JKM S.B. 643 75(R)BILL ANALYSIS ECONOMIC DEVELOPMENT S.B. 643 By: Galloway (Seaman) 5-19-97 Committee Report (Amended) BACKGROUND Currently, the Labor Code requires that in the event of an acquisition, an experience-rated successor employer must pay unemployment insurance contributions at the employer's assigned tax rate for a certain period of time. If the employer is not an experience-rated successor employer, the Labor Code requires the employer to pay contributions at the highest rate applicable to an acquired employer for a certain time period. This method often causes employers to pay either too much or too little in unemployment insurance taxes. This bill provides that in the event of acquisition, the successor employer would pay a tax rate based on the combined experience of all parties to the succession if one or more employer is experience rated on the date of acquisition. Additionally, this bill provides that if the employing units are not experience rated, the successor will pay taxes at the entry-level rate until the successor is eligible for an experience rate computation. PURPOSE The purpose of this bill would allow in the event of business acquisition, a successor employer to pay a tax rate based on the combined experience of all parties to the succession if one or more employer is experience rated on the date of acquisition. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS Section 1. Amends Section 204.085, Labor Code, as follows: Sec. 204.085. CONTRIBUTION RATE FOR SUCCESSOR EMPLOYER. (a) Requires contributions from the effective date of the acquisition as provided by Section 204.082 until the end of the calendar year in which the acquisition occurred at a rate computed by a certain calculation, if on the date of an acquisition, at least one of the employing units that is a party to the acquisition is an experience-rated employer. (b) Requires a successor employing unit to pay contributions at a certain rate if there is an acquisition at a certain time until the successor employing unit is eligible for an experience rate under Section 204.041, if on the date of an acquisition, no employing unit that is a party to the acquisition is an experience-rated employer. Sets forth the rate calculation. Section 2. Effective date is September 1, 1997. Application of the act is prospective. Section 3. Emergency Clause. EXPLANATION OF AMENDMENTS AMENDMENT #1. (1) In Section 204.085 (a), Labor Code, as amended by SECTION 1 of the bill, inserts "applicable" before "compensation experience". (2) In Section 204.085 (b), Labor Code, as amended by SECTION 1 of the bill, inserts "applicable" before "compensation experience".