Hospitality Mgmt. Corp. v. PA Dept. of L&I, Office of UC Tax Services

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Hospitality Management Corp., :
:
Petitioner :
:
v. : No. 380 C.D. 2017
: Submitted: September 11, 2017
Commonwealth of Pennsylvania, :
Department of Labor and Industry, :
Office of Unemployment :
Compensation Tax Services, :
:
Respondent :
BEFORE: HONORABLE ROBERT SIMPSON, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE MICHAEL H. WOJCIK, Judge
OPINION BY JUDGE WOJCIK FILED: October 3, 2017
Hospitality Management Corporation (HMC) petitions for review
from a final order of the Commonwealth of Pennsylvania, Department of Labor
and Industry (Department), which upheld the decision of the Office of
Unemployment Compensation Tax Services (Office) denying HMC’s appeal of its
unemployment compensation (UC) contribution rates. HMC contends that the
Department erred, as a matter of law, or otherwise abused its discretion, in its
interpretation of Sections 301(e) and (j) of the Unemployment Compensation Law
(Law),1 when it concluded that the Office’s two-year delay in issuing revised UC
rates complied with the prompt notice requirement under the Law. Upon
1
Act of December 5, 1936, Second Ex. Sess., P.L. (1937) 2897, as amended, 43 P.S.
§781(e), (j).
concluding that the Office acted within a reasonable time in revising UC rates
under Section 301(j) of the Law, we affirm.
I. Background
This case involves UC tax rates that the Office assigned to HMC for
tax years 2011-2012. HMC, which is a family-owned, Pennsylvania corporation
operating in the restaurant and food industry, began paying wages in Pennsylvania
in 1997. The owners and officers of HMC were also owners and officers of two
other entities, Altland House of Abbottstown, Inc. (AHA) and Altland House
Catering, Inc. (AHC), which they established in the late 1980s and 1990s,
respectively. AHA and AHC merged all of their assets and business operations
into HMC, with HMC continuing these operations in March 2011. AHA and AHC
last paid wages to their employees on December 30, 2010. As of January 1, 2011,
HMC began paying wages to the employees formerly employed by AHA and
AHC. HMC did not notify the Office of the mergers of AHA and AHC into HMC
until September 2012.
Unaware of the mergers, the Office initially assigned rates to HMC
for calendar years 2011 through 2014 that included only HMC’s UC experience
and did not include the UC experience of AHA and AHC.2 The Office continued
2
Under federal and state law, the collection of UC contributions from employers operates
on an “experience-based” system, which means that an employer’s risk of unemployment
directly relates to how much the employer must pay in contributions to the UC Fund. Similar to
other forms of insurance, employers with high unemployment (i.e., former employees who were
laid off through no fault of their own collecting UC benefits) can expect to pay contributions at
higher contribution rates, and employers with stable employment history and low unemployment
can expect to pay contributions at lower rates. See Section 301.1 of the Law, added by the Act of
December 17, 1959, P.L. 1893, as amended, 43 P.S. §781.1; Section 3303(a)(1) of the Federal
Unemployment Tax Act, 26 U.S.C. §3303(a)(1). To support the experience rating, federal and
state law mandate the transfer of UC experience from a predecessor entity to a successor entity
when the predecessor and successor share common ownership or control. In Pennsylvania, if an
(Footnote continued on next page…)
2
to assess rates and delinquencies to AHA and AHC, which culminated in notices of
assessment against them. In September 2012, after AHA and AHC received the
notices of assessment, HMC notified the Office of its merger with AHA and AHC.
The Office withdrew the notices of assessment and placed the AHA and AHC
accounts in inactive status for UC purposes. R.R. at 89a-90a.
