AN ACT RELATIVE TO STATE UNEMPLOYMENT TAX AVOIDANCE.
Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:
SECTION 1. Section 12 of chapter 151A of the General Laws, as appearing in the 2004 Official Edition, is hereby amended by inserting after the word "thirty-nine", in line 12, the following words:- , except that the department shall be considered a party at such hearing.
SECTION 2. Said section 12 of said chapter 151A, as so appearing, is hereby further amended by striking out, in line 54, the word "two" and inserting in place thereof the following figure:- 4.
SECTION 3. Subsection (n) of section 14 of said chapter 151A, as so appearing, is hereby amended by striking out paragraph (1) and inserting in place thereof the following paragraph:-
(1) If the entire organization, trade or business of an employer, or substantially all the assets thereof, are transferred to another employer or employing unit, the transferee shall be considered a successor for the purpose of this section. Written notice of the transfer shall be given to the commissioner by all transferring employers and successors within 120 days of the date of transfer. Successors shall be barred from taking over the account of any transferring employers having a plus balance if the transferring employers have not filed all reports and paid all contributions required of the transferring employers under this chapter through the end of the quarter preceding the date of transfer; but, no successor shall be denied the transferring employer's plus balance if the successor files all reports and pays all contributions required of the transferring employer within 30 days after mailing of the notice of determination. If the commissioner allows the transferee to take over the account of any transferring employer having a plus balance, the commissioner shall notify the transferring employer of the allowance. The transferring employer may, within 10 days after the date of mailing of the notice, request a hearing for the purpose of reconsidering whether the transfer of the account balance should be allowed. The hearing and any subsequent appeal shall be in accordance with the procedures prescribed by and pursuant to section 12.
SECTION 4. Said chapter 151A is hereby further amended by inserting after section 14M the following two sections:-
Section 14N. Notwithstanding any other provision of this chapter, the following shall apply regarding the assignment of contribution rates and transfer of accounts:
(a) If an employer transfers its trade or business, or a portion thereof, to another employer or employing unit and, at the time of the transfer, there is substantially common ownership, management or control of the transferor and transferee, then the account of the transferor shall be transferred to the transferee. The contribution rates of the transferor and transferee shall be recalculated in accordance with subsection (c) and made effective immediately upon the date of transfer of trade or business. The transfer of some or all of such employer's workforce to another employer or employing unit shall be considered a transfer of trade of business when, as the result of the transfer, the transferring employer no longer performs that portion of the trade or business with respect to the transferred workforce, and the trade or business is performed by the employer to whom the workforce is transferred.
(b)(1) The commissioner shall not transfer to the transferee the account of the transferor where the commissioner has determined that the transferee, which was not a subject employer at the time of the transfer, acquired the transferor's business primarily for the purpose of obtaining a lower rate of contributions. In those situations, the commissioner shall assign the transferee the applicable employer rate under section 14.
(2) A transferee may be considered to have acquired the business, or a portion thereof, primarily for the purpose of obtaining a lower rate of contributions if the contribution rate of the transferred business or of the transferred portion of the business was lower than the contribution rate of the transferee, unless the transferee shows to the satisfaction of the commissioner that the transfer did not take place primarily for the purpose of lowering the contribution rate.
(3) In determining whether the transferee acquired the business primarily for the purpose of obtaining a lower rate of contributions, the commissioner may consider factors as whether the transferee continued the business enterprise of the acquired business, how long the business enterprise was continued and whether a substantial number of new employees were hired for performance of duties unrelated to the business activity conducted before the acquisition.
(c)(1) For the calendar year in which a transfer of the entire business of the transferor occurs, the contribution rate of the transferee shall be determined by combining the account balance of the transferor and transferee as of the immediately preceding September 30 and recomputing the contribution rate in accordance with section 14.
(2) For the calendar year in which a transfer of a portion of the business of the transferor occurs, the contribution rates of the transferor and transferee shall be determined as follows: (i) the commissioner shall remove from the transferor's account balance that portion of the transferor's account balance associated with the transfer of the business to the transferee as provided by paragraph (3); and (ii) the commissioner shall charge or credit to, whichever is appropriate, the transferee's account balance that portion of the transferor's account balance associated with the transfer of the business to the transferee as provided in paragraph (3). The commissioner shall recompute the transferor's and transferee's account balance and contribution rates as of the immediately preceding September 30 in accordance with section 14. The contribution rates shall be effective upon the date of the transfer of the portion of the business.
