WSR 17-10-005
PROPOSED RULES
EMPLOYMENT SECURITY DEPARTMENT
[Filed April 20, 2017, 12:28 p.m.]
Original Notice.
Preproposal statement of inquiry was filed as WSR 17-04-091.
Title of Rule and Other Identifying Information: WAC 192-320-036, regarding determining tax rates for employers who are delinquent on taxes or reports.
Hearing Location(s): Employment Security Department, Maple Leaf Conference Room, 2nd Floor, 212 Maple Park Avenue, Olympia, WA, on June 8, 2017, at 10:30 a.m.
Date of Intended Adoption: June 12, 2017.
Submit Written Comments to: Juanita Myers, Employment Security Department, P.O. Box 9046, Olympia, WA 98507, email jmyers@esd.wa.gov, fax (360) 902-9605, by June 7, 2017.
Assistance for Persons with Disabilities: Contact Teresa Eckstein, state EO officer by June 7, 2017, TTY 711 or (360) 902-9354.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: RCW 50.29.010 gives the department the authority to waive the delinquent tax rate when an otherwise qualified employer acts in good faith and application of the delinquent tax rate would be inequitable. This rule will define good faith and inequitably with a more flexible, totality of the factors approach. It also clarifies the department's authority to retroactively apply the delinquent tax rate.
Reasons Supporting Proposal: Employers who make good faith efforts to repay and report their wages as required will not be subject to the delinquent tax rate imposed by RCW 50.29.025. The department will also consider whether application of the delinquent tax rate would be inequitable based on the totality of certain factors. Finally, the rule will eliminate confusion regarding the department's authority to retroactively apply the delinquent tax rate.
Statutory Authority for Adoption: RCW 50.12.010 and 50.12.040.
Statute Being Implemented: RCW 50.29.010.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: Employment security department, private.
Name of Agency Personnel Responsible for Drafting: Scott Michael, Olympia, (360) 902-9587; Implementation and Enforcement: Brenda Westfall, Olympia, (360) 902-9554.
No small business economic impact statement has been prepared under chapter 19.85 RCW. By federal law, all businesses are subject to the same tax requirements regardless of size. There is no exception for small businesses.
A cost-benefit analysis is not required under RCW 34.05.328. The rule does not impose additional costs on businesses in general, nor on small businesses in particular. The rule makes application of the delinquent tax rate more flexible and equitable, which should result in it being applied less frequently.
April 19, 2017
Dale Peinecke
Commissioner
AMENDATORY SECTION (Amending WSR 10-23-065, filed 11/12/10, effective 12/13/10)
WAC 192-320-036 How are unemployment insurance tax rates determined for employers who are delinquent on taxes or reports, beginning in rate year 2011?
(1) An employer that has not submitted by September 30th all reports, taxes, interest, and penalties required under Title 50 RCW for the period preceding July 1st of any year is not a "qualified employer."
(2) For purposes of this section, the department will disregard unpaid taxes, interest, and penalties if ((they constitute)):
(a) The unpaid taxes, interest, and penalties add up to less than either one hundred dollars or one-half of one percent of the employer's total tax reported for the twelve-month period immediately preceding July 1st. These minimum amounts only apply to taxes, interest, and penalties, not failure to submit the required tax and wage reports((.
(3)(a))); or
(b) The unpaid taxes, interest, and penalties were found in a voluntary audit unless the department determines the employer did not make a good faith effort to comply with the law.
(3)(a) Under RCW 50.29.080, the department may redetermine an employer's previously assigned tax rate and retroactively assign delinquent tax rates to prior years if the department discovers an employer did not correctly report its taxes and wages.
(b) In the event an employer does not register with the department, the department may assign the delinquent tax rate beginning the calendar year after the July 1st following the first quarter an employer paid wages.
(4)(a) This section does not apply if the otherwise qualified employer shows to the satisfaction of the ((commissioner)) department that he or she acted in good faith and that ((application of the rate for delinquent taxes)) applying the delinquent tax rate would be inequitable. This exception is to be narrowly construed to apply at the sole discretion of the ((commissioner, recognizing that the delinquent tax rate only applies after the employer has already received a grace period of not less than two months beyond the normal due date for reports and taxes due)) department. The ((commissioner's)) department's decision ((shall)) will be subject to review only under the arbitrary and capricious standard and ((shall)) will be reversed in administrative proceedings only for manifest injustice ((based on clear and convincing evidence)).
(b) ((The commissioner will not find in the usual course of business that application of the rate for delinquent taxes would be inequitable:
(i) If the employer has been late with filing or with payment in more than one of the last eight consecutive quarters immediately preceding the applicable period;
(ii) If the delinquency was due to absences of key personnel and the absences were because of business trips, vacations, personnel turnover, or terminations;
(iii) If the delinquency was due to adjusting by more than two quarters the liable date when the employer first had employees; or
(iv) If the employer is a successor, the rate for delinquent taxes is based on the predecessor, and the successor could or should have determined the predecessor's tax status at the time of the transfer.
The limitations in (b) of this subsection do not apply to services under RCW 50.04.160 performed in domestic service in a private home, local college club, or local chapter of a college fraternity or sorority.
