FEBRUARY 7, 2005 – The state of Michigan has recouped $2.4 million in unpaid unemployment insurance (UI) taxes in its first announced major SUTA dumping case.

The case involved eight separate businesses that transferred all of their employees under a single organization as part of a corporate restructuring.

“After the company notified the Unemployment Insurance Agency (UIA) of the restructuring, we responded that the reorganization violated the state’s UI law,” David Plawecki, a deputy director with Michigan’s Department of Labor & Economic Growth, said. “The eight companies had moved their payrolls to one organization, and to receive a lower UI tax rate. The reorganization was done without transferring assets between the companies.”

The company’s move is a form of SUTA (state unemployment tax act) dumping, which is a tax evasion scheme where a business manipulates its UI tax rate to achieve a lower rate and pay less tax.

In a cooperative final understanding between Aramark Services Management of Michigan, Inc. and UIA, the firm agreed to a $2.4 million payment to cover the unpaid back unemployment taxes, while UIA agreed to waive all interest and penalty charges.

“The settlement not only resulted in the repayment of past unpaid taxes, it also prevented future tax losses with a total impact on the state’s UI trust fund as high as $5 million by 2007,” Plawecki said.

Governor Granholm named SUTA dumping as one of the state’s top legislative priorities for 2005. Plawecki said the administration is currently working with the state legislature on amendments to the state UI law that will eliminate SUTA dumping.

“We estimate that SUTA dumping costs the state between $62 and $95 million a year in UI taxes,” Plawecki said, “and it unfairly shifts a greater tax burden on the backs of all employers in the state.”