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ESC chair takes action which will prevent sharp tax increase on N.C. employers
Story Date: 10/13/2011
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Source: PRESS RELEASE, 10/12/11
Employment Security Commission Chairwoman Lynn Holmes officially notified leaders of the General Assembly on Wednesday that she was suspending certain provisions of Senate Bill 532 because the provisions do not comply with federal law.
Absent Holmes’ action, certain taxes would have increased significantly on North Carolina employers. In addition, certain administrative grants that the State of North Carolina receives would have been terminated. Holmes suspended the provisions at the direction of Gov. Bev Perdue.
“The law that the General Assembly passed over my veto was going to cause taxes to skyrocket for North Carolina employers,” Gov. Perdue said. “I refuse to sit by and allow an unnecessary tax increase on North Carolina businesses.”
Senate Bill 532, which the General Assembly passed earlier this year, made various changes to North Carolina’s employment security laws. Gov. Perdue vetoed S.B. 532 on June 30, 2011. In her veto message, she informed the General Assembly that provisions of the proposed law could put North Carolina out of compliance with federal law and that such noncompliance could cause taxes to go up for North Carolina employers.
Despite her warning—and despite warnings legislators received from the U.S. Department of Labor before passing the bill—the General Assembly overrode Gov. Perdue’s veto.
On Sept. 22, 2011, the U.S. Department of Labor informed Gov. Perdue and Holmes that S.B. 532 included provisions that would threaten the eligibility of North Carolina employers to qualify for credit under the Federal Unemployment Tax Act (FUTA). Without the credit, federal unemployment taxes on North Carolina employers would have increased from an effective rate of below 1 percent to 6 percent, an increase of several-hundred percent.
Holmes exercised her authority under North Carolina law* and suspended the provisions that labor department officials identified as non-conforming.
In her letter Wednesday, Holmes also reminded General Assembly leaders that North Carolina employers will see their FUTA tax rates increase by 0.30 percent in the near future. This increase— which is set to occur automatically and is unrelated to any issues in S.B. 532—relates to North Carolina’s repayment of funds that the state has borrowed from the labor department in connection with the Unemployment Insurance Trust Fund. This 0.30 percent increase is significantly less than the several-hundred percent increase that would have occurred as a result of the noncompliance issues in S.B. 532.
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