Employers across state face payroll tax increase

By Sun Advocate

In 1985, the Utah Legislature adopted a self-adjusting formula to determine payroll tax rates for employers operating at locations across the state.
The formula is specifically designed to ensure that the state maintains a healthy unemployment insurance trust fund capable of withstanding a severe recession, explained the Utah Department of Workforce Services.
By maintaining a healthy trust fund, the state can avoid borrowing money to cover the costs associated with unemployment insurance benefits, added the department of workforce services.
Borrowing revenue to pay for the benefits would result in tax increases or surcharges to repay the money with interest and replenish the unemployment insurance trust fund.
The continuing downturn in Utah’s economy has created a significant drain on the state’s unemployment insurance trust fund, pointed out the department of workforce services.
Utah paid out $308 million in regular and extended unemployment insurance benefits to displaced workers during the fiscal year ending June 30, 2003.
In addition, the recession created a significant reduction in jobs statewide, noted the department of workforce services.
The loss of employment opportunities resulted in a reduction of payroll and revenue generated by the related taxes decreased.
The factors contributed to a $188 million reduction in the state’s unemployment insurance trust fund balance between July 1, 2001 and June 30, 2003.
When the balance drops in the trust fund, the statutory formula adjusts payroll tax rates upward in order to replenish the revenues.
Utah law requires the department of workforce services to calculate the statewide payroll tax rate schedule based on the legislatively established formula.
The formula is designed to maintain an adequate balance in the trust fund to cover the provision of 17 to 19 months of unemployment benefits during a severe economic downturn.
The latest calculation indicated that the 2004 payroll tax rate for the majority of employers operating companies at locations across the state must be increased, noted the department of workforce services. Therefore, the minimum 2004 unemployment tax rate for companies in Utah will increase from .001 percent to .004 percent.
Historically, there were numerous years in the 1980s and 1990s where Utah employers had higher rates, pointed out the department of workforce services.
Stabilizing Utah’s unemployment trust fund represents a relatively simple procedure compared to the employer payroll dilemma currently faced by several states.
According to data compiled by the department of workforce services, the unemployment insurance trust funds in Texas, Massachusetts, California, New York, Missouri, Illinois, North Carolina and Minnesota are at or near insolvency.
To remedy the situation, Massachusetts will raise employer payroll taxes 75 percent in 2004, while cutting benefits for jobless residents in the state by one-third.
Texas will borrow more than $1 billion to stabilize the state’s trust fund. Employers in Texas will have to repay the money plus interest.
California will increase employer payroll taxes by more than $2.5 billion within the next three years to replenish the state’s trust fund.
Utah has avoided the necessity of borrowing money to fund the state’s unemployment insurance system, noted the department of workforce services.
Under the statutory mandated formula, tax rates will automatically be adjusted downward when Utah’s economy and the health of the trust fund improve.
Utah’s unemployment insurance system works and represents a fiscally prudent way to manage the trust fund, concluded the department of workforce services.