“Mergers and Acquisitions”
Things You Should Know to Save Tax Dollars

A couple of weeks ago, I was assisting a new client in the purchase of a company and the setup of their state unemployment tax accounts. In three states, the predecessor company had multiple State Unemployment Tax Act (SUTA) accounts. This not only created a logistics issue for their staff, but prevented them from taking full advantage of the merit rating system.

If you are doing a good job managing your unemployment insurance (UI) claims, there can be a definite advantage in combining your rates. As we worked through the process, our client was pleasantly surprised by the immediate tax savings that we obtained through consolidation of the multiple accounts. The savings that we achieved through properly establishing their UI accounts was twelve times our annual service fee. Talk about getting off to a good start with a client!

Many employers don’t understand or appreciate the value of ensuring that they have properly set up their SUTA accounts. Some employers have a habit of simply filing their registration without truly investigating the ramifications of their actions. Many just delegate it to their payroll provider who does not have a complete understanding of UI law.

When it comes to acquisitions, this lack of understanding will adversely impact their future UI rates To an outsider, the options can be a maze of UI jargon, making it hard to determine the best options.

Here are some things that you should be asking when acquiring or merging with another organization:

• When purchasing a company, inquire about their standing with the state. Do they have an outstanding tax balance? What is their current rate? What is the balance of their reserve account? These questions a VERY important because when you acquire a company, the default approach by the state is that you also acquire their UI experience. This includes any liens or liabilities that the predecessor company may owe.
• Understand the state laws in the state you are making the acquisition. Each state has a different process in place and their laws can vary considerably. When we help a client with a merger or acquisition, our first step is always to call the liability unit of the state and confirm what options are available. There is often more than one option available than accepting the predecessor’s experience and rate. This phone call saves time and often leads immense tax savings as it did with our client.
• After you get clarification on your options, evaluate the financial impact. The options can vary from a total transfer to opening a new account. There might be times where taking advantage of the new employer rate will be financially more sensible. In some states, you can pick and choose which accounts you wish to acquire. In the end, you want to structure the account so that you can achieve both short-term and long-term savings.
• If you are a company with multiple SUTA accounts in the same state, consider consolidation. Combining your accounts has many advantages, both logistically and financially. The combined experience of several accounts could have a huge hidden savings just waiting to be discovered.
• Talk to someone with knowledge of the UI tax system. Time and again, I have been told by a new client they were informed that their current SUTA structure was the only option available. At least 75% of the time we dispel this with a phone call to the state. You never get UI tax dollars back, so why pay more than you have to?

Unemployment Insurance Services can provide assistance in analyzing the effects of mergers and acquisitions on an employer’s unemployment tax account. Contact us today.