(3) The commissioner shall determine that portion of the transferor's account balance associated with the transfer of the business to the transferee by adding together the taxable wages reported for that portion of the business function transferred, whether or not the employees were actually transferred, for the last 4 completed quarters immediately preceding the quarter in which the transfer occurs and dividing that result by the total taxable wages reported by the transferor for the same time period. The commissioner shall multiply the transferor's account balance as of the immediately preceding September 30 by the result obtained above to determine that portion of the transferor's account balance associated with the transfer of the business to the transferee. If the transferor has been subject to the provisions of this chapter for fewer than 4 completed quarters, the commissioner shall use the taxable wage data for all completed quarters in making the above calculations.
(d) If 2 or more employing units or portions thereof consolidate to form a new employing unit and there exists common ownership, management or control among some or all of the consolidated employing units, the contribution rate shall be determined by combining the account balance of the consolidated employing units as of the immediately preceding September 30 and recomputing the contribution rate in accordance with section 14. The recomputed contribution rate shall be effective as of the date of consolidation.
(e) If an employer transfers its trade or business, or a portion thereof, to an employing unit which has been suspended from filing requirements under this chapter within the 2 year period before the transfer and, at the time of the transfer, there is substantially common ownership, management or control of the transferor and transferee, the account of the transferee shall be revived and combined with the account of the transferor as of the immediately preceding September 30. The contribution rates of the transferor and transferee shall be recalculated in accordance with subsection (c) and made effective immediately upon the date of transfer of the trade or business.
(f) Where the entire business of the transferor has been transferred to the transferee and, at the time of the transfer, there is substantially common ownership, management or control of the transferor and transferee: (1) the transferee shall be liable for any amounts owed by the transferor to the fund at the time of the transfer and (2) the account taken over by the transferee shall remain liable with respect to accrued benefits and related rights based on employment in the transferred business, and all such employment shall be considered employment performed for such transferee.
(g)(l) If a person knowingly violates or attempts to violate subsections (a) or (b) or any other provision of this chapter related to determining the assignment of a contribution rate, or if a person knowingly advises another person in a way that results in a violation or attempted violation of the provision, or the person should have known that the advice would have resulted in a violation or attempted violation of the provisions, the person shall be subject to the following civil penalties:
(i) The commissioner shall assess the transferor and transferee a penalty equal to 4 per cent of the taxable wages of the entity for the last 4 completed calendar quarters immediately before the transfer; provided, that if either the transferor or transferee or both has been subject to this chapter fewer than 4 completed calendar quarters, the penalty shall equal 4 per cent of the taxable wages of such entity for all quarters in which the transferor or transferee was subject to this chapter; provided further, that if the transferee was not subject to this chapter before the transfer, the penalty for the transferee shall be based on the proportion of the transferor's taxable wages associated with the transferred portion of the business for the last 4 completed calendar quarters.
(ii) The commissioner shall assess a penalty equal to the amount of the penalty assessed against the employing unit against a person who provided advice in a way that resulted in violation or attempted violation of either subsection (a) or (b); but for a second offense or for a failure to pay the assessed penalty within 90 days from the date the penalty notice was issued, the commissioner may bar the person from representing any employing unit in any matters under this chapter and report the person to the applicable licensing authority. For the purpose of this clause, any penalty issued by any other state unemployment compensation agency against the person for providing the advice shall be treated as if it had been issued by the department.
(iii) In no case will the penalty assessed in accordance with clauses (i) or (ii) be less than $2500.
(2) For the purposes of this subsection, the term "knowingly" means having actual knowledge of or acting with deliberate ignorance or reckless disregard for the prohibitions involved and the term "violates or attempts to violate" includes, but is not limited to, intent to evade, misrepresentation, willful nondisclosure and failure or refusal to furnish reports or requested information.
(3) In addition to the penalty imposed by this subsection, any person violating this section shall be subject to the penalties provided in section 47.
(4) The commissioner shall deposit all penalties assessed and collected under paragraph (1) into a "Fraud Penalty Fund" established by section 14 O.
(h) This section shall be interpreted and applied in such a manner as to meet the minimum requirements contained in any guidance or regulations issued by the United States Department of Labor.
(i) The commissioner shall establish procedures to identify the transfer or acquisition of a business for purposes of this section and may issue regulations necessary to carry out the purposes of this section.
(j) Except where inconsistent with the provisions of this section, the provisions of this chapter, including any authorized collection activities, and the rules and regulations adopted under this chapter, shall apply to this section.
