Texas court affirms denial of experience rating transfer to three commonly owned companies
Thursday, September 12, 2019

Texas court affirms denial of experience rating transfer to three commonly owned companies

By Payroll and Entitlements Editorial Staff

The appellate court affirmed the lower court's denial of an unemployment tax refund to three commonly owned professional employment organizations that provide payroll administration services to employers. In 2010, the parent company transferred 79 of a total of 187 employers that it serviced to one company and 55 employers to the second company. All three appealed the trial court's decision affirming the refusal by the Commission of their applications (because of "inaccurate data") for a partial transfer of the parent company’s compensation experience to the other two companies based on the employers the successor entities acquired. The appellants argued that because the transfers were accomplished to obtain a lower contribution rate, Act Sec. 204.085(d) requires that the successors' contribution rates must be determined under Act  Sec.204.006, which applies to the initial contribution rate of a new employer in the first year of its existence. The appellate court rejected this construction because unemployment tax rates are calculated under Act Sec. 204.085(d) only if a partial transfer of compensation experience application was allowed; here, the application was denied by the Commission. Further, the appellate court saw the appellants' argument as running contrary to the Act’s requirement of transferring compensation experience so as to discourage employers from acquiring a new business solely to pay employment taxes under the lower "new employer" rate. The appellate court also rejected the appellants' argument that the trial court had committed reversible error by not allowing inclusion in the record of a statement addressing the intent underlying the transfers (G&A  Outsourcing, Inc. v. TWC, Tex. Ct. of App.,  Fourteenth District, Houston, No. 14-18-00627-CV, July 30, 2019.

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