Case Information

*1 OFFICE OF THE Al-l-ORNEY GENERAL OF TEXAS AUSl’tN

jionorable Claude A. Williams

chaIrman and Executive Director

Texas TJnemployment Compeneatlon Commission

Austin, Texas

We have your requeat

aga;i;lied to’ Article 5221b,

recited with the Sacta to be So

and he act

e88 for aore than a in business Fndivlduallg insss to the oorporatlon, Individual bualness vae in vhlch Walker was orl- nor was It the same kind oratlon was engaged.

a never terminated hie coverage the terma of section 8 (c)~un.leae the low amounts to such application far r is nov operating his individual e controlling Interest in the corpo- oh la likevise operating. All proce- ore the Conmlaslon have been properly taken.

‘Query; Who is entitled to the employment exper- ience establlehed by Walker MlvldualLy prFor to the acqulsltlon of his business bg the corporation? ff the corporation is antitLed to the experience, vhat tax rate Is applicable to Walker lndivlduallJo I

Honorable Claude A. Williams, Page 2

"on tune 1938, this Commlssicn received the letter s copy of vhlch is attached as Erhlblt B. ms InformatIon Is Included for reason that the taxpayer feels that the letter amounts to an ap llca- tion for termination of covera e under Section (a) 8 of the Act, Article 5221b-6 (c , Vernon’s. If it Is k your opinion that the letter in Itself oatually does

amount to an application for termInatIon of coverage, we still request your cpInIcn on the main queatlon asked. In this connection a letter dated January 22, 1942, from Hr. Rice M. Tllley, attorney for the em- ployers, is attached 88 Exhibit C." Article 5221b, Section 5 (c) (g), Vernon's Revlsed Civil Statutes, reads:

“For the purposes of this section, two or more employing units vhloh are parties to or the subjeat of 8 merger, consolidation, or other form of reorganlea- tlon effecting a change in legal identity or form, shall be deemed to be a single 6mployIng unit if the CcmmIa- slon finds that (I) Immediately after such change the employing enterprises of the predecessor employing unit or uqlts are continued solely thro h a single employ- ing unit as successor thereto; and Y II) immediately after such change such successor Is owned or controlled by subatfintlally the uame lntemsta au the predecessor employing unit or units; and .(XIT) the succemror hao assumed liability all contributions required of the predecessor employing unit or units; snd (iv) the oon- sideration of such tvc or more employing units as a single employing unit for the purposes of this section vould not be inequitable.

"Ho rate of less thar,tvo and seven tenths (2-T/10$) per centum will be permitted an employ&g unit succeeding to the experience of another employing unit pursuant to this section for any period subsequent to such sucoeaslcn execpt In accordanoe vlth regulations prescribed by the CommlnsLon, vhich regulations vi11 be oonslstent vlth~ Federal requirements for additional credit allowance in Section of the Internal Revenue Code, and consistent vlth the provisions of this Act, except that such regula- tions may establish a computation date for any such period different from the computation date generally prescribed by this Act, and may define the words 'calendar year' as *3 gonoBable Claude A. Wllllss~s, Page 3

a~~anlng a twelve (12) oonaeeutlve month period end- ing on the same day of the year as that onwhIch such ccmputatlcn date occurs."

At the tire of the inccryoratlcn of Walkers business ~&ion (c) (9) vas not a part of Artlclo 5221-b, It having been enacted by the Forty-seventh Legislature In 1941. There- SON, the CommIasion had nc regulation on the transfer of em- ployment records in 1938. We are lnfomedthat ycuncwhave a rsgulaticn provldlng for a valver of the employment reaord by an employer transferring his business to another.

We are unvllllng to say that Walkerr letter of Juno 1938, Is a literal compliance vlth Seatlcn 6c providing for a termInatIon of his oovenge. But, the Information supplied mfleatrt that Walker has since waived his right to the employ- wt. reoord made ae an lndloldual prior to July 1, 1938. We rntertain no doubt that he vould have valved that record In July, 1938, if the Commlmslon had provided for suoh an act at that time. This aoncluslcn la based upon the letter to the ComaIssIon of June 28. 1938; the fact that there vas no oessatlon of the busl- nesr; there vats no loss of tfme by any employee! the same busl- aess Inerery detail vas oontlnued eave the change In logal lden- tity.

The employer aeked if the oorpcratlon would retain the same Identiflcatlon number Indicating that he considered the change only one of legal identity. We are also lnf+crmed that the corporation aseumed and pnld the unemployment taxes June of 1938 after they became due on Augnet 1, 1938.

