SB 306-UNEMPLOYMENT INSURANCE FUND & TAXES    10:07:14 AM CHAIR RALPH SEEKINS announced SB 306 to be up for consideration. SENATOR CON BUNDE explained SB 306 addresses unemployment insurance avoidance schemes by unscrupulous employers. Failure to pass the bill would result in the de-certification of the Alaska UI program and employers in this state would lose a federal offset credit of 5.4 percent, resulting in $103 million dollars in additional taxes to the employer and the state would lose $30.8 million in administrative and operation funding for UI programs. SENATOR GRETCHEN GUESS asked what would happen when someone doesn't comply simply because they don't understand the procedure. JANE ALBERTS, Staff to Senator Bunde, surmised that there would be notification sent to businesses that, in the event that they purchase or acquire another business they would be required by law to notify the Department of Labor and Workforce Development. CHAIR SEEKINS said it appears that a business owner would have to knowingly intend to deceive the Department and that they would have to be in violation of AS 42 U.S.C. 503(k) (SUTA Dumping Prevention Act of 2004). 10:12:17 AM PAULA SCAVERA, Special Assistant, Department of Labor and Workforce Development (DOLWD), introduced Pat Shier to answer questions. PAT SHIER, Acting Deputy Director, Department of Labor and Workforce Development (DOLWD) offered to answer questions. He explained the bill was intended to stop willful misrepresentation for the purpose of obtaining a lower rate. The bill complies with the federal intent that there be more meaningful penalties for the specific purpose of misleading the DOLWD in order to fraudulently obtain an artificially low unemployment tax rate. SENATOR GUESS referred to her original question and asked what happens when the employing unit purchases another business and does not notify the DOLWD. CHAIR SEEKINS asked the definition of "employing unit." MR. SHIER explained an employing unit is defined as a person or an organization that has people working for it for a certain number of days. CHAIR SEEKINS asked whether a self-employed person was an employing unit. MR. SHIER said no. 10:15:53 AM MR. SHIER responded to Senator Guess's earlier question and said the section of the bill in question has been in effect since prior to Alaska Statehood. When an employer fails to notify the DOLWD, they are not automatically penalized. The bill is designed to codify in law that there is that obligation. There is no penalty associated with a failure to report. As the Department becomes aware of the failures, they assist the business owner to comply with state and federal law. 10:18:36 AM SENATOR GUESS referred to Section 23.20.297 (a) and asked Mr. Shier to explain paragraphs (1-2). MR. SHIER said it was important to note lines 16-17, which is the purpose they are attempting to describe. If an employer transfers its trade or business to a smaller business, they have to take their higher rate with them. The rates are then recalculated based on existing regulations. Paragraph (2) describes the situation if the person is not an employer at the time they acquire another business and it governs how the rate would be applied. SENATOR GUESS asked for clarification whether the business owner would have to be in a merge situation in order for the bill to apply. MR. SHIER responded the "common ownership" portion of the bill is the language that the federal government required in order to allow states to identify the person at the root of the transfer. The intent of the bill is to identify the business owner that is attempting to purchase another business with a smaller tax rate and then to claim that smaller tax rate for the merged larger business. SENATOR GUESS referred to paragraph (2) and questioned the reason for involving the commissioner. MR. SHIER responded paragraph (2) deals with a person who is not an employer and has no rights or responsibilities under the Act. It is for someone who is trying to obtain a lower rate, such as a person who closes a business for a period of time and then purchases another business and then re-opens the closed business and claims the lower tax rate. Paragraph (2) allows the Department to examine the prior business and investigate whether or not the person closed the business for the sole purpose of obtaining a lower tax rate. 10:27:38 AM MR. SHIER added he could not answer as to the reason for involving the commissioner in paragraph (2), but that it was based on federal guidelines. SENATOR GUESS noted the bill was very confusing to read. CHAIR SEEKINS said the fraudulent acts would occur under AS 23.20.295(d)(1) and (4). SENATOR GUESS said regardless of what the purpose is, AS 23.20.297(1-2) should be part of the system regardless of whether they are fraudulent or not. CHAIR SEEKINS said subsection (d)(2) and (3) are not fraudulent acts whereas 23.20.295(d)(1) and (4) would be if the commissioner found intent. 10:30:41 AM MR. SHIER claimed "intent and knowing" are very high standards and difficult to prove. The reason for SB 306 is due to federal government compliance and state employers stand to lose millions of dollars in tax credits. SENATOR GUESS reiterated her opinion that the bill was written in an extremely unclear manner. She said a business couldn't be charged with a crime and asked whom the person would be that would be charged with the felony. MR. SHIER responded it would be the individual who has the duty to pay. CHAIR SEEKINS held the bill in committee.