BILL REQ. #:  Z-1047.1 

Prefiled 12/29/2005. Read first time 01/09/2006.   Referred to Committee on Commerce & Labor.

     AN ACT Relating to ensuring employers do not evade their contribution rate; amending RCW 50.29.062, 50.12.220, and 50.04.320; adding a new section to chapter 50.29 RCW; creating new sections; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   A new section is added to chapter 50.29 RCW to read as follows:
     (1) If it is found that a purpose of the transfer or acquisition of a business was to obtain a reduced array calculation factor rate, then the following applies:
     (a) If the successor was an employer at the time of the transfer, then the experience rating accounts of the employers involved shall be combined into a single account and the employers assigned the higher of the predecessor or successor array calculation factor rate take effect as of the date of the transfer.
     (b) If the successor was not an employer at the time of the transfer, then the experience rating account of the acquired business must not be transferred and, instead, the new employer rate shall be assigned.
     (2) If any part of a delinquency for which an assessment is made under this title is due to an intent to knowingly evade the successorship provisions of RCW 50.29.062 and this section, then for the rate year in which the commissioner makes the determination under this subsection and the following three rate years, the commissioner shall assign to the employer, and to any business found to be knowingly promoting the evasion of such provisions, a civil penalty assessment rate in addition to the assigned rate that increases the array calculation factor rate for that rate year under RCW 50.29.025 to the maximum array calculation factor rate plus two percent. In addition, the employer may be prosecuted under the penalties prescribed in RCW 50.36.020. An employer subject to the civil penalty assessment under this section must also pay for the employment security department's reasonable expenses of auditing the employer's books and collecting the civil penalty assessment.
     (3) If the person knowingly evading the successorship provisions, or knowingly attempting to evade these provisions, or knowingly promoting the evasion of these provisions, is not an employer, the person is subject to a civil penalty assessment of five thousand dollars per occurrence. In addition, the person is subject to the penalties prescribed in RCW 50.36.020 as if the person were an employer. The person must also pay for the employment security department's reasonable expenses of auditing his or her books and collecting the civil penalty assessment.
     (4) For purposes of this section:
     (a) "Knowingly" means having actual knowledge of or acting with deliberate ignorance or reckless disregard for the prohibition involved and includes, but is not limited to, intent to evade, misrepresentation, or willful nondisclosure.
     (b) "Person" means and includes an individual, a trust, estate, partnership, association, company, or corporation.
     (c) "Transfer or acquisition of a business" includes the transfer or acquisition of the employer's work force.
     (5) Any decision to assess a penalty under this section shall be made by the chief administrative officer of the tax branch or his or her designee.
     (6) Nothing in this section shall be construed to deny an employer the right to appeal the assessment of a penalty in the manner provided in RCW 50.32.030.
     (7) All penalties and interest collected under this section shall be expended solely for prevention, detection, and collection activities related to evasion of the successorship provisions of RCW 50.29.062 and this section, and for no other purposes.
     (8) The commissioner shall establish procedures to enforce this subsection.

