Untitled Texas Attorney General Opinion ( 1942 )

OFFICE OF THE Al-l-ORNEYGENERAL OF TEXAS AUSl’tN jionorableClaude A. Williams chaIrman and Executive Director Texas TJnemploymentCompeneatlonCommission Austin, Texas We have your requeat aga;i;lied to’Article 5221b, recited with the Sacta to be So and he act e88 for aore than a in business Fndivlduallg insss to the oorporatlon, Individualbualness vae in vhlch Walker was orl- nor was It the same kind oratlon was engaged. a never terminatedhie coverage the terma of section 8 (c)~un.leae the low amounts to such application far r is nov operatinghis individual e controllingInterest in the corpo- oh la likevise operating. All proce- ore the Conmlaslonhave been properly taken. ‘Query; Who is entitled to the employment exper- ience establlehedby Walker MlvldualLy prFor to the acqulsltlonof his business bg the corporation? ff the corporationis antitLed to the experience,vhat tax rate Is applicable to Walker lndivlduallJo I Honorable Claude A. Williams, Page 2 "on tune 30, 1938, this Commlssicn received the letter s copy of vhlch is attached as Erhlblt B. ms InformatIonIs Included for the reason that the taxpayer feels that the letter amounts to an ap llca- tion for terminationof covera e under Section 8 (a) of the Act, Article 5221b-6 (ck , Vernon’s. If it Is your opinion that the letter in Itself oatually does amount to an applicationfor termInatIonof coverage, we still request your cpInIcn on the main queatlon asked. In this connectiona letter dated January 22, 1942, from Hr. Rice M. Tllley, attorney for the em- ployers, is attached 88 Exhibit C." Article 5221b, Section 5 (c) (g), Vernon's Revlsed Civil Statutes, reads: “For the purposes of this section, two or more employing units vhloh are parties to or the subjeat of 8 merger, consolidation,or other form of reorganlea- tlon effecting a change in legal identity or form, shall be deemed to be a single 6mployIngunit if the CcmmIa- slon finds that (I) Immediatelyafter such change the employing enterprisesof the predecessor employingunit or uqlts are continuedsolely thro h a single employ- ing unit as successor thereto; andY II) immediately after such change such successor Is owned or controlled by subatfintlallythe uame lntemsta au the predecessor employing unit or units; and .(XIT)the succemrorhao assumed liability for all contributionsrequired of the predecessor employingunit or units; snd (iv) the oon- sideration of such tvc or more employing units as a single employingunit for the purposes of this section vould not be inequitable. "Ho rate of less thar,tvo and seven tenths (2-T/10$) per centum will be permitted an employ&g unit succeeding to the experience of another employingunit pursuant to this section for any period subsequent to such sucoeaslcn execpt In accordanoevlth regulationsprescribedby the CommlnsLon,vhich regulationsvi11 be oonslstentvlth~ Federal requirementsfor additional credit allowance in Section 1602 of the Internal Revenue Code, and consistent vlth the provisions of this Act, except that such regula- tions may establish a computationdate for any such period different from the computationdate generally prescribed by this Act, and may define the words 'calendaryear' as gonoBableClaude A. Wllllss~s,Page 3 a``anlnga twelve (12) oonaeeutlvemonth period end- ing on the same day of the year as that onwhIch such ccmputatlcndate occurs." At the tire of the inccryoratlcnof Walkers business ~&ion 5 (c) (9) vas not a part of Artlclo 5221-b, It having been enacted by the Forty-seventhLegislature In 1941. There- SON, the CommIasionhad nc regulation on the transfer of em- ploymentrecords in 1938. We are lnfomedthat ycuncwhave a rsgulaticnprovldlng for a valver of the employmentreaord by an employertransferringhis business to another. We are unvllllng to say that Walkerr letter of Juno 28, 1938, Is a literal compliancevlth Seatlcn 6c providing for a termInatIonof his oovenge. But, the Informationsupplied mfleatrt that Walker has since waived his right to the employ- wt. reoord made ae an lndloldualprior to July 1, 1938. We rntertainno doubt that he vould have valved that record In July, 1938, if the Commlmslonhad provided for suoh an act at that time. This aoncluslcn la based upon the letter to the ComaIssIonof June 28. 