Court Opinion

ID: 4130849
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:09:08.122561+00
Date Added: 2024-06-11T14:32:40.929391
License: Public Domain

January 14, 1987

Eonorable Lloyd Criss                      Opinion No.   34-620
Chairman
Labor and Employment Committee             Re:   Authority of the Texas
Texas Eouse of Representatives             Employment Commission to find
P. 0. Box 2910                             that a corporate reorganization
Austin, Texas   70769                      was invalid for the purpose of
                                           securing a new tax classifica-
                                           tion

Dear Representative Criss:

     You ask us two questions regarding the authority of the Texas
Employment Commission [hereinafter the Commissionl to tax employers
under article 5221b-5, V.T.C.S. You present us with the following
hypothetical example to illustrate your concerns:

            The ABC Corporation, a business fulfilling the
         qualifications for 'employer' as defined in
         section (f) of article 5221b-17, V.T.C.S.. has
         been in existence for a number of years, during
         which it has had a substantial number of
         employees.   Because of the experience rating
         program required by section (c) of article
         5221b-5, the ABC Corporation has been forced to
         pay t.axeson its employees at a rate considerably
         in excess of the 2.7% levied by section (b) on
         'new employers.' The corporation might reorganize
         and change its name to the A-to-Z Corporation or
         the 7X.7,
                 Corporation. [In any event] a new business
         might be created to contract to provide employees
         for the ABC Corporation. In either case the
         employees might be the same as those previously
         working for the ABC Corporation, but either the
         reorganized A-to-Z     Corporation or    the   ZTZ
         Corporation might seek to qualify for the 2.7%
         rate applicable to new employers.

In that regard you ask:

            Does the Texas Employment Commission have the
         authority to find that the reorganization of the
         ABC Corporation or the creation of the ZYZ
         Corporation, to use the hypothetical example cited

                                 p. 2794
lionorableLloyd Criss - Page 2   (m-620)

          above, was a subterfuge to secure a lower tax rate
          and, on the basis of that finding, to require
          the surviving corporation or the new employing
          corporation to continue payment at the rates
          previously imposed on the ABC Corporation?

     The legislature has delegated, with reasonable standards, power
to the Commission to administer the Unemployment Compensation Act
[hereinafter the Act] and to carry out its legislative purpose. See
V.T.C.S. art. 5221b-9, et seq.; see also State, ex rel. v. Texas
Municipal Power Agency, 565 S.W.2d 258 (Tex. Civ. App. - Bouston [lst
Dist.] 1978, no writ). Article 5221b-5, V.T.C.S., provides standards
by which the Conmcissionis to establish the rate of contribution to be
paid by employers as defined in section (f)      of article 5221b-17,
V.T.C.S. The Texas Court of Civil Appeals has held that the statutory
standards for establishinn rates are mandatory and exclusive. and the
Commission is "powerless -to arrive at a different rate.." See Space
Precision Machining Co. v. State, 503 S.W.2d 289. 291 (Tax. s.    App.
- Austin 1973, no writ). This construction is consistent with the
rule that when the legislature acts with respect to a particular
matter, the administrative agency may not so act with respect to the
matter as to nullifv the lenislature's action. even though the matter
is within the ageky’s      g&era1  regulatory- field.   See State v.
Jackson, 376 S.W.2d 341 (Tex. 1964); see also Marti.         v. Texas
Employment Comrmission,570 S.W.2d 28 (Tex. Civ. App. - Corpus Christ1
1978, no writ). We therefore consider your hypothetical example in
the light of these principles.

     If ABC Corporation reorganizes and changes its name to the A to Z
Corporation, there is no authority, expressed or implied, for the
Commission, sua sponte, to determine that the newly formed A to Z
Corporation may be taxed at ABC Corporation's experience rate. The
only authority the Commission has to continue to charge ABC Corpora-
tion's tax rate to A to Z Corporation is under section (c)(7) of
article 5231b-5, V.T.C.S.      Section (c)(7) of article 522113-5,
V.T.C.S., provides in part:

            If an employing unit acquires all or a part
         of the organization. trade or business of an
         employer, such acquiring successor employing unit
         and such predecessor employer may jointly make
         written application to the Commission for that
         compensation experience of      such predecessor
         employer which is attributable to the organisa-
         tion. trade or business or the part thereof
         acquired to be treated as compensation experience
         of such successor employing unit. The Commission
         shall approve such application if . . . .
         (Emphasis added).

                                  p. 2795
Eonorable Lloyd Criss - Page 3   (JM-620)

If ABC Corporation and A to Z Corporation do not apply for a transfer
of experience, the Cormeissiondoes not have the authority to tax A to
Z Corporation at the prior experience rate of ABC Corporation. See
Tiffany Stone & Brick Co. v. State, 588 S.W.2d 607 (Tex. Civ. AppF
Austin 1979, no writ); see also White v. State, 197 S.W.2d 389. 392
(Tex. Civ. App. - Austin 1946, writ ref'd n.r.e.).