Sec. 2   RCW 50.29.062 and 2003 2nd sp.s. c 4 s 18 are each amended to read as follows:
     Predecessor and successor employer contribution rates shall be computed in the following manner:
     (1) If the successor is an employer, as defined in RCW 50.04.080, at the time of the transfer((, its)) or acquisition of a business, the following applies:
     (a) The successor's contribution rate shall remain unchanged for the remainder of the rate year in which the transfer occurs((. From and after)); and
     (b) Beginning January 1st following the transfer, the successor's contribution rate for each rate year shall be based on ((its)) a combination of the following:
     (i) The successor's experience with payrolls and benefits ((including the experience of the acquired business or portion of a business from the date of transfer, as of the regular computation date for that rate year)); and
     (ii) Any experience assigned to the predecessor involved in the transfer. If only a portion of the business was transferred, then the experience attributable to the acquired portion is assigned to the successor.
     (2) ((For transfers before January 1, 2005, the following applies)) If the successor is not an employer at the time of the transfer((.)), the following applies:
     (a) For transfers before January 1, 2005:
     (i) Except as provided in (ii) of this subsection (2)(a), the successor shall pay contributions at the lowest rate determined under either of the following:
     (((a)(i) For transfers before January 1, 1997, the contribution rate of the rate class assigned to the predecessor employer at the time of the transfer for the remainder of that rate year and continuing until the successor qualifies for a different rate in its own right;
     (ii) For transfers on or after January 1, 1997,))
     (A) The contribution rate of the rate class assigned to the predecessor employer at the time of the transfer for the remainder of that rate year. Any experience relating to the assignment of that rate class attributable to the predecessor is transferred to the successor. Beginning with the January 1st following the transfer, the successor's contribution rate shall be based on a combination of the transferred experience of the acquired business and the successor's experience after the transfer; or
     (((b))) (B) The contribution rate equal to the average industry rate as determined by the commissioner, but not less than one percent, and continuing until the successor qualifies for a different rate in its own right. Assignment of employers by the commissioner to industrial classification, for purposes of this subsection, must be in accordance with established classification practices found in the (("Standard Industrial Classification Manual")) North American industry classification system issued by the federal office of management and budget to the ((third)) fourth digit provided in the ((standard industrial classification code, or in the)) North American industry classification ((code)) system.
     (((3) For transfers before January 1, 2005, if the successor is not an employer at the time of the transfer and)) (ii) If the successor simultaneously acquires the business or a portion of the business of two or more employers in different rate classes, its rate from the date the transfer occurred until the end of that rate year and until it qualifies in its own right for a new rate, shall be the rate of the highest rate class applicable at the time of the acquisition to any predecessor employer who is a party to the acquisition, but not less than one percent.
     (((4))) (b) For transfers on or after January 1, 2005((, the following applies if the successor is not an employer at the time of the transfer)):
     (((a))) (i) Except as provided in (((b))) (ii) and (iii) of this subsection (2)(b), the successor shall pay contributions:
     (((i))) (A) At the contribution rate ((determined for)) assigned to the predecessor employer at the time of the transfer for the remainder of ((the)) that rate year. Any experience attributable to the predecessor relating to the assignment of the predecessor's rate class is transferred to the successor. ((On and after))
     (B) Beginning January 1st following the transfer, the successor's contribution rate for each rate year shall be based on an array calculation factor rate ((shall be based on the transferred experience of the acquired business and the successor's experience after the transfer; or
     (ii) At)) that is a combination of the following: The successor's experience with payrolls and benefits; and any experience assigned to the predecessor involved in the transfer. If only a portion of the business was transferred, then the experience attributable to the acquired portion is assigned to the successor if qualified under RCW 50.29.010(6) by including the transferred experience. If not qualified under RCW 50.29.010(6), the contribution rate shall equal ((to)) the sum of the rates determined by the commissioner under RCW 50.29.025(2) (c)(ii) and (d)(ii), and 50.29.041, if applicable, and continuing until the successor qualifies for a different rate ((in its own right)), including the transferred experience.
     (((b))) (ii) If there is a substantial continuity of ownership, control, or management by the successor of the business of the predecessor, the successor shall pay contributions at the contribution rate determined for the predecessor employer at the time of the transfer for the remainder of that rate year. Any experience attributable to the predecessor relating to the assignment of the predecessor's rate class is transferred to the successor. ((On and after)) Beginning January 1st following the transfer, the successor's array calculation factor rate shall be based on a combination of the transferred experience of the acquired business and the successor's experience after the transfer.
     (((c))) (iii) If the successor simultaneously acquires the business or a portion of the business of two or more employers with different contribution rates, the successor's rate from the date the transfer occurred until the end of that rate year and until it qualifies in its own right for a new rate, shall be the sum of the rates determined by the commissioner under RCW 50.29.025(2) (a) and (b), and 50.29.041, applicable at the time of the acquisition, to the predecessor employer who, among the parties to the acquisition, had the largest ((taxable)) total payroll in the completed calendar quarter immediately preceding the date of transfer, but not less than the sum of the rates determined by the commissioner under RCW 50.29.025(2) (c)(ii) and (d)(ii), and 50.29.041, if applicable.
     (((5))) (3) With respect to predecessor employers:
     (a) The contribution rate on any payroll retained by a predecessor employer shall remain unchanged for the remainder of the rate year in which the transfer occurs.
     (((6))) (b) In all cases, ((from and after)) beginning January 1st following the transfer, the predecessor's contribution rate or((, beginning January 1, 2005,)) the predecessor's array calculation factor for each rate year shall be based on its experience with payrolls and benefits as of the regular computation date for that rate year ((including)) excluding the experience of the ((acquired)) transferred business or transferred portion of business ((up to the date of transfer)) as that experience has transferred to the successor: PROVIDED, That if all of the predecessor's business is transferred to a successor or successors, the predecessor shall not be a qualified employer until it satisfies the requirements of a "qualified employer" as set forth in RCW 50.29.010.
     (4) For purposes of this section, "transfer or acquisition of a business" means the same as section 1(4)(c) of this act.

