Southeast Texas Record

Sunday, April 5, 2020

Appeals court rules against payroll company that sought unemployment tax refund

State Court

By Charmaine Little | Aug 5, 2019

Justice Ken Wise

HOUSTON -- Justice Meagan Hassan of the 14th Court of Appeals affirmed July 30 a lower court’s ruling to deny an unemployment tax refund.

Justices Ken Wise and Kevin Jewell concurred in the opinion. 

Appellants G&A Outsourcing Inc., G&A Outsourcing II LLC. and G&A Outsourcing III LLC had challenged a ruling from a lower court that agreed with the Texas Workforce Commission’s decision to deny their request for an unemployment tax refund. The TWC shut down the request when it refused to green-light their application for a partial transfer of compensation experience via Labor Code regulations and the appeals court affirmed.

The court noted the appellants’ understanding of Sections 204.085 and 204.08851 of the Texas Labor Code does not align properly. Based on the appellants’ understanding, a successor employer could earn the reduced “new employer” tax rate by simply stating that the transfer was completed with the hopes of getting a lower contribution rate. But the appeals court said, “By evidencing this intent, an employee would be able to bypass the tax rate formulas in sections 204.085(a) and 204.051, rendering these provisions useless … We decline to adopt an interpretation that would work against TUCA’s aims with respect to the transfer of compensation experience among employers.”

The appellants also say the lower court should have let them submit TWC’s decision as evidence. The phrase they wanted as evidence is, “We believe that this is the essence of manipulating the experience system by minimizing the impact of chargebacks to the predecessor’s or successor’s tax account. We so hold,” according to the opinion.

Considering that the court did not accept the appellants’ understanding of Section 204.085(d) as it relates to their claim considering “their transfers were ‘accomplished solely or primarily for the purpose of obtaining a lower contribution rate,’” based on the appeals court as it affirmed the lower court’s decision to exclude TWC’s written decision.

As for the appellants’ motion to compel the decision of the TWC representative, the appeals court denied this as well, noting it has already rejected the appellants’ interpretation of the aforementioned sections. Plus, the appellants not being able to depose a TWC representative did not lead to any improper rulings against the appellant, and it certainly did not result in the appellants ability to appeal their case.

The appellants are commonly owned professional employment organizations (PEOs), which are hired by employers to offer payroll administration. PEOs have the responsibility of distributing payroll checks to companies’ employees and pay unemployment taxes owed on the employers’ payroll.

G&A offered PEO services to roughly 187 employers. It transferred 79 of them to G&A II and 55 of them to G&A III in December 2010. 

The following August, the appellants then attempted to partially transfer G&A’s compensation experience to G&A II and G&A III through applications filed under Section 204.085. 

TWC noted there was incorrect information on the data, and while appellants filed updated versions, TWC denied the applications because they filed incorrect information. The appellants proceeded to pay the taxes due in light of TWC’s denial and then asked for a refund for the overpayment, which TWC also denied, pointing to its decision to deny the application. 

The appellants then sued in and filed a motion to compel the deposition of a TWC representative. The lower court denied that motion to compel and the appellants appealed in the Third Court of Appeals. But their case was moved to the current court under a Texas Supreme Court transfer order.

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State of Texas 14th Court of Appeals