Two Employers Settle Suta Dumping

OCTOBER 13, 2005 – The State of Michigan has reached agreement with two employers to reimburse the state for more than half a million dollars in unpaid unemployment taxes.

“The two employers recently agreed to the tax payments after the Unemployment Insurance Agency (UIA) discovered that they had avoided paying some of their unemployment taxes,” David Plawecki, deputy director with the state’s Department of Labor & Economic Growth, reported.

The agency found the employers had engaged in a practice known as SUTA (state unemployment tax act) Dumping, which are tax avoidance plans that some employers adopt to pay less than their fair share of unemployment taxes.

“When employers SUTA Dump, they typically move employees from their high-rate tax accounts to lower-rate accounts,” Plawecki explained.  “As a result they pay less in unemployment taxes than they should.  Unemployment taxes are based on the employer’s lay-off experience and can vary from $5.40 to $927 per employee annually.”

The first case involves a Michigan employer in the construction industry.  The employer set up a “captive” leasing arrangement, forming its own employee-leasing companies from which it leased its employees.  Avoiding unemployment taxes under such an arrangement is prohibited under Michigan law.

UIA became aware of the case through one of its field auditors, who discovered the company was no longer reporting wages although it was clearly still in business.

“The Unemployment Insurance Agency determined that this employer intentionally avoided its unemployment tax experience by shifting its employees from the construction firm to three leasing companies it owned and, as a result, underpaid its unemployment taxes by $513,500,” Plawecki said.

The company has paid the taxes plus interest.
The second case, involves QCR Tech LLC, a Madison Heights-based automotive and aerospace prototyping business.

“QCR has been very cooperative with the agency,” UIA Director Sharon Bommarito pointed out.  “And they have agreed to pay in full approximately $32,000 in unpaid taxes, which will be adjusted for any applicable tax credits.”

In this case, on the advice of retained professionals, QCR purchased another company and structured the purchase to avoid assuming the company’s higher unemployment tax rate and the resulting higher tax payments.

Bommarito stated that SUTA Dumping harms all employers by dumping the unemployment costs of such employers on the shoulders of others.  It also creates an unfair competitive cost advantage for those who SUTA Dump and threatens the integrity of the state’s unemployment insurance trust fund.  Consequently, UIA is examining potential cases of SUTA Dumping as it becomes aware of them.

“We are engaged in an aggressive effort to ensure that all employers comply with the legal requirements of the MES Act,” she said.  “Only by enforcing the program’s integrity can we help to maintain solvency within the state’s unemployment insurance trust fund and ensure that monies are available to assist those who need and are entitled to unemployment benefits.”