Sec. 3   RCW 50.12.220 and 2004 c 97 s 1 are each amended to read as follows:
     (1)(a) If an employer fails to file in a timely and complete manner a report required by RCW 50.12.070, or the rules adopted pursuant thereto, the employer shall be subject to a penalty to be determined by the commissioner, but not to exceed two hundred fifty dollars or ten percent of the quarterly contributions for each such offense, whichever is less.
     (b) If an employer knowingly misrepresents to the employment security department the amount of his or her payroll upon which contributions under this title are based, the employer shall be liable to the state for up to ten times the amount of the difference in contributions paid, if any, and the amount the employer should have paid and for the reasonable expenses of auditing his or her books and collecting such sums. Such liability may be enforced in the name of the department.
     (((c) If any part of a delinquency for which an assessment is made under this title is due to an intent to evade the successorship provisions of RCW 50.29.062, then for the calendar year in which the commissioner makes the determination under this subsection, the commissioner shall assign to the employer, and to any business found to be promoting the evasion of such provisions, the contribution rate determined for that calendar year under RCW 50.29.025, including the solvency surcharge, if any, for rate class 20 or rate class 40, as applicable, plus two percent.))
     (2) If contributions are not paid on the date on which they are due and payable as prescribed by the commissioner, there shall be assessed a penalty of five percent of the amount of the contributions for the first month or part thereof of delinquency; there shall be assessed a total penalty of ten percent of the amount of the contributions for the second month or part thereof of delinquency; and there shall be assessed a total penalty of twenty percent of the amount of the contributions for the third month or part thereof of delinquency. No penalty so added shall be less than ten dollars. These penalties are in addition to the interest charges assessed under RCW 50.24.040.
     (3) Penalties shall not accrue on contributions from an estate in the hands of a receiver, executor, administrator, trustee in bankruptcy, common law assignee, or other liquidating officer subsequent to the date when such receiver, executor, administrator, trustee in bankruptcy, common law assignee, or other liquidating officer qualifies as such, but contributions accruing with respect to employment of persons by a receiver, executor, administrator, trustee in bankruptcy, common law assignee, or other liquidating officer shall become due and shall be subject to penalties in the same manner as contributions due from other employers.
     (4) Where adequate information has been furnished to the department and the department has failed to act or has advised the employer of no liability or inability to decide the issue, penalties shall be waived by the commissioner. Penalties may also be waived for good cause if the commissioner determines that the failure to timely file reports or pay contributions was not due to the employer's fault.
     (5) Any decision to assess a penalty as provided by this section shall be made by the chief administrative officer of the tax branch or his or her designee.
     (6) Nothing in this section shall be construed to deny an employer the right to appeal the assessment of any penalty. Such appeal shall be made in the manner provided in RCW 50.32.030.

