It’s Crucial to Provide Merger & Acquisition Notification to the State
When corporations go through any important transition, information sharing with the State is essential, especially during a merger or acquisition (M&A process). When a company purchases another company, and merges the new employees onto its payroll without advising the state, it could pose a huge problem with their Unemployment Insurance (UI) tax rate.
In New York State, like many states, it’s a requirement to provide proper notification of an acquisition. In fact, the notification must occur within 30 days after the quarter in which the acquisition occurred. During the M&A process, the UI tax rate of the company being acquired will have a significant impact on the purchasing company. For example, if Company A had a very good UI tax rate (3.4%) and Company B had a high tax rate (8.9%), then Company A will pay more in taxes. Some states have different rules, giving discretion to the acquiring business. It is very important to know the specific laws in the State where the acquisition occurs.
When a company does not inform or notify the State of an M&A process, it can have severe consequences. In one scenario, a company acquired another company, but neglected to provide notification to the State. After two years, the State found out about the purchase and retroactively raised their UI rate to 9.9% and demanded $650,000 in back taxes because they claimed this company should have been paying the higher rate all along. To avoid this from happening, Company A could have simply written the State a check for $34,000 to lower their tax rate.
In an M&A process, it matters not if the company buys another company entirely or just acquires its assets. What matters is whether or not the employees are transferred from one entity to another. A company can be wholly or partially transferred to another company and then become under the law a “successor in interest” or it is said that a “transfer of experience” has occurred.
Each State has its own formula for calculating UI rates, so depending on the State where the merger occurs, you will need to do a different calculation to determine the affect of the merger. Typically, the only data the State uses is as of December 31 of the prior year.
Even with lawyers and accountants advising during an M&A process, the UI implications should not be overlooked. It’s always wise for companies to not only consult with their accountants and lawyers prior to acquiring another company, but also with UI experts. We’re equipped to answer UI related questions and support companies going through a merger or acquisition process. Contact us today to learn more about our services.