TO:	Honorable John Davis, Chair, House Committee on Economic & Small Business Development
FROM:	Ursula Parks, Director, Legislative Budget Board
IN RE:	HB1212 by Canales (Relating to the tax rate for contributions under the Texas Unemployment Compensation Act applicable to wages paid to certain honorably discharged veterans; changing the rate of a tax.), As Introduced

The U.S. Department of Labor (DOL) has issued an informal opinion stating the bill is non-conforming to Federal law.  In the DOL’s opinion, the bill violates Section 3303(a)(1) of the Federal Unemployment Tax Act (FUTA), because the discount that the bill establishes is not based on the employer’s experience with respect to unemployment or other factors that bear a direct relation to employment risk. If the bill is enacted with the conformity issue, Texas contributing employers could lose the 5.4 percent FUTA offset credit and therefore be liable for the entire 6.0 percent tax of the first $7,000 of an employee’s wages, instead of the 0.6 percent they currently pay.  The loss of the FUTA offset would substantially increase the overall state tax burden on individuals and businesses in the state.  The Texas Workforce Commission estimates this loss would result in annual increases of $4 to 5 billion of unemployment tax liability for contributing employers in Texas. The unemployment tax assessment is not explicitly modeled in the LBB tax incidence model; therefore the effects on the distribution of the state tax burden amongst industries and between businesses and individuals cannot be determined at this time.