     Moreover, ABC Corporation is entitled to be taxed at the initial
rate of 2.7% under section (b) of article 5221b-5, V.T.C.S.. until the
corporation, a new employer under the act, has had at least four
calendar quarters of compensation experience. See Space Precision
Machining Co. v. State, 503 S.W.Zd 289. As indicated in your hypo-
thetical example, "employer" is defined in section (f) of article
5221b-17, V.T;C.S. A-to Z Corporation is made subject to the act
under section (f)(2) of article 5221b-17, V.T.C.S.. which provides:

             (2) Any individual or employing unit which
          acquired the organization, trade. or business, or
          substantially all of the assets thereof, of
          another which at the time of such acquisition was
          an employer subject to this Act. . .~.

Accordingly, we believe that the Commission has no authority to find
that ABC Corporation reorganized and changed its name to A to Z
Corporation to secure a lower tax rate.

     In regard to the second hypothetical example wherein ABC Corpora-
tion remains in existence and XPZ Corporation is organized and
provides employees for ABC Corporation, -we conclude that, for the
reasons previously discussed, the Cormnission does not have the
authority to tax ZTZ Corporation at the rate it taxed ABC Corporation.
A corporation contracting employment services for another corporation
does not succeed to the experience ratio of the corporation receiving
the service unless the two corporations apply for a transfer of
experience under section (c)(7) of article 5221b-5, V.T.C.S.
Moreover, you indicate that XTZ Corporation was a new business and is
therefore a new "employer" under section (b) of article 5221b-5.
V.T.C.S. Accordingly, XTZ Corporation is entitled to be taxed at the
initial rate of contribution of 2.7X. -See V.T.C.S. art. 5221b-5(b).

     We recognize that the Commission has implied authority to inquire
into the validity of a contract for service between an individual and
ABC Corporation. See V.T.C.S. art. 5221b-17(f)(l), and 5221b-17(g)(l);
see also Guinn v.xate,   551 S.W.2d 783 (Tex. Civ. App. - Austin 1977,
writ ref'd n.r.e.1. We conclude, however, that such an analysis is
not relevant to this hypothetical example. ZTZ Corporation was
created as a separate corporation to provide employees for ABC
Corporation. The fact that these employees are the same individuals
is inapposite. We read article 5221b-17(g)(l), V.T.C.S., to limit the
Commission's authority to inquire into a relationship involving an
independent contractor to situations where an individual. as opposed

                                 p. 2796
Eonorable Lloyd Criss - Page 4     (34-620)

to a corporation, is providing the contracted services.         Article
5221b-17(g)(l), V.T.C.S.. provides in part:

         'Employment' means any service, including service
         in interstate commerce, performed for wages or
         under any contract of hire, written or oral,
         express or implied, provided that any services
         performed by an individual for wages shall be
         deemed to be employment subject to this Act unless
         and until it is shown to the satisfaction of the
         Commission that such individual has been and will
         continue to be free from control or direction over
         the performance of such services both under his
         contract of service and in fact. . . . (Emphasis
         added).

Therefore, the Cormaissionis without authority under section (g)(l) of
article 5221b-17, V.T.C.S., to find that the creation of KTZ Corpora-
tion was a subterfuge to secure a lower tax rate.

            The Texas Employment Commission does not have
         the expressed nor implied authority under article
         5221b-5, V.T.C.S., to find that a reorganized
         corporation or a new corporation created to
         provide an employment service for another corpora-
         tion were organized as a subterfuge to secure a
         lower tax rate. The Texas Employment CornmissIon
         is only authorized to tax a newly formed corpora-
         tion under section (b) of article 5221b-5,
         V.T.C.S., unless a successor corporation and the
         predecessor corporation apply for a transfer of
         experience rate under section (c)(7) of article
         5221b-5, V.T.C.S. There is no implied authority
         under   section   (g)(l) of    article   5221b-17,
         V.T.C.S., for the Texas Employment Commission to
         tax a newly formed corporation providing an
         employment service, at the rate the Commission
         previously charged to the corporation receiving
         the service.

                                     J
                                        Very truly yours

                                        JIM+T
                                        Attorney General of Texas

JACK HIGFITCWEK
First Assistant Attorney General

                                   p. 2797
.

    Bonorable Lloyd Criss - Page 5   (J&620)

    MARY KELLER
    Executive Assistant Attorney General

    RICK GILPIN
    Chairman, Opinion Committee

    Prepared by Tony Guillory
    Assistant Attorney General

                                  p. 2798