On September 9, 2014, two years after learning of the merger, the
Office transferred the UC experience of AHA and AHC to HMC and issued
revised rates notices, which resulted in significantly higher rates for HMC. Since
the higher rates resulted in more contributions due, the Office revised the
delinquency rates for 2012 through 2014. Specifically, the Office assigned HMC
the following rates:
Year Original Revised Delinquency
Rate Rate Rate
2011 .026770 .076496 --
2012 .030718 .077270 .109010
2013 .043775 .080560 .112090
2014 .049030 .072152 .103682
See Reproduced Record (R.R.) at 11a-24a, 129a-130a. The Office offered to
waive the delinquency rates for 2012 through 2014 if HMC paid the contributions
due or entered into an approved-payment plan. HMC chose neither option.
Instead, HMC filed timely rate appeals for 2011 through 2014.
(continued…)
employer transfers its organization, trade, business or workforce to another employer, and both
employers share common ownership, control or management, Section 301(d)(1)(B) of the Law,
43 P.S. §781(d)(1)(B), requires the Office to transfer the UC employer experience of the
predecessor to the successor.
3
On December 31, 2014, the Office issued a 2015 rate notice to HMC
with a delinquency rate of .091070, which HMC also appealed. The Office again
offered additional opportunities to avoid the delinquency rates and accrued interest
if HMC paid the contributions or entered into an approved payment plan, which
did not occur.
By letter dated July 10, 2015, the Office denied HMC’s rate appeals
for 2011, 2012, 2014, and 2015.3 R.R. at 54a-57a, 131a. HMC appealed the denial
to the Department’s UC Tax Review Office, which held a hearing on March 7,
2016.4 Following the hearing, only the 2011 and 2012 rates remained at issue,
which equated to an amount due of $152,378.78. The parties submitted post-trial
briefs. HMC asserted that the Law prohibits retroactive rate revision and requires
prompt notification of UC rate contributions. Because the Office allowed two
years to pass after learning of the merger before adjusting HMC’s rates, HMC
argued the original rates must be reinstated. The Department rejected HMC’s
argument finding that the two-year period did not constitute an unreasonable delay
warranting a reversion of the rates particularly where HMC’s failure to timely
report its acquisition of AHA and AHC contributed to the error. On March 1,
2017, the Department denied HMC’s appeal of its UC contribution rates. HMC
then petitioned this Court for review.5
3
In an effort to resolve the matter, the Office reinstated the pre-transfer, original rate of
.043775 for 2013.
4
On or about January 20, 2016, HMC and the Office entered into a payment plan. R.R.
at 62a.
5
Our review is limited to determining whether constitutional rights were violated,
whether the adjudication is in accordance with the law or whether necessary findings of fact are
supported by substantial evidence. Section 704 of the Administrative Agency Law, 2 Pa. C.S.
(Footnote continued on next page…)
4
II. Issue
HMC seeks a revision of its contribution rates for 2011 and 2012
only. HMC contends that the Department erred or abused its discretion in
determining that the Office’s two-year delay in issuing revised UC rates complied
with the Law. According to HMC, the Law clearly obligates the Office to
“promptly notify” each employer of its rate contribution for the given calendar
year. 43 P.S. §781(e)(2). Even in cases where an employer is erroneously notified
of a UC rate, the Law contemplates that the Office revises the rate within a one-
year time period. 43 P.S. §781(e)(2), (j). By September 21, 2012, the Office knew
of the merger of HMC into and with AHA and AHC. See R.R. at 89a-90a.
Notwithstanding, the Office waited for two years before issuing revised rates. The
Department’s finding that this two-year delay is not unreasonable is based entirely
on HMC’s role in failing to initially notify the Office of the merger. HMC
maintains that the Department’s finding is contrary to the Law because the Law
clearly contemplates that the Office must act “promptly” in issuing revised rates.
To accept the Office’s argument, and the rationale relied upon by the Department,
would mean that, in cases where the Office learns of an error in an assigned rate, to
which an employer contributed, there would be absolutely no time limit under
which the Office must act to issue the revised rate. For these reasons, HMC
requests this Court to hold that the Department’s finding that this two-year delay is
(continued…)
§704; Resource Staffing, Inc. v. Unemployment Compensation Board of Review, 995 A.2d 887,
890 (Pa. Cmwlth. 2010). As to questions of law, our scope of review is plenary and our standard
of review is de novo. Slippery Rock Area School District v. Unemployment Compensation Board
of Review, 983 A.2d 1231, 1236 (Pa. 2009).
