dohi 9. Perry Btioivn

dhalrmahTetas Emplo$ment Opinion No. i#-247 Collimission Brown ailding Re: Taxabilityunder the Texas Unemployment Compensation Austin, Texas Act of payment6 Into or from SupplementalUhemDear Mr. Drowhi ployment Benefit Plan punds @the Ford kotor company - UAW-CIb type. This is in reply to your requeet for an opinion a8 to the taxabilityunder the Texas Unemployment Compendation Act of pafmentdmade into &id out of Supplemehtal UhemploymentBenefit Plah Funde of the Ford Motor Company - UAW-CT0 typei
You aaked the foilowingquestlond:
the z;tpz;n;; p;;$$& inFmde to unemployed workers taxable under the Texag Unemployment CompensationAct? If either type of paymant ia taxable, against whom is it taxable?" Briefly;~this type of SupplementalUnemploymentBenefit Planprovide@ forthe edtablishmentby the employer of a Trust Pund b cohtributionsmade Solelyby the employer, After payment fnto thb Fund, the employerhis ho right, tit or ihterest in the aaseta. The Fund 1~ administeredby independent trucrtees;There is a maximum funding amount which when reached stopspayments into the Pound until such time as the amount remaining becomes lesls than the maximum finding &mount. The Plan furtherprovides that no employeehas any Hght in aiiy slbsetd of the Fund unless and until the employee,ie qualified and eligible. Among the ellgi,bllity conditions ia the requirement that the employeemust have received stateunemployment benefits for the week for which application ia made for supplementalbenefits. The Plan alrso

provides that: "Neither the Company's contributionsnor any benefitpaid under the Plan shall leHon. S. Perry Brown, page 2 (W-247)

be considered a part of any employeeswages for any purpose.” Our Texas Unemployment Compensation Act provides that employerswho come witNn its scopemust make contributions to a Commission In amounts determinedby the amount of "wages"paid by the employers to their employees. These contributionsare placed in a fund and can only be used for the purposes for which such fund was created. The Act defines "wages" as "all remuneration for personal servieas, including commissionsand bonuses and the cash value of all remuneration in anymedium other than cash." (Art. 522113-17,

V.C.S.). There ha8 been no court decision on the taxability, under the Texas Unemployment CompensationAct, of payments into or from SupplementalUnemployment Compensation Plan Funds, nor have the courts of any other state,passedon the taxability of such Funds under their respective stateunemployment compensation statute. However, the questionshave beenpassed upon administrativelyby many of the states. Of twenty-one states that have administratively ruled on the taxability of payments into such Funds, twentyhave ruled that suchpayments are not taxable. Of fifteen states that have administratively ruled on the taxability of payments from such Funds, fourteen have ruled that suchpayments are not taxable. The Bureau of InternalRevenue ruled (Rev.Rul. 56- 249, IR - 156) that payments Into and out of such Funds are not taxableunder the Federal UnemploymentTax Act. In arriving at such conclusion the Bureau used the following language: ,t .it is concluded that the benefits pkLi;l to former employees of M Company under the terms of the SupplementalUnemploymentBenefit Plan do not constitute 'wages' for purposes of the Federal Unemployment Tax Act. It is also concluded that the benefitspaid to former employees of M Companyunder the terms of the Supplemental Unemployment Benefit Plan do not constitute 'wages' for purposes of the Federal Insurance ContributionsAct and the Collection of Income Taxes at Source on Wages."Hon. 5. Perry Brown, page 3 (WJf-247)

Generally, 8 right to remunerationaaarueaupon the rendition of serviaesby virtue of the contract of hire, so that the provision that the employeehas no rights in the Fund indicates that whatever is paid the employee out of the Fund is not intended as remuneration for sellrlcea.The employeemay work a lifetime and thereupon retire or die and receive no payments. This Is an imRortant distinction from the concept of "remuneration"or wages" which would be,payable In any event. Moreover, the reaeipt of benefitsby an employee is not dependent on whether contribution8 to the Fund have been made by the employerwith respect to the hours worked' by the employee. An employeemay receive benefits although no contributionsweremade during his entire employmentwith that employer due to the Fund having reached and maintained the presaribedmaximum level. Conversely, If there ,isan insufficient amount in the Fund, the applicantwould receive no benefits. If the Fund or the benefitspaid therefrom could be aalled "wagea" the applicantwould have a vested ihtereat and could bring an action. No suchvested interest or right exists under the Plan. In order to receive benefits the applicantmust have received state benefits for that week. This requirementmakes the Plan truly zsupplemental and the benefitspaid therefrom are supplementalunemployment benefits. We, therefore, are of the opinion that neither contributions into the Fund nor benefitspaid therefrom are taxable under the Texas Unemployment Compensation Act. Inasmuch aa neither contributionsinto the Fund nor benefitspaid therefrom are taxableunder the Texas Unemployment Compensation Act your last question Is moot. To the extent that this opinionmay be in conflictwith prior opinions of this office they are expressly overruled.

S.U M'MA,R.Y

Under SupplementalUnemployment Benefit Plans of the Ford Motor Compsny - UAW-CIO type, neitherHon. S. Perry Brown,

FCJG/f'b payments

p8yments

_ _ made into the Fund

made therefrom to unemployed applicants are taxable under the Texas Unemployment Compensation Act.

page 4 (W-247)

Very truly yours, WILL WILSON Attorney General

JACK GOODMAN

APPROVED: OPINION COMMITTEE George P. Blackburn, Chliwan
U. V. Geppert

Howard Mays SamLane REVIEWED FORTHEATTORNEYGFNERAL By: James N. Ludlum