Sec. 4   RCW 50.04.320 and 1998 c 162 s 1 are each amended to read as follows:
     (1) For the purpose of payment of contributions, "wages" means the remuneration paid by one employer during any calendar year to an individual in its employment under this title or the unemployment compensation law of any other state in the amount specified in RCW 50.24.010. If an employer (hereinafter referred to as a successor employer) during any calendar year acquires substantially all or a portion of the operating assets, which may include the employees of another employer (hereinafter referred to as a predecessor employer) or the operating assets, which may include the employees, used in a separate unit of a trade or business of a predecessor employer, and immediately after the acquisition employs in the individual's trade or business an individual who immediately before the acquisition was employed in the trade or business of the predecessor employer, then, for the purposes of determining the amount of remuneration paid by the successor employer to the individual during the calendar year which is subject to contributions, any remuneration paid to the individual by the predecessor employer during that calendar year and before the acquisition shall be considered as having been paid by the successor employer.
     (2) For the purpose of payment of benefits, "wages" means the remuneration paid by one or more employers to an individual for employment under this title during his base year: PROVIDED, That at the request of a claimant, wages may be calculated on the basis of remuneration payable. The department shall notify each claimant that wages are calculated on the basis of remuneration paid, but at the claimant's request a redetermination may be performed and based on remuneration payable.
     (3) For the purpose of payment of benefits and payment of contributions, the term "wages" includes tips ((which are)) received ((after January 1, 1987,)) while performing services which constitute employment, and which are reported to the employer for federal income tax purposes.
     (4)(a) "Remuneration" means all compensation paid for personal services including commissions and bonuses and the cash value of all compensation paid in any medium other than cash. The reasonable cash value of compensation paid in any medium other than cash and the reasonable value of gratuities shall be estimated and determined in accordance with rules prescribed by the commissioner. Remuneration does not include payments to members of a reserve component of the armed forces of the United States, including the organized militia of the state of Washington, for the performance of duty for periods not exceeding seventy-two hours at a time.
     (b) Previously accrued compensation, other than severance pay or payments received pursuant to plant closure agreements, when assigned to a specific period of time by virtue of a collective bargaining agreement, individual employment contract, customary trade practice, or request of the individual compensated, shall be considered remuneration for the period to which it is assigned. Assignment clearly occurs when the compensation serves to make the individual eligible for all regular fringe benefits for the period to which the compensation is assigned.
     (c) Settlements or other proceeds received by an individual as a result of a negotiated settlement for termination of an individual written employment contract prior to its expiration date shall be considered remuneration. The proceeds shall be deemed assigned in the same intervals and in the same amount for each interval as compensation was allocated under the contract.
     (d) Except as provided in (c) of this subsection, the provisions of this subsection (4) pertaining to the assignment of previously accrued compensation shall not apply to individuals subject to RCW 50.44.050.

NEW SECTION.  Sec. 5   The commissioner of the employment security department may adopt rules necessary to implement this act.

NEW SECTION.  Sec. 6   If any part of this act is found to be in conflict with federal requirements that are a prescribed condition to the allocation of federal funds to the state or the eligibility of employers in this state for federal unemployment tax credits, the conflicting part of this act is inoperative solely to the extent of the conflict, and the finding or determination does not affect the operation of the remainder of this act. Rules adopted under this act must meet federal requirements that are a necessary condition to the receipt of federal funds by the state or the granting of federal unemployment tax credits to employers in this state.

NEW SECTION.  Sec. 7   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 8   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.

NEW SECTION.  Sec. 9   This act is remedial in nature and shall be applied retroactively to January 1, 2006.