(k) As used in this section the following words shall, unless the context clearly requires otherwise, have the following meanings:-
"Any other provision of this chapter related to determining the assignment of a contribution rate" includes, but not limited to, payrolling.
"Business", a trade or business or part thereof.
"Common ownership, management or control", at the time of transaction, the following:
(1) "Common ownership of corporations" means that a stockholder or other person or business entity owned or exercised the power of ownership, directly, indirectly or through 1 or more other persons, in law or in fact, over 25 per cent or more of any voting securities of both the transferring employer and the transferee.
(2) "Common management or control of corporations" means a chief executive officer, chief financial officer, or any other person holding similar authority for the transferring employer, served as, or had a continuing family relationship with, a chief executive officer, chief financial officer or person holding similar authority for the transferee employer.
(3) "Common ownership, management or control of partnerships, limited partnerships or joint ventures", means that 1 person, corporation or other legal entity which served as a managing partner, or held or exercised the power of a managing partner, directly or through an intermediary, in law or in fact, whether in a partnership or limited partnership, or served as a member of a joint venture in the transferring employer also served as a managing partner or held or exercised the power of a managing partner, directly or through an intermediary, in law or in fact, whether in a partnership or limited partnership, or served as a member of a joint venture in the transferee employer.
(4) "Common ownership, management or control of trusts", one person, corporation or other legal entity which served as a trustee or which exercised the powers of a trustee, directly or through an intermediary, in law or in fact, of the transferring employer trust, or was a beneficiary of the transferring employer trust, also served as a trustee or exercised the powers of a trustee, directly or through an intermediary, in law or in fact, of the transferee trust, or was a beneficiary of the transferee trust.
(5) "Common ownership, management or control of limited liability corporations" one person, corporation or other legal entity which served as an owner or member of a transferring employer limited liability corporation, or which exercised the power of an owner or member of a transferring employer limited liability corporation, directly or through an intermediary, in law or in fact, also served as an owner or member, directly or through an intermediary, in law or in fact, of the transferee employer limited liability corporation.
(6) "Common ownership, management or control of sole proprietorships", the sole proprietor, or a family member of the sole proprietor, of the transferring employer served as the sole proprietor of the transferee, or was a family member of the sole proprietor of the transferring employer.
(7) "Common ownership, management or control involving a transaction between business entities of different forms", the ownership, management or control of the transferring employer met the criteria described in paragraph (1),(2),(3), (4), (5) or (6) and the ownership, management or control of the transferee met the criteria described in 1 of the other paragraphs.
"Family member", a member of a nuclear or extended family, whether by birth or adoption, including, but not limited to, a spouse, parent, child, sister, brother, sister-in-law, brother-in-law, aunt, uncle, niece, nephew, and first cousin.
"Payrolling", the practice where 1 employer reports its payroll under another employer's account.
"Person", the meaning given the term by section 7701(a)(1) of the Internal Revenue Code of 1986.
"Taxable wages", that part of the payroll on which the employing unit is required to make contributions.
"Time of the transaction", any time within the 12 months preceding the date of the completion of the transaction.
Section 14 O. There shall be a separate fund to be known as the Fraud Penalty Fund which shall be administered by the commissioner, without liability on the part of the commonwealth beyond the amount credited to and earned by the fund. The fund shall consist of all amounts received under section 14N which shall be credited to the fund and any other monies authorized by law to be credited to the fund, including interest earned in the fund. Money in the fund shall be used only to support the department's activities related to detection, prevention and administration of employer fraud provisions of this chapter. The monies in the fund shall be continuously available to the commissioner for those purposes and shall not lapse at any time or be transferred to any other fund or account.
SECTION 5. Section 47 of said chapter 151A, as so appearing, is hereby amended by inserting after the fourth paragraph the following paragraph:-
Any person, as defined in section 14N, or officer or agent of the person, who knowingly violates or attempts to violate subsections (a) or (b) of section 14N or any other provision of this chapter related to determining the assignment of a contribution rate or if a person knowingly advises another person in a way that results in a violation or attempted violation of the provisions shall be punished by imprisonment in the state prison for not more than 5 years or by imprisonment in jail for not less than 6 months nor more than 2 1/2 years or by a fine of not less than $5,000 nor more than $50,000, or by both such fine and imprisonment.
SECTION 6. This act shall take effect with respect to calendar years beginning on or after January 1, 2006.