1938; the fact that there vas no oessatlon of the busl- nesr; there vatsno loss of tfme by any employee! the same busl- aess Inerery detail vas oontlnued eave the change In logal lden- tity. The employer aeked if the oorpcratlonwould retain the same Identiflcatlonnumber Indicatingthat he considered the change only one of legal identity. We are also lnf+crmed that the corporationaseumed and pnld the unemploymenttaxes for June of 1938 after they became due on Augnet 1, 1938. The facts recited In your letter and the attached ex- hibits shcw that after the change in the legal ldentlty of the businese In question from that of an Indlvldualto a corporation the lndlvldualoriginsllyownfng the basinese owned approxMtely gh$ of the stock of the newly cnated corporation. That same ln- dividual that operated the originalbusiness wae the managIng officer and In control of the business of the ocrporaticn. The buslnese carried on b7 the corporationwas at the aame~addrear, used the same personnel, engaged ln the same type of business, the only change being In ths legal identity of the business be- tween the clcme of buslnesa on June 30, 1938, and the opening on July 1, 1938. gonorableClaude A. Willlaw, page 4 AA examlnatlonof Se&Ian 5 (c) (9), suprs, dlsalosea that this fact sltuatlonfalls within the requirementof the four provlsl~s outlined in thin Section. Ue can 1100no robeon for denyingthe corporationthe benefit of the emplOJment record of tb Individual. There can be no oontention that It would bs in- equitable,for the aucce88or is the same busi~esa with the same per``~el but a different legal entity. The beneflta acorui~g to the employeea of the lndlvldualvould be preserved to them after the change IA the 1egciLldentlty of the buelnera. lit have no decfelona on this statute by the oOurto of Texas and YB are unsblt to find a deoislon from any of the other #tata courta upon thin subject; therefore,ve are required to COA- rider the 8tetutt and give it the construotloniAt9nded by the Legislature. We believe that it vaa clearly the intention of the Lsglslaturethat an lndlvldualchanging the legal Identity of hla bualnese,but continuingthe operation of the name Qpe of burl- me@ with the BBPLBpersonnel snd with the mm bustiem poliolea, rhouldbe entitled to the elt@lOpeAt record created by the Ml- vldual if the provialonsof Seotlon 5 [a) (9) are hot violated. We have found l.Athe ~AtBQlO~At Compen8atioA IAter- pretatlonService - Reneflt Series - Volume 5, lo. 1, at page 131, a quotation frOi!Ia rulimg by the Soolal SeaurltJ Board lpsdeOA December22, 1939, adopting the followlAg oanatructlonof Se&Ion 1609 Of the Federal UaemploymeAtfu Act with re8peat to transfers of aooounts for expsrlsnce for purposes of computing v8rlabloAe in oontrl.b?ltion ratea. "Reduoedrates ba8ed upan tranrforr of scoountn or experiencedo ooniorm vlth Federal rtandarda, If aoniined to canes in vhioh an entire employs enter- prlse and all Its inO1deAts for all purpoaee o? the lYAmuploymentCompeneatlonLaw are tramferred to a aingle legal pertson,who may or map-not be a ctovered employing eAterpriaewhose aaooupt or experience Is combined, after the tmmafer, with that of the tmne- ftrop.' In our oplnlon the corporationcreated by the individual, Walker, would be entitled to the elgployment experlenoe eetabllahod by Walker doing business lAdlvldusl``. You have then asked vhat tax rate la applloable to Walker, indlvldually,after having remmed or opening a now buslnaas 8onm tvo years after the iaoorporationof the ortgglnal bueineara. HonorableClaude A. William, peg8 5 Artiole 5221b, Section 6 (d), r8adal 'Any employing unit which ia or becomes an em- ployer subject to thla Aot, and which under the provl- sions of this sub$eotlonceases to be an employer sub- ject to this Aot nnd subriequentto such tlnm again becomes sn employer subject to this Act by rteaon of any of the provialonahereof, shall upon agoln beoom- lng an employer subject to this dot be oonsidareda nev employervlthout regard to any rights acquired by It durlngnth8time that it had theretoforebeen an employer. Article 522lb, Section 5 (0) (7) raads~ "Eaoh employer'8rate shall be tvo and atven- tenths (2-7/l*) per oentum exoeyt aa otherwireprovld- 8d iA this 88CtiOA. go yloyr s rate shall be leas than two and s#ven-tenths(2-7 10% per oentum for any year, unless and until hid aooount has bem ohargeeblevlth b8neflt.sthroughoutthe thirty-six (36) consecutiveoal- 8nQar montha lmmedlattlypreosdlng the begfnnlng of the calendar year for which rates are deten@ntd." Since Wlllkerwas not operating individuallyiOr mom than two year8, v8 oannot b8llevo that It vaa intended that the neord bs held for the indlvldualfor an lnU8flnlt8perfod of time. Walker might have valted floe pars to b8gln th8 mm bual- nrcrs. Would It not be more lnequltabl8to refuse the tranaf8r of the tmploymuntrecord beoaucie80~ day Walker might Op8rbtt bgbin Individually. This vould, ln our opinion, defeat the pur- p0rm of the atatute. We, thmefore, believe that when Walker rseumed business In 1940 in another and different type of burl- ~088 that the ``SS~OA should allow him the tax rate of 2.7$ an provided in Section 5 (c) (7). Yours very truly ATTORNRY GESERAL OF TEXAS