This new tax is a result of  recent legislation which increased the taxable wage base and added a surcharge to the tax rates. 

 Legal advice has indicated to us that employers should pay the increase in unemployment tax under protest.   There may be a constitutional challenge to the legislation and if the taxpayers have not paid the taxes under protest, they may have to forfeit a refund of the additional taxes.  

 Legal advice also indicates that each employer should make sure the payment check clearly indicates “Paid Under Protest”.  It is also recommended that “Paid Under Protest” be written on the transmitting document and a short letter sent indicating that the taxes are being paid under protest.

 This year the Legislature enacted legislation permitting the Department of Labor and Workforce Development to increase taxes on employers in order to keep the reserve fund in a positive balance. Both the wage limits and the tax rate were increased.

The recent legislation increased the taxable wage base from $7,000 limit to $9,000 limit and an additional fee of .6% on all premium rates was added.

These increases are reported to produce more than $240 million dollars in annual revenue.

The Department of Labor Commissioner James Neeley estimated that the additional tax would cost employers $108 per employee.

There was considerable controversy in the House side of the Legislature as the bill advanced toward passage. It appeared to us that answers to some questions posed were not completely understood.  There was enormous stress on the extreme urgency that we must raise taxes on employers in order to keep the Federal Government from taking over the State’s unemployment compensation system.

Some Legislators asked the sponsors and Labor Department representatives if there were possible alternatives to an increase; such as, employees sharing the costs, not extending the benefits, increasing the taxes by smaller amounts, or obtaining funds from general revenues. Some Legislators felt that the placing all the increase on the employers was plainly the wrong time to increase taxes on employers when unemployment is so high.

Other Legislators reasoned that increased taxes would be an incentive for employers to lay off, or not hire, more employees in order to save taxes. These Legislators felt that increasing this tax was taking us in the wrong direction in the middle of a deep recession.

Taking a position on this bill was indeed a problem for the Legislators. No-one wanted to deny extended benefits to unemployed workers and no-one wanted the Department’s reserve to be exhausted which was warned to be low and would default if the bill was not passed.

The American Recovery and Reinvestment Act made $141 million dollars available to Tennessee to extend unemployment benefits for up to 20 weeks to unemployed workers. In order to receive these funds, Tennessee agreed to extend unemployment benefits to part time and seasonal workers.

Also, included in the requirements, were increased benefits for unemployed workers with dependents at $15 each per week for those dependents under 18 years old.

Legislators were told that the $141 million from the Federal Government would take care of these extra benefits for about six years at $25 million per year. The question would not be answered if Tennessee would continue these benefits on its own at the end of this period.

Other Legislators were confused about sunset provisions. There were some. The increased wage base for the increased reserve does sunset once the reserve reaches $1 billion, but would decrease some when the reserve reached $900 million. The increased tax rate would sunset after the reserve reaches $ 600 million.

The reasons for this tax increase are definitely a problem. Some Legislators were told that Tennessee needs to catch up in its reserves and should tax employers more to be equal with other states. We are not sure about this and do not favor tax increases just to keep up with other states.

We feel that other sources of revenues should have been explored before increasing taxes by $240 million against employers. It was never satisfactorily explained that other sources or other methods of taxes were even considered.

While the unemployed deserve compensation and should not be denied, taking $240 million away from employers is going to make it difficult for the employers and may even cause more unemployment. There was also no fairness in the bill by making large employers who lay off more employees pay more of the additional taxes.

It appears to us that this legislation could have considered other sources of revenues for the unemployed, been more fairly distributed among employers, and now may even wind up being unconstitutional.

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