format. The quarterly tax and wage reports must be filed in one of the following formats:

     (i) Electronically, using the current version of UIFastTax, UIWebTax, or ICESA Washington; or

     (ii) Paper forms supplied by the department (or a certified version of those forms).

     (d) Due dates. The quarterly tax and wage reports are due by the last day of the month following the end of the calendar quarter being reported. Calendar quarters end on March 31, June 30, September 30 and December 31 of each year. Therefore, reports are due by April 30, July 31, October 31, and January 31, respectively. If these dates fall on a Saturday, Sunday, or holiday, reports are due the next business day. Exceptions to the time and manner of filing the report must be approved in advance by the commissioner.

     (e) Termination of business. Each employer who ceases business or whose account is closed by the department must immediately file:

     (i) A tax report for the current calendar quarter which covers tax payments due to the date such account is closed;

     (ii) A report of employee's wages for the current calendar quarter which includes all wages paid to the date such account is closed.

[Statutory Authority: RCW 50.12.010, 50.12.040, 50.12.042. 04-23-058, § 192-310-010, filed 11/15/04, effective 12/16/04. Statutory Authority: RCW 50.12.070. 98-14-068, § 192-310-010, filed 6/30/98, effective 7/31/98.]

     Reviser's note: The bracketed material preceding the section above was supplied by the code reviser's office.
AMENDATORY SECTION(Amending WSR 04-23-058, [filed 11/15/04,] effective 12/16/04)

WAC 192-310-030   Reports and tax payments subject to penalty.   (1) Penalty for ((L))late tax reports. An employer who files a tax report as described in WAC 192-310-010 (2)(a) but does not file it within the time frame prescribed in WAC 192-310-010 (2)(c) is subject to a penalty of twenty-five dollars per violation, unless the penalty is waived by the department.

     (2) Definition of ((I))incomplete ((T))tax ((R))report((s)). An employer is required to file the report required by WAC 192-310-010 in a complete manner and in the format required by the commissioner.

     (a) An "incomplete report" is defined as any report submitted by either a contributory or reimbursable employer or their agent where:

     (i) The entire wage report is not submitted timely; or

     (ii) A required element is not reported (social security number, name, hours worked, or wages paid); or

     (iii) A significant number of employees are not reported; or

     (iv) A significant number of any given element is not reported such as, but not limited to, missing social security numbers, names, hours, wages; or

     (v) Either the employer reference number or Unified Business Identifier (UBI) number is not included with the tax or wage report((.)); or

     (vi) The report includes duplicate social security numbers, or impossible social security numbers as indicated by the Social Security Administration (such as 999-99-9991, 999-99-9992, etc.).

     (b) An "incorrect format" means any report that is not submitted in the format required by the commissioner under WAC 192-310-010 (2)(c).

     (c) For purposes of this section, the term "significant" means an employer who has:

     (i) Two to 19 employees and reports incomplete wage records for two or more employees; or

     (ii) Twenty to 49 employees and reports incomplete wage records for three or more employees; or

     (ii) Fifty or more employees and reports incomplete wage records for four or more employees.

     (3) Penalty for filing an incomplete or incorrect format tax report. An employer who files an incomplete or incorrectly formatted tax and wage fails to file a report as required by RCW 50.12.070 will receive a warning letter for the first occurrence. For subsequent occurrences the employer is subject to penalty as follows:

     (a) ((Incomplete tax report. The penalty for filing an incomplete tax report will be t)) Two hundred fifty dollars or ten percent of the quarterly contributions for each occurrence, whichever is less.

     (b) When no quarterly tax is due and an employer has submitted an incomplete report or filed the report in an incorrect format, the following schedule will apply after the initial warning letter:

(i)	1st Occurrence	$75.00
(ii)	2nd Occurrence	$150.00
(iii)	3rd and subsequent occurrences	$250.00

     (((b) Filing tax report in an incorrect format. The penalty for filing a tax report in an incorrect format will be two hundred fifty dollars or ten percent of the quarterly contributions for each occurrence, whichever is less. When no quarterly tax is due and an employer has submitted a tax report in an incorrect format, the following schedule will apply:

(i)	1st Occurrence	$150.00
(ii)	2nd and subsequent occurrences))	$250.00

     (4) Penalty for ((K))knowingly misrepresenting amount of payroll. If an employer knowingly misrepresents to the department the amount of his or her payroll, upon which contributions under this title are based, the employer is liable for a penalty of ten times the difference between the contributions paid, if any, and the amount of contributions the employer should have paid for the period. This penalty is in addition to the amount the employer should have paid. The employer is also liable to the department for the reasonable expenses of auditing his or her books and collecting such sums as provided in WAC 192-340-100.

     (5) ((Report of employee's wages. Any decision to assess a penalty for filing a late or incomplete report of employee's wages as described in WAC 192-310-010 (2)(b) will be made on an individual basis by the chief administrative officer of the tax branch as provided in RCW 50.12.220.