The facts recited In your letter and the attached ex- hibits shcw that after the change in the legal ldentlty of the businese In question from that of an Indlvldual to a corporation lndlvldual originslly ownfng the basinese owned approxMtely gh$ of the stock of the newly cnated corporation. That same ln- dividual that operated the original business wae the managIng officer and In control of the business of the ocrporaticn. The buslnese carried on b7 the corporation was at the aame~ addrear, used the same personnel, engaged ln the same type of business, the only change being In ths legal identity of the business be- tween the clcme of buslnesa on June 30, 1938, and the opening on July 1, 1938.

gonorable Claude A. Willlaw, page 4

AA examlnatlon of Se&Ian 5 (c) (9), suprs, dlsalosea that this fact sltuatlon falls within the requirement of the four provlsl~s outlined in thin Section. Ue can 1100 no robeon for denying the corporation the benefit of the emplOJment record of tb Individual. There can be no oontention that It would bs in- equitable, for the aucce88or is the same busi~esa with the same per~~~el but a different legal entity. The beneflta acorui~g to the employeea of the lndlvldual vould be preserved to them after the change IA the 1egciLldentlty of the buelnera.

lit have no decfelona on this statute by the oOurto of Texas and YB are unsblt to find a deoislon from any of the other #tata courta upon thin subject; therefore, ve are required to COA- rider the 8tetutt and give it the construotlon iAt9nded by the Legislature. We believe that it vaa clearly the intention of the Lsglslature that an lndlvldual changing the legal Identity of hla bualnese, but continuing the operation of the name Qpe of burl- me@ with the BBPLB personnel snd with the mm bustiem poliolea, rhould be entitled to the elt@lOpeAt record created by the Ml- vldual if the provialons of Seotlon [a) (9) are hot violated.

We have found l.A the ~AtBQlO~At Compen8atioA IAter- pretatlon Service - Reneflt Series - Volume lo. 1, at page 131, a quotation frOi!I a rulimg by the Soolal SeaurltJ Board lpsde OA December 22, 1939, adopting the followlAg oanatructlon of Se&Ion 1609 Of the Federal UaemploymeAt fu Act with re8peat to transfers of aooounts for expsrlsnce for purposes of computing v8rlabloAe in oontrl.b?ltion ratea.

"Reduoed rates ba8ed upan tranrforr of scoountn or experience do ooniorm vlth Federal rtandarda, If aoniined to canes in vhioh an entire employs enter- prlse and all Its inO1deAts for all purpoaee o? the lYAmuployment Compeneatlon Law are tramferred to a aingle legal pertson, who may or map- not be a ctovered employing eAterpriae whose aaooupt or experience Is combined, after the tmmafer, with that of the tmne- ftrop.'

In our oplnlon the corporation created by the individual, Walker, would be entitled to the elgployment experlenoe eetabllahod by Walker doing business lAdlvldusl~~.

You have then asked vhat tax rate la applloable to Walker, indlvldually, after having remmed or opening a now buslnaas 8onm tvo years after the iaoorporation of the ortgglnal bueineara. *5 Honorable Claude A. William, peg8 5

Artiole 5221b, Section 6 (d), r8adal 'Any employing unit which ia or becomes an em- ployer subject to thla Aot, and which under the provl- sions of this sub$eotlon ceases to be an employer sub- ject to this Aot nnd subriequent to such tlnm again becomes sn employer subject to this Act by rteaon of any of the provialona hereof, shall upon agoln beoom- lng an employer subject to this dot be oonsidared a nev employer vlthout regard to any rights acquired by It durlngnth8 time that it had theretofore been an employer.

Article 522lb, Section 5 (0) (7) raads~ "Eaoh employer'8 rate shall be tvo and atven- tenths (2-7/l*) per oentum exoeyt aa otherwire provld- 8d iA this 88CtiOA. go yloyr s rate shall be leas than two and s#ven-tenths (2-7 10% per oentum for any year, unless and until hid aooount has bem ohargeeble vlth b8neflt.s throughout the thirty-six (36) consecutive oal- 8nQar montha lmmedlattly preosdlng the begfnnlng of the calendar year which rates are deten@ntd."

Since Wlllker was not operating individually iOr mom than two year8, v8 oannot b8llevo that It vaa intended that the neord bs held for the indlvldual for an lnU8flnlt8 perfod of time. Walker might have valted floe pars to b8gln th8 mm bual- nrcrs. Would It not be more lnequltabl8 to refuse the tranaf8r of the tmploymunt record beoaucie 80~ day Walker might Op8rbtt bgbin Individually. This vould, ln our opinion, defeat pur- p0rm of the atatute. We, thmefore, believe that when Walker rseumed business In 1940 in another and different type of burl- ~088 that the ~~SS~OA should allow him the tax rate of 2.7$ an provided in Section 5 (c) (7).

Yours very truly ATTORNRY GESERAL OF TEXAS