5
not unreasonable is contrary to the Law and to reinstate the original rate notices for
2011 and 2012.
III. Discussion
Contributions collected from employers provide the reserves
necessary to pay UC benefits to workers who are unemployed through no fault of
their own. Section 3 of the Law, 43 P.S. §752. The Office is the agency charged
with the assessment and collection of these contributions. 34 Pa. Code §63.26. In
order to assign employers the correct contribution rates based on their UC
experience, which in turn ensures that the UC Fund is adequately funded, they
must have accurate information regarding the employer’s UC experience,
including any experience transferred from a predecessor. Section 301(d) of the
Law, 43 P.S. §781(d). It is incumbent on employers to provide the Office with this
information. Section 315 of the Law, 43 P.S. §795. Specifically, Section
315(a)(2) of the Law requires:
An employer that transfers its organization, trade,
business or work force, in whole or in part, whether such
transfer was by merger, consolidation, sale or transfer,
descent or otherwise, and the person, corporation,
unincorporated association or other entity to whom the
transfer is made, shall report the transfer to the
department . . . within thirty (30) days after the date of
the transfer . . . .
43 P.S. §795(a)(2) (emphasis added).
In support of its position that the Office’s two-year delay for rate
revision was contrary to the law, HMC relies on Section 301(e)(2) of the Law,
which provides:
6
The department shall promptly notify each employer of
his rate of contribution for the calendar year, determined
as provided in this section and sections 301.1, 301.2 and
301.6 of this act. The determination of the department of
the employer’s rate of contribution shall become
conclusive and binding upon the employer, unless within
ninety (90) days after the mailing of notice thereof to the
employer’s last known post office address the employer
files an application for review, setting forth his reasons
therefor: Provided, That if the department finds that
because of an error of the department it has notified an
employer that his rate of contribution is more than the
rate to which he is entitled, the department shall, within
one year from the date of such notice, adjust the rate of
contribution. The department may, if it deems the
reasons set forth by the employer insufficient to change
the rate of contribution, deny the application, otherwise it
shall grant the employer a fair hearing. The employer
shall be promptly notified of the denial of his application
or of the department’s redetermination. In any
application for review filed hereunder and in any further
appeal taken thereafter, no questions shall be raised with
respect to the employer’s contribution rate, except such
as pertains to the determination of the employer’s Benefit
Ratio Factor and Reserve Ratio Factor.
43 P.S. §781(e)(2) (emphasis added). According to HMC, once the Office became
aware of the merger, it had one year to adjust the rate error. However, this section
applies to the initial issuance of an employer’s rate of contribution. The Office
complied with this requirement by issuing initial rates to HMC for 2011 and 2012,
on December 31, 2010 and February 29, 2012, respectively.6 The Office later
issued revised notices upwardly adjusting those rates.
6
Section 301(e)(2) also addresses redeterminations for downward revisions based on an
employer’s application for review. 43 P.S. §781(e)(2).
7
Section 301(j) of the Law is the sole provision providing express
guidance on the upward revision of rates. Specifically, Section 301(j) provides:
If the department finds that it has erroneously notified an
employer that his rate of contribution is less than the rate
to which he is entitled, he shall be notified of the revision
of his rate and he shall be required to make payment of
additional contributions on the basis of the revised rate:
Provided, That no such additional contribution shall be
required unless the employer is notified of his revised
rate not later than December thirty-first of the calendar
year to which the rate is applicable, unless the
department finds that the employer has directly or
indirectly contributed to the error: Provided further, That
no interest shall be required to be paid in connection with
such additional contributions if they are paid within thirty
(30) days from the date that the employer is notified of
his revised rate, unless the department finds that the
employer has directly or indirectly contributed to the
error.