     (6))) ((Delinquent)) Late tax payments. ((For purposes of RCW 50.12.220, tax payments are delinquent as provided in WAC 192-310-020 and RCW 1.12.070.)) All employers must file a tax report every quarter, including employers who have no payroll for a given quarter. If an employer does not report on time, it will be charged a late fee of $25 for each report as described in subsection (1). If the payment is late, the employer will also be charged interest at a rate of one percent of taxes due per month. A late payment penalty is also charged for overdue taxes:

     (a) First month: Five percent of the total taxes due or $10.00, whichever is greater;

     (b) Second month: An additional 5 percent of total taxes due or $10.00, whichever is greater;

     (c) Third month: An additional 10 percent of total taxes due or $10.00, whichever is greater; and

     (d) Fourth month and every month following for the life of the delinquent debt: A total of 20 percent of total taxes due or $10.00, whichever is greater.

     (((7))) (6) Late filing and late payment Ppenalty waivers. The department may, for good cause, waive penalties for late filing of a report and late payment of taxes that are due with a report, if the commissioner determines that the failure to timely file reports or pay taxes was not the employer's fault.((, waive penalties in the following situations:))

     (a) The department may waive late penalties if it finds there are circumstances beyond the control of the employer. Circumstances beyond the control of the employer include, but are not necessarily limited to, the following:

     (i) The return was filed on time with payment but inadvertently mailed to another agency;

     (((b))) (ii) The delinquency was due to an action of an employee of the department, such as providing incorrect information to the employer when the source can be identified((, or not furnishing proper forms to permit the filing of tax reports or the payment of taxes on time));

     (((c))) (iii) The delinquency was caused by the death or serious illness, before the filing deadline, of the employer, a member of the employer's immediate family, the employer's accountant, or a member of the accountant's immediate family;

     (iv) The delinquency was caused by the unavoidable absence of the employer or key employee prior to the filing date. "Unavoidable absence" does not include absences because of business trips, vacations, personnel turnover, or terminations;

     (((d))) (v) The delinquency was caused by the accidental destruction of the employer's place of business or business records; ((or))

     (vi) The delinquency was caused by an act of fraud, embezzlement, theft, or conversion on the part of the employer's employee or other persons contracted with the employer, which the employer could not immediately detect or prevent, provided that reasonable safeguards or internal controls were in place; or

     (vii) The employer, prior to the time for filing the return, filed a timely request with the department's central office or with a district tax office for proper forms, and the forms were not furnished in sufficient time to permit the completed report to be filed and paid before the due date. "Timely request" does not mean the date the report is due, but must be at least three days in advance of the due date.

     (((e))) (b) The department may waive late penalties if it finds the employer to be out of compliance during an employer-requested audit, but the department determines the employer made a good faith effort to comply with all applicable laws and rules((.)); and

     (c) The department will not consider waiver of late penalties if the employer has been untimely with filing or with payment in any of the last eight consecutive quarters immediately preceding the period covered by the return for which a waiver is requested. If an employer has been in business for fewer than the eight preceding quarters, then all preceding quarters must have been filed paid timely and a one-time only waiver may be granted.

     (((8))) (7) Incomplete reports or incorrect format penalty waivers. For good cause, the department may waive penalties for incomplete reports or reports in an incorrect format one time only when the employer can demonstrate making a good faith attempt to correct the problem in a timely manner after the department provided notification of the problem;.

     (((b))) (8) Missing and Impossible Social Security Numbers. When a social security number is impossible or missing, the department may waive penalties for incomplete reports only once for each worker and only when:

     (a) The report was incomplete due to the inclusion of impossible social security numbers, but the employer can demonstrate that the impossible social security numbers were provided to the employer by the employees; or

     (b) The report was incomplete due to missing social security numbers, but the employer can demonstrate that the employee did not work for the employer after failing to provide a valid social security card or application for social security number within seven days of employment.

     (((9)))(9) Waiver requests. A request for a waiver of penalties must be written, contain all pertinent facts, be accompanied by available proof, and be filed through a tax office. In all cases the burden of proving the facts is on the employer.

     (((9))) (10) Extensions. The department, for good cause, may extend the due date for filing a report. The employer must make a deposit with the department in an amount equal to the estimated tax liability for the reporting period or periods for which the extension is granted. This deposit will be credited to the employer's account and applied to the employer's debt. The amount of the deposit is subject to approval by the department.

[Statutory Authority: RCW 50.12.010, 50.12.040, 50.12.042. 04-23-058, § 192-310-030, filed 11/15/04, effective 12/16/04. Statutory Authority: RCW 50.12.010 and 50.12.040. 98-14-068, § 192-310-030, filed 6/30/98, effective 7/31/98.]

     Reviser's note: The bracketed material preceding the section above was supplied by the code reviser's office.

     Reviser's note: The typographical errors in the above section occurred in the copy filed by the agency and appear in the Register pursuant to the requirements of RCW 34.08.040.
NEW SECTION
WAC 192-320-005   Experience defined -- RCW 50.29.021.   As used in this chapter, the term "experience' includes factors that bear a direct relation to the risk of unemployment. Any benefits paid which are based on wages paid by the employer and chargeable under RCW 50.29.020 are considered experience.

