State Awarded $35K Grant to Reduce Tax Evasion
Federal Crackdown on Evasive Employers Expected
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July 30, 2004

CRANSTON – The US Department of Labor’s Employment and Training Administration has announced Rhode Island is one of seven states nationally to participate in the pilot program “State Unemployment Tax Act (SUTA) Dumping Detection System.” Rhode Island will be awarded a $35,417 grant to cover expenses including hardware, software, programming, and installation.

SUTA dumping is a practice some employers use to evade Unemployment Insurance (UI) taxes. It occurs when an employer moves a large number of employees from an account of a company with a high UI tax rate to a related company with a lower UI tax rate. Alternately, some employers launch a business by purchasing an existing company with a low UI tax rate, then subsequently discontinue the purchased business enterprise, thus evading the higher initial tax rate for new employers. Such schemes can have a substantial and negative impact on the state UI Trust fund. When some employers fail to pay their fair share of UI taxes, the cost is passed on to all employers through higher taxes.

The Rhode Island Department Labor and Training (DLT) applied for the $35K SUTA grant in anticipation of Federal legislation that will make it mandatory for states to enact laws against SUTA dumping and to implement a detection program to identify employers who are attempting to manipulate their UI tax rate. The legislation has already passed both the House and Senate and is expected to be signed into law by President Bush.

Once operational, the pilot SUTA Dumping Detection System will be able to detect SUTA dumping schemes. The automated program will extract data from the tax files, produce a prioritized list of employers, estimate the potential loss of UI revenue, and create a report for further investigation.

DLT plans to install the hardware and software by mid-September 2004 and to launch the pilot program on October 1, 2004. The UI Tax office will continually assess information generated by the program and take appropriate action when warranted. DLT estimates that this system will save the UI Trust Fund as much as $1,000,000 annually.

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