43 P.S. §781(j) (emphasis added). Section 301(j) delineates two types of errors
causing an incorrect rate: (1) an error by the Department, for which the
Department must issue a revised rate by the end of the applicable year; and (2) an
error to which the employer contributed, which has no statutory deadline by which
a revised rate must be issued. Id. In other words, Section 301(j) authorizes the
Office to upwardly revise a contribution rate after the end of the applicable
calendar year if the employer contributed to the error. Id.
HMC attempts to conflate Sections 301(e)(2) and 301(j) to require
prompt action within one calendar year for all rate revisions, but it offers no
support for this statutory interpretation. We decline to erect a statute of limitations
for the collection of a tax by a governmental unit where the General Assembly did
not see fit. See Tyrone Area School District v. Delbaggio, 638 A.2d 416, 418
8
(Pa. Cmwlth. 1994) (such would be an act of judicial legislation, which is beyond
our scope of authority); see also Commonwealth v. Fedorek, 946 A.2d 93, 98 (Pa.
2008) (“[T]he clearest indication of legislative intent is the plain language of the
statute itself.”).
Although Section 301(j) does not contain a time limit to revise the
rates where an employer contributed to the error, there is support that the Office
must act within a reasonable time. See The Glidden Company, Inc. v. Department
of Labor and Industry, 700 A.2d 555 (Pa. Cmwlth. 1997), appeal denied, 717 A.2d
535 (Pa. 1998); Commonwealth v. Kellner, 72 Pa. D.&C. 209 (C.P. Dauphin 1950).
The Office, like other governmental units, must act in good faith in discharging its
duties. See Office of Governor v. Donahue, 98 A.3d 1223, 1239 (Pa. 2014). This
means that the time period to revise an erroneous rate resulting from an employer’s
error is not unlimited. See Glidden; Kellner.
In Glidden, the employer applied for “new employer” status under the
Law in December 1986. The Department denied the application in April 1991 and
retroactively increased Glidden’s UC tax rate. On appeal, the employer argued
that this Court should reverse the Department’s decision because the Bureau of
Employment and UC (Bureau) failed to promptly notify it of its contribution rate
as required by Section 301(e)(2) of the Law. The employer argued that the Bureau
violated the statutory requirements and equitable tax principles by taking more
than four years to process the employer’s tax application of “new employer” status
and accepting the employer’s tax payments at the new employer rate without
objection. The Court, in dicta, opined that the Department’s failure to act on the
9
application “for over four years was unreasonable.”7 Glidden, 700 A.2d at 559.
Although Glidden did not involve a rate revision under Section 301(j) or an
employer who contributed to the erroneous contribution rate, its brief discussion of
reasonableness is nevertheless persuasive here.
In Kellner, the Bureau erroneously assigned the petitioners a rate of
1% for the year 1947, having failed to properly assign benefit wage charges to one
of petitioners’ predecessors, which would have resulted in a rate of 2.7%. Upon
discovering the error in 1948, the Department notified petitioners that their
experience factor for the years 1946 and 1947 would be recomputed to include
supplemental charges omitted from the previous computation. On appeal, the
Court of Common Pleas of Dauphin County8 reversed. The court cautioned that
employers would face significant financial concerns without some type of
limitation on the Department in revising contribution rates. The court opined:
Considering the large sums involved between the
minimum and maximum rate of compensation and the
7
We concluded the issue was waived because the employer did not raise the issue at the
administrative hearing or in its appeal. Glidden, 700 A.2d at 559.
8
Prior to the creation of Commonwealth Court, the Court of Common Pleas of Dauphin
County served some functions akin to those served by the present Commonwealth Court, and we
view those decisions as established precedent of this Court. See Vlasic Farms, Inc. v.
