Dumping de la SUTA

These schemes are meant to unlawfully lower an employer’s UI tax rate. Employers should know about these schemes and their potential legal ramifications.

SUTA dumping schemes include:

• Purchased Shell Transaction
  A business with a large payroll and a high UI rate purchases a corporate shell with a low UI rate and transfers its payroll to the purchased entity.
• Affiliated Shell Transaction
  A new corporation is registered, and a small payroll is reported each year until a low or minimum UI rate is achieved. Once the low rate is achieved, large payroll amounts from another related corporation are transferred into this account.
• New Employer Rate
  An employer with a high UI rate files a registration form requesting a new employer account number, which has a lower rate (new employers pay 3.4 percent in California). The payroll is then transferred to the new account.
• Reporting Under a Client's Employer Account Number
  An employee leasing company or professional employer organization with a high UI rate moves its payroll to the account number of one of its clients with a lower UI rate.
• High Plus High Equals Low
  A high UI rate account with a large payroll is transferred into another high UI rate account with a small payroll at the beginning of the year. Since the calculation of the average base payroll is on a calendar year basis, only the small payroll is considered. However, the taxes from the large payroll are added to the reserve account balance as of June 30, resulting in a very low UI rate being established for the next year.
• Payroll Parking
  Two unrelated businesses negotiate (for a fee) to have all or part of the higher UI rate employer's payroll "parked" in the other's account and reported at the lower UI rate.
• Partial Reserve Account Acquisition
  A newly registered business applies for a partial reserve account balance of another company. When the small reserve balance is acquired, a similar small average base payroll is also acquired. A related entity then shifts hundreds of millions of payroll into the small account. Because the average base payroll is counted on the calendar year and reserve accounts add up quarterly. The result floods the reserve balance in relation to the small average base payroll. A minimum rate is attained in the following year.
• Buffering Potential Negative Reserve Account Charges
  A company that hires temporary workers forms a new entity and obtains a separate payroll tax account number. The temporary workers are paid through this account. When they are laid off and file UI claims, the newly formed company goes out of business and the negative reserve account charges get distributed to other businesses in the state. This typically occurs when a labor action is being considered, and temporary workers are hired knowing they will be laid off after the labor action. Another variation on this scheme is when a company is planning to downsize. Employees who will be laid off are transferred to a subsidiary account. This buffers the reserve account of the initial company from UI charges.

Employers who participate in SUTA dumping or other rate manipulation schemes knowingly misrepresent facts about their business. It is illegal under California statutes to knowingly make false statements and leave out basic facts on UI tax documents in order to reduce UI taxes.

There are federal and state laws that have been passed to combat SUTA dumping:

SUTA Dumping Prevention Act of 2004: This law requires each state to enact laws to prevent employers from inappropriately lowering the UI contribution rates. The law not only bans SUTA dumping, but also places heavy penalties on those who engage in or promote tax evasion.

AB 664: California became one of the first states in the nation to enact legislation as a result of the federal SUTA Dumping Prevention Act.

This California law:

• Penalizes employers who are caught illegally lowering their UI rates. Employers will be required to pay at the highest rate provided by law plus an additional 2 percent.
• Mandates that the greater of a $5,000 penalty or 10 percent of underreported contributions, penalty and interest for anyone knowingly advising another person or business to violate California's UI rate and reporting laws.
• Specifies that whenever an employer transfers its business to another employer, the reserve account will be transferred if they are under common ownership, management, or control. If the acquisition occurred for the purpose of getting a lower UI rate, the transfer will be denied.

Note: Find the latest applicable additions and amendments to AB 664 for more information.

We actively pursue and prosecute employers who participate in SUTA dumping and other tax evasion schemes. We have the authority to subpoena records and people in our investigations. In addition, we regularly conduct outreach with employers and tax advisors to ensure they are aware of these schemes and to help them avoid future legal trouble.

All allegations of fraud are taken seriously. If you think someone is committing fraud or participating in SUTA dumping, report this to us immediately. Provide as much information as you can, including:

• Employer name, address, and telephone number.
• Employer account number.
• What they are doing.
• When they started doing it.
• Your name, address, and telephone number (optional).

You can report by phone or fax:

• Call: 1-800-528-1783
• Fax: 1-916-227-2772