Strasburger & Price, LLP Publication

Author Farley P. Katz
FARLEY P. KATZ

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For a full copy of this article, or to discuss the issues presented, please contact Mr. Katz.

Disputing Unemployment Taxes Before the Texas Workforce Commission:
Rule 13 Tax Coverage Hearings

PUBLISH INFORMATION

The Texas Labor Letter
September 1996
  

INTRODUCTION OF TOPIC

Unemployment Taxes and the TWC. The Texas Unemployment Compensation Act (the "Act"), imposes a tax on employers based on the amount of wages paid. Texas Labor Code  201.001, et seq. After an "initial contribution rate" set by statute or the Texas Workforce Commission ("TWC"), the unemployment tax is determined based on the employer's "experience rate," which is adjusted annually and takes into consideration unemployment benefits paid and charged to the employer. Labor Code  204.041-204.047.

The tax is computed by multiplying the tax rate by each employer's applicable "wages," defined as "all remuneration for personal services" not exceeding $9,000 per employee per calendar year. Labor Code  201.081-201.082. There are certain statutory exceptions from wages and numerous statutory exclusions from the term "employment." See Labor Code  201.042-201.076, 201.082. Several of these exceptions track or are similar to the Federal definitions of "employer" and "wages" for purposes of the Federal Unemployment Tax Act. I.R.C. 3306, 3508. Under both the state and federal statutes, whether an individual is an employee and subject to tax generally depends (absent a specific statutory exception) on whether there is an "employer/employee" relationship under the common law definition of "employment." The test whether a person is an employee or independent contractor focuses on many factors, perhaps the most significant of which is whether the taxpayer possesses the right to control the details of the performance of the work. See Barnett v. Texas Employment Commission, 510 S.W.2d 361, 363 (Tex. Civ. App.—Austin 1974, writ ref'd n.r.e.).

The TWC is a state agency charged with administering the Texas Unemployment Compensation Act. The TWC absorbed the former Texas Employment Commission effective June 1, 1996. The TWC's Tax Department conducts audits of employers to determine whether they have paid taxes on all employees, whether workers are employees or independent contractors, the employer's correct tax rate, etc. At the end of such an audit, the TWC will issue the employer an Adjustment Report. In addition to increased unemployment taxes, a TWC audit may result in "chargebacks" which adversely affect the employer's experience rate if workers who are determined to be employees as a result of the audit file claims for unemployment compensation. Finally, an audit may have adverse collateral consequences to an employer. For example, the TWC has entered into an information sharing arrangement agreement with both the IRS and the Department of Labor. It is understood, however, that the IRS and Department of Labor are not routinely notified by the TWC of audit results or appeals decisions. Instead, the TWC supplies information to those federal agencies on their request concerning a particular employer.
 

OUTLINE OF ARTICLE

• Rule 13 Hearings
• Procedure For Requesting a Hearing
• Settlement
• The Hearing
• The Decision
• Motion For Reconsideration
• Judicial Review

• Conclusion. Employers faced with adverse actions by the TWC affecting their unemployment tax liability may avail themselves of an informal, relatively inexpensive, administrative review process. A Rule 13 hearing may result in an expeditious and favorable resolution of the matter, without resort to more expensive litigation. As with other adversary proceedings, the key to success in a Rule 13 hearing lies in proper preparation before the hearing, including careful analysis of the facts and law, and a clear and logical presentation of the evidence at the hearing.

  

     
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