Governor Signs UI Tax Deferral Bill in a Victory for Business

On February 11 the Governor signed bills SB 5135 and ESHB 1091 lowering unemployment insurance tax rates for 80 percent of all small businesses.

AGC supported the measures which were touted as part of the Governor’s jobs package. The legislation represents a significant positive step forward for the business community. The legislation contains five distinct components: 1) caps the social tax component of unemployment taxes; 2) adjusts the proportion of taxes paid in each rate class; 3) expands the UI training benefits program; 4) aligns state law to ensure unemployed individuals can take advantage of federally extended benefits fully funded by the federal government; and 5) includes a short-term temporary increase in weekly benefits.

Within the next 45 days most businesses will receive a revised tax statement from the Employment Security Department identifying that they will pay lower taxes in 2011 than originally notified in December. No business will pay more than identified on the December 2010 tax statement but some will see no change in their payments.

The direct impact of the tax deferral will not be felt by all firms within the construction industry as the deferral primarily benefits those businesses in lower rate classes.

“The biggest benefit to the construction industry is that the legislation relieves the political pressure to raise the rate cap on construction and similar industries” said AGC Legislative Counsel Van Collins. “Plus the measures inject real tax breaks into the economy which is a benefit to all. And having these measures enacted now allows the Legislature to turn its attention to workers’ comp reform.”

The tax reductions represent $300 million that will remain in the hands of businesses in 2011 instead of being paid in UI taxes.

Although this legislation was passed within the first five weeks of session it represents a hard-fought battle by AGC members and the broader business community. Early in the discussion over this legislation the labor community brought forward a permanent benefit increase that would have given unemployed individuals an additional $15 per week per dependent. This type of benefit increase would have significantly increased employer tax rates. AGC opposed the benefit expansion which was not included in the final bill.

Legislators however brought forward an option to temporarily increase recipient weekly benefits that would not impact individual employer UI tax rates. The expansion of the existing training benefit program enables the state to receive $98 million in additional federal UI funds. Rather than permanently expanding benefits and increasing employer tax rates a portion of the federal funds $68 million will be used to fund the temporary benefit increase. This strategy will increase UI benefits by $25 per week per UI recipient through November 2011. None of the dollars attributed to the temporary benefit increase will be charged against an individual employer.

For more information contact Van Collins 360-352-5000.