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Big tax hit for employers?
Bookkeeper warns of $378-per-worker boost in U.S. levy unless Legislature acts

By M.J. Ellington · (334) 262-1104

MONTGOMERY — A Decatur bookkeeper is on a crusade to stop a skyrocketing increase in federal unemployment taxes, which only a legislative correction to Alabama law will cure.

Marie Allen, a bookkeeper for Best Western and Microtel hotels in Decatur, became concerned when she realized that a bill to stop a $378-per-employee increase in federal unemployment tax each year died in the 2007 Alabama Senate logjam.

Rep. Frank McDaniel, D-Albertville, sponsored HB 83, a measure required to correct wording in the 2005 Alabama Unemployment Tax Act. Without the correction, state law would enable the U.S. Department of Labor to remove a 5.4 percent tax credit that Alabama employers now have. The bill passed the House in early April but died
because it did not get a final vote in the Senate on the last day of the session.

“Many people do not realize this will happen unless something is done,” Allen said. “In some cases, we’re talking about thousands or hundreds of thousands of dollars a year in added cost if that bill does not pass.”

Allen wants people to call their legislators and help them understand the consequences to Alabama businesses unless the Legislature passes the bill when it is in session again.

She called Rep. Bill Dukes, D-Decatur, and she talked to Phyllis Kennedy, director of the Alabama Department of Industrial Relations. Kennedy’s department administers the state unemployment compensation program.

Kennedy said Monday that she learned in a letter late Friday that the labor department would give Alabama another chance to correct the problem wording in current law before it eliminates the tax credit. The federal government required states to pass legislation so state laws would conform to changes in federal unemployment law passed in 2005. After Alabama did so, federal officials informed the state that Alabama’s law needed adjustment.

“The letter said they would hold in abeyance the issue until the next special or regular session of the Legislature,” Kennedy said. “This certainly implies that they expect us to handle the matter at that point.”

Harder push

Kennedy said the state was glad to get time to correct the language. She said she expects her office and people affected to push even harder for legislative awareness of the issue when the Legislature is next in session.

“We’d crawl on broken glass if it takes that to help them understand,” Kennedy said.

Currently, most employers in the state pay federal unemployment tax of about $56 per employee per year. If federal labor officials enforce removal of the 5.4 percent tax credit in Alabama, the tax would rise by $378 to $434 per year. Employers with high employee turnover rates would potentially take the biggest hit.

For Allen’s two-hotel employer with about 43 employees, the increase would be more than $16,000 per year. For an employer with 1,200 employees, similar in size to General Electric’s Decatur plant, the increase would be more than $453,000 per year.

“It would hit every segment of the business community in Alabama,” Kennedy said. “It would be a painful and unexpected lick on every employer in the state.”

Kennedy said U.S. labor officials are working with the state now, but she believes if the Legislature does not pass the bill in the next session, federal officials are likely to enforce removal of the tax credit. She said lawmakers seem more aware now that the need is serious.

Dukes said he is concerned that failure to pass the corrective bill could impact current and future business and industry. Some existing industry might decide not to expand, some might not be able to afford the increases and others might choose not to locate in this state, Dukes said.

He co-sponsored the bill in the 2007 session.

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