SUTA (state unemployment tax act) dumping is a scheme perpetrated by some companies and accounting firms to avoid an employer's fair share of unemployment insurance taxes by moving employees from company to company to avoid paying unemployment insurance premiums at their true rate and to fraudulently acquire a lower rate.

Mandated by the Federal SUTA Dumping Prevention Act of 2004, the newly-signed Tennessee SUTA Dumping Prevention Act will strengthen existing laws and provide for increased efforts for the prevention and detection of SUTA dumping. It also provides penalties sufficiently severe to discourage employers who might be tempted to manipulate their premium rates.

When the Tennessee Department of Labor and Workforce Development discovers that an employer has engaged in a form of SUTA dumping, the following will occur:

• Both the predecessor and successor employers will be assigned the actual applicable premium rate, effective back to the first quarter of violation, and will immediately owe the difference between the premiums determined to be due at the applicable premium rate and the premiums previously paid plus all interest owed on the difference.
  
  
• Both the predecessor and the successor will be subject to a penalty rate of 2% of their annual taxable payroll for a minimum of three years.
  
  
• Persons involved will be subject to a Class A misdemeanor with a maximum sentence of 11 months, 29 days imprisonment and a maximum fine of $2,500.
  
  
• In addition, any person who advises others to violate the law, or who violates the law but is not an employer against whom the 2% penalty rate can be levied, is subject to Class A misdemeanor charge plus a civil monetary penalty of up to $50,000.

The new law's provisions will become effective January 1, 2006. Employers who have been involved in the practice of SUTA dumping are encouraged to come forward before that date in order to avoid the severe financial penalties described in the SUTA dumping law.

...back to 23 June 2005

Further information:
Governor Bredesen Signs Legislation to Penalize Employers Involved in Tax Evasion Schemes

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