(c) Examples of when the commissioner may find that application of the rate for delinquent taxes would be inequitable include if the delinquency results from:
(i) An employer reducing its tax payment by the amount specified as a credit on the most recent account statement from the department, when the credit amount is later determined to be inaccurate;
(ii) Taxes due which are determined as the result of a voluntary audit;
(iii) Resolution of a pending appeal and any amounts due are paid within thirty days of the final resolution of the amount due or the department approves a deferred payment contract within thirty days of the final resolution of the amount due;
(iv) The serious illness or death of key personnel or their family that extends throughout the period in which the tax could have been paid prior to September 30th and no reasonable alternative personnel were available and any amounts due are paid no later than December 31st of such year; or
(v) An employee or other contracted person committing fraud, embezzlement, theft, or conversion, the employer could not immediately detect or prevent the wrongful act, the employer had reasonable safeguards or internal controls in place, the employer filed a police report, and any amounts due are paid within thirty days of when the employer could reasonably have discovered the illegal act.
(d) When determining whether an employer acted in good faith and that application of the rate for delinquent taxes would be inequitable, the following factors are considered neutral and neither support nor preclude waiver of the rate for delinquent taxes:
(i) The harshness of the burden on the employer caused by application of the rate for delinquent taxes;
(ii) Lack of knowledge by the employer, bookkeepers, accountants, or other financial advisors about application of the law or the potential harshness of the rate;
(iii) Delay by the employer or its representative in opening mail or receiving other notice from the department; or
(iv) Error by a payroll, bookkeeping, or accounting service on behalf of an employer.
(4) The department shall provide notice to the employer or employer's agent that the employer may be subject to the higher rate for delinquent taxes if the employer does not comply with this section. Notice may be in the form of an insert or statement in July, August, or September billing statements or in a letter or notice of assessment. Evidence of the routine practice of the department in mailing notice in billing statements or in a notice of assessment shall be sufficient to establish that the department provided this notice. No notice need be provided to an employer that is not currently registered and active.)) If the department finds the employer knew or should have known its actions or inactions would result in a failure to submit all reports, taxes, penalties and interest by September 30th, then the department will find that an employer did not act in good faith and that application of the delinquent tax rate will not be inequitable.
(c) In determining if an employer acted in good faith and if application of the delinquent tax rate would be inequitable, the department may consider all facts surrounding the delinquent reports, taxes, penalties and interest.
(i) The department will consider the following factors when determining if an employer acted in good faith and if application of the delinquent tax rate will be inequitable. No single factor is conclusive. The factors include, but are not limited to:
(A) Whether there were events beyond the employer's reasonable control;
(B) Whether departmental error led to the delinquency;
(C) Whether the employer made only isolated errors instead of repeated errors;
(D) If the employer was a domestic service employer under RCW 50.04.160;
(E) Whether the employer, upon learning of the delinquency, made a diligent effort to pay overdue taxes, penalties, and interest and file overdue reports within ninety days;
(F) The amount of taxes, penalties and interest an employer failed to pay compared to the amount of taxes an employer reported and paid during the same time period;
(G) The number of employees an employer failed to report compared to the number of employees an employer reported during the same time period;
(H) The additional amount of taxes, penalties, and interest resulting from the application of delinquent tax rates compared to the amount of taxes, penalties, and interest the employer failed to pay originally.
(ii) The department will not consider the following factors when determining if an employer acted in good faith and if application of the delinquent tax rate would be inequitable:
(A) An employer's lack of available funds to pay taxes, penalties, and interest;
(B) Delay by the employer or its representative in opening mail or receiving other notices from the department relating to tax filing and payment.
(5)(a) An employer that is not a "qualified employer" because of failure to pay contributions when due ((shall)) will be assigned the array calculation factor rate it would otherwise have had if it had not been delinquent, plus an additional one percent. If the employer fails to pay contributions when due for a second or more consecutive year, it ((shall)) will be assigned the array calculation factor rate it would otherwise have had if it had not been delinquent, plus an additional two percent.
(b) If the employer fails to provide quarterly tax reports and the department cannot otherwise calculate what tax rate the employer would otherwise have had if it had not been delinquent, the department ((shall)) will use the higher of the rate calculated under RCW 50.29.025 (2)(d) (NAICS rate with one percent minimum) or the last annual rate assigned to the employer.
(c) The higher rate for an employer in (a) of this subsection ((shall)) will not apply if the employer enters a deferred payment contract approved by the agency by September 30th of the previous rate year.
(d) If, after September 30th of the previous rate year and within thirty days after the date the department sent its first subsequent tax rate notice to the employer, an employer in (a) of this subsection pays all amounts owed or enters a deferred payment contract approved by the ((agency)) department, the additional rate ((shall)) will be one-half percent less than it would otherwise have been in (a) of this subsection. "First subsequent tax rate notice to the employer" means the first notice to the employer assigning that specific delinquent tax rate, regardless of whether the notice is part of the department's annual tax rate run.
(e) If an employer with an approved deferred payment contract fails to make any one of the payments or fails to submit any tax report and payment in a timely manner, the employer's tax rate ((shall)) will immediately revert to the rate in (a) of this subsection.
(6) An employer that is not a "qualified employer" because of failure to pay contributions when due ((shall)) will be assigned a social cost factor rate in rate class 40. The tax rate caps for "qualified employers" in RCW 50.29.025 ((shall)) will not apply either to the calculation of the social cost factor rate in rate class 40 or to the sum of the array calculation factor rate and the graduated social cost factor rate for employers that are not "qualified employers."
(7) An employer that is not a "qualified employer" because it is a successor and its predecessor was not a "qualified employer" ((shall)) will be assigned rates based on its successor status.
(8) Assignment of the rate for delinquent taxes is not considered a penalty that is subject to waiver under WAC 192-310-030.