What happens when an Inc. 500 company in Idaho files its unemployment insurance tax one day late?
According to the company in question, it receives a letter threatening civil penalty from the Idaho Department of Labor (IDOL) saying, “because of this history of your delinquency, your account is in jeopardy of having a civil penalty imposed …” Additionally, the business is required to pay a late fee of $280 (4 percent of the tax due).
The business, DJM Sales and Marketing Inc. of Boise, has been in operation for 15 years. According to its owner, Deborah Marlor, it has been delayed only twice in remitting its unemployment insurance. Marlor says the approach of IDOL is “unconscionable” and says it should “focus their efforts in supporting successful businesses rather than threatening civil penalty.” DJM Sales and Marketing provides services for businesses to attract new customers and works to partner businesses together for effective sales and marketing ventures.
The labor department’s communication manager, Bob Fick, says “at least 3,200 businesses a year have been slapped with a civil penalty” and as many as 10-20 percent more have failed to file their unemployment tax.
According to an IDOL labor tax representative, Karen Rogers, the “department operates under Idaho Code [72-1354] with the rigid timelines and stiff penalties to force companies into paying the tax so unemployment benefits can be paid.”
Fick says the “delinquency rate declined as the recession took hold, likely the result of marginal businesses with marginal practices closing.” The delinquency rate has fallen from 9.9 percent in 2009 to 8.7 percent in 2011, according to the department.
This increase in the collection rate of the tax, according to Fick, is partly because “recovery rates have increased even as the percentage of delinquencies declined in part due to additional manpower the governor and Legislature authorized to go after fraud and evasion.”
The IDOL website says it assesses a penalty of 4 percent of the tax due as well as a 25 percent late fee for the first offense, 50 percent for second and 100 percent for the third and subsequent offenses. The website continues, “repeated late filings is an indication of willfulness but it is not the only