Pennsylvania Labor Relations Board, 734 A.2d 487, 491 (Pa. Cmwlth. 1999), aff’d, 777 A.2d 80(Pa. 2001) (recognizing the Court of Common Pleas of Dauphin County as the predecessor to the
Commonwealth Court); Common Cause of Pennsylvania v. Commonwealth, 668 A.2d 190, 203
(Pa. Cmwlth. 1995), aff’d, 677 A.2d 1206 (Pa. 1996) (same); Department of Health v. Crown
Nursing Home, 362 A.2d 491, 493 (Pa. Cmwlth. 1976) (recognizing the transfer of jurisdiction to
the Commonwealth Court of those classes of cases previously heard by the Court of Common
Pleas of Dauphin County as the court wherein the seat of State Government is located); see also
Smiley v. Heyburn, 133 A.2d 806, 807 (Pa. 1957) (referring to “[t]he Court of Common Pleas of
Dauphin County, sitting as Commonwealth Court . . . .”); Sanitary Water Board v. City of
Wilkes-Barre, 185 A.2d 624, 626 (Pa. Super. 1962) (same).
10
small margin of profit under which many concerns
operate, the necessity of having tax liability definitely
determined within a reasonable time becomes apparent.
Id. at 211 (emphasis added). Although Kellner is readily distinguishable because it
preceded the enactment of Section 301(j) and did not involve an employer who
contributed to the error, its discussion regarding the need for finality in tax matters
within a reasonable time is sound and fully applicable here.
Here, there is no dispute that HMC contributed to the erroneous UC
rate. HMC failed to satisfy its statutory obligation under Section 315(a)(2) to
report the transfer of AHA and AHC into HMC to the Office within 30 days of the
date of the transfer, which occurred on January 1, 2011. R.R. at 107a. Rather, it
was not until September 2012, after the Office had already assessed AHA and
AHC over $160,000 for contributions, interest and penalties due for the second
quarter of 2011 through the first quarter of 2012, that HMC first provided the
Office with information on the mergers by filing Section 14 of the Pennsylvania
Enterprise Registration, Form PA-100, entitled "Predecessor/Successor
Information" (Section 14 form) for both AHA and AHC. See R.R. 89a, 90a, 123a,
129a, 135a. Because HMC failed to report the transfer, the Office initially
assigned rates for 2011 and 2012 that were lower than they should have been.
HMC’s disclosure of the transfer triggered the Office to upwardly revise HMC’s
rates for the calendar years following the transfer to ensure that HMC is properly
contributing to the UC Fund based on the combined UC experience of AHA, AHC
and HMC. The Office revised the rates for 2011 and 2012 on September 9, 2014,
two years after it received notification of the merger.
The pertinent question on appeal is whether the Office’s two-year
delay in revising the rates was reasonable, which must be determined on a case-by-
11
case basis. The Office asserts that it faces various factors and complexities when
processing a transfer when the employer contributes to the error. Specifically,
when an employer fails to disclose a merger or other business transfer, its ability to
process that transfer may be affected by factors such as how long the transfer went
undisclosed, the number of predecessor entities, and the cooperation of the entities
involved. The Office must investigate to obtain the information required to
process the transfer of UC experience.
In this case, the Office investigated the transfer and determined that
the Section 14 forms submitted by HMC did not have the correct acquisition date.
R.R. at 113a. The forms had the acquisition date of March 31, 2011. R.R. at 107a.
However, the correct acquisition date was January 1, 2011. R.R. at 107a, 108a.
Contrary to HMC’s assertions, the Office did not have all relevant information
regarding the transfer upon receiving the Section 14 forms in September 2012. See
id. The Office investigated and resolved the issue in June 2014. R.R. at 108a-09a.
The Office revised the rates shortly thereafter in September 2014. Under the
circumstances, the two-year period between HMC’s notification of the transfer and
the Office’s rate revision was not unreasonable.
Accordingly, we affirm.
MICHAEL H. WOJCIK, Judge
12
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Hospitality Management Corp., :
:
Petitioner :
:
v. : No. 380 C.D. 2017
:
Commonwealth of Pennsylvania, :
Department of Labor and Industry, :
Office of Unemployment :
Compensation Tax Services, :
:
Respondent :
ORDER
AND NOW, this 3rd day of October, 2017, the order of the
Commonwealth of Pennsylvania, Department of Labor and Industry, dated March
1, 2017, is AFFIRMED.
__________________________________
MICHAEL H. WOJCIK, Judge