[]

     Reviser's note: The typographical error in the above section occurred in the copy filed by the agency and appears in the Register pursuant to the requirements of RCW 34.08.040.
NEW SECTION
WAC 192-320-010   Experience transferred to successor employer -- Definition.   (1) Any benefits paid which are based on wages paid by the predecessor employer prior to the transfer of ownership must be charged to the successor employer. Just as the successor employer acquires the organization, trade, business, assets, and experience of a predecessor employer as of the date of transfer, it must also acquire the benefit charges for past, current, or future claims related to the predecessor employer (or segregable part of the predecessor employer) prior to the transfer.

     (2) Once experience has been transferred, it becomes the successor employer's experience. It must be used in determining the successor's rates for any rate year that follows the year in which the transfer occurs. (There is an exception when, following the transfer, the successor still does not have sufficient experience to meet the definition of a qualified employer in RCW 50.29.010(6).) Since the transferred experience belongs to the successor employer, it may no longer be used to compute rates for the predecessor employer for subsequent rate years.

[]

     (2) When calculating the industry average array calculation factor rate and the industry average graduated social cost factor rate, the department will use the first four digits of the NAICS code to determine the industry that is being calculated.

     (3) Industry average array calculation factor rate. (a) The department will calculate the industry average array calculation factor rate as follows:

     (i) A matrix will be prepared that contains each of the 40 rate classes;

     (ii) For each rate class, all qualified employers assigned to that rate class and assigned the NAICS code being calculated will have their taxable payrolls multiplied by the appropriate array calculation factor rate, totaled and displayed;

     (iii) The sum of the 40 rate class array calculation factor rates will be divided by the total of all payrolls used in the calculation; and

     (iv) The result will be increased by fifteen percent and expressed as a percentage rounded to two decimal places.

     (b) The calculated industry average array calculation factor rate shall be no less than 1.00 percent or greater than 5.4 percent.

     (4) Industry average graduated social cost factor rate. (a) The department will calculate the industry average graduated social cost factor rate as follows:

     (i) The industry average matrix of the 40 rate classes will display the graduated social cost factor rate for each of the 40 rate classes;

     (ii) The payroll sum in each rate class will be multiplied by the corresponding graduated social cost factor rate for that rate class, totaled and displayed;

     (iii) The sum of the 40 rate class array calculation factor rates shall be divided by the total of all payrolls used in the calculation; and

     (iv) The result will be increased by fifteen percent and expressed as a percentage rounded to two decimal places.

     (b) The calculated industry average graduated social cost factor rate shall be no greater than the graduated social cost factor rate assigned rate class 40.

     (4) If no qualified employers are in the four digit level of the NAICS code, the rates shall be calculated at the corresponding three digit level and the result assigned to the four digit level. If no qualified employers are in the three digit level, the rates shall be calculated at the corresponding two digit level and the result assigned to both the three and four digit levels.

[]

     (2) If you ((do not return the letter within thirty days,)) are an employer at the time of the transfer, you will keep your rate class for the remainder of the current rate year. If you are not an employer when you acquire the predecessor's business, you will keep the ((tax)) rate class that was assigned to the predecessor employer for the remainder of the rate year. ((However, in the following calendar year you will receive the average industry rate. You will keep this rate until you qualify for a different rate in your own right.))

     (3) If a response is not received, for subsequent rate years the commissioner will estimate the percentage of employees transferred based on employment reports filed. That percentage will transfer unless and until compelling evidence is provided to change the estimate.

     (4) Changes in rate class are effective for the rate year the information was provided and for subsequent rate years only.

[Statutory Authority: RCW 50.12.010, 50.12.040. 00-05-068, § 192-320-050, filed 2/15/00, effective 3/17/00.]

     Reviser's note: The bracketed material preceding the section above was supplied by the code reviser's office.

     Reviser's note: The typographical error in the above section occurred in the copy filed by the agency and appears in the Register pursuant to the requirements of RCW 34.08.040.
NEW SECTION
WAC 192-320-051   Requirements of partial predecessors -- Chapter 50.29 RCW.   (1) If you are a partial predecessor, both you and the successor employer must return the partial transfer of experience letter provided to you by the department within thirty days of the mailing date. Your response must indicated the percentage of operating assets transferred by you as the partial successor. Operating assets include the employees of the business.

     (2) If you do not return the letter within thirty days, you keep the tax rate class assigned for the remainder of the rate year.    

     (3) If a response is not received, for subsequent rate years the commissioner will estimate the percentage of employees transferred based on employment reports filed. That percentage will transfer unless and until compelling evidence is provided to change the estimate.

     (4) Changes in rate class are effective for the rate year the information was provided and for subsequent rate years only.

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     The following section of the Washington Administrative Code is repealed:

WAC 192-320-060

Delinquent predecessor taxes.

© Washington State Code Reviser's Office