Legislature(2005 - 2006)

03/07/2006 02:31 PM L&C

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
           SB 306-UNEMPLOYMENT INSURANCE FUND & TAXES                                                                       
SENATOR CON BUNDE announced SB 306 to be up for consideration.                                                                  
2:32:24 PM                                                                                                                    
PAULA SCAVERA, Special Assistant  to the Commissioner, Department                                                               
of Labor  and Workforce Development (DOLWD),  explained that this                                                               
is a very  simple bill and brings the state  into conformity with                                                               
federal law, which  was passed in 2004 and deals  with people who                                                               
manipulate  the system  to pay  UI taxes  at an  artificially low                                                               
CHAIR BUNDE asked for an explanation  of what past abuse has been                                                               
TOM   NELSON,   Director,   Division  of   Employment   Security,                                                               
Department of  Labor and  Workforce Development  (DOLWD), replied                                                               
that currently  the division can identify  State Unemployment Tax                                                               
Act (SUTA) dumping,  which is a scheme that is  more prevalent in                                                               
the Lower 48 where employers  move groups of employees to another                                                               
business entity for  the sole purpose of deriving a  lower UI tax                                                               
rate  - defrauding  the  system. The  state  lacks conformity  in                                                               
establishing criminal  and civil  penalties associated  with that                                                               
type of crime. Alaska has had  little activity like that. One was                                                               
identified, but the department had no authority to take action.                                                                 
CHAIR  BUNDE asked  if there  would  be substantial  cost to  the                                                               
employers if the state chooses not to comply.                                                                                   
MR.  NELSON  replied  that the  state  faces  decertification  to                                                               
operate unemployment  insurance and collect any  benefit from the                                                               
FUTA tax system. That includes  the entire Unemployment Insurance                                                               
system  as well  as  the  Wagoner Peyser  Act  funded job  center                                                               
services.  The losses  would  amount to  $103.9  million for  one                                                               
fiscal year.                                                                                                                    
2:36:19 PM                                                                                                                    
PAT  SHIER,  Acting  Deputy   Director,  Division  of  Employment                                                               
Security, said he would be happy to answer questions.                                                                           
MS.  SCAVERA elaborated  that Alaska  employers would  pay $103.9                                                               
million in  additional taxes. The  department would  lose another                                                               
$30.8  million   in  operational   funds  for   its  Unemployment                                                               
Insurance programs and employment programs.                                                                                     
SENATOR BUNDE commented  that while this is an  option, it really                                                               
MS. SCAVERA agreed.                                                                                                             
2:37:13 PM                                                                                                                    
SENATOR BEN STEVENS said an  existing entity can't be audited and                                                               
asked if this only happens when a trade occurs.                                                                                 
MR. SHIER  replied that was  correct. No new powers  were granted                                                               
to the department  other than the criminal penalty  that could be                                                               
imposed. The  federal guidelines  require the department  to show                                                               
intent.  Currently  the department  has  the  authority to  audit                                                               
periodically  to  make  sure employers  are  complying  with  the                                                               
entire Chapter 23.20.                                                                                                           
SENATOR BUNDE closed public testimony.                                                                                          
SENATOR BEN  STEVENS moved to  report SB 306 and  attached fiscal                                                               
notes  from  committee  with  individual  recommendations.  There                                                               
being no objection, it was so ordered.                                                                                          

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