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Government Law increasing unemployment taxes gets Abbott's signature

Law increasing unemployment taxes gets Abbott’s signature

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A new Texas law will give tax breaks to a small group of businesses but slightly increase taxes across the rest of the state. 

Gov. Greg Abbott on Saturday signed House Bill 3150, which will trigger a tiny increase in unemployment taxes to cover an $84 million hit to the unemployment insurance trust fund stemming from the tax breaks, according to calculations from the Texas Workforce Commission.  

The legislation, pushed by a politically connected company in Kingwood called Insperity, would give a tax break to about 150 Texas businesses that are licensed and specialize in human resources outsourcing services. Insperity, whose founder sits on Lt. Gov. Dan Patrick’s citizen advisory council, did not immediately respond to messages on Saturday. 

Proponents of the measure, which sailed through both the House and Senate, say the bill eliminates what they describe as “double taxation” of the outsourcing companies known as professional employer organizations, or PEOs. Critics, however, say it’s not fair for other employers to be forced to make up the lost revenue by paying more into the state’s Unemployment Compensation Trust Fund.  

It’s a very small increase — amounting to roughly a dollar per Texas employee, according to the Workforce Commission — but critics dubbed it a special interest bill that would only help a tiny piece of the business sector. 

“No other state in the entire country does this, and they don’t do it for good reason — because they recognize that there is a significant impact to their own UI trust fund, and if they did this they’d be passing on those costs,” Todd Cohn, vice president of regulatory affairs for TriNet, a California-based outsourcing firm that is among the top three PEOs doing business in Texas, said last month. He could not immediately be reached Saturday.  

Though Cohn’s own company would benefit financially from the bill, he said the small-business clients TriNet serves would not, and he doesn’t want to get blamed for passing on higher unemployment taxes to them.   

But state Sen. Brandon Creighton, the bill’s sponsor, has said the change is needed because PEOs face a type of double taxation under current law.  

When a company hires a PEO, it generally enters into a co-employment agreement and transfers its employees over to the firm, which then processes payroll and handles health benefits, retirement plans and the like. 

As part of that arrangement, the PEO also becomes responsible for the client’s unemployment taxes, which go into a trust fund that pays out unemployment compensation to employees who lose their jobs. The change, effective Sept. 1, would allow the PEO to get credit for any taxes already paid on behalf of the employee by the old employer. 

“This bill changes the law to ensure that these small employers in a PEO relationship are not faced with paying double tax if they make a change after Jan. 1,” Creighton, R-Conroe, told The Texas Tribune last month. “This bill is good for small employers in Texas, it’s good for all PEOs in Texas and it avoids double taxation.”  

According to the Texas Workforce Commission, the bill would raise unemployment tax rates by just 0.01 percent, working out to 90 cents assessed for every employee in Texas. The rates have to go up to make up for the negative impact to the fund, calculated at $84.2 million over five years.  

Abbott’s office did not release a statement on his decision to sign the legislation, and his office did not immediately respond to questions. 

Jay Root contributed to this report.  

This article originally appeared in The Texas Tribune at http://www.texastribune.org/2015/06/20/abbott-signs-law-increasing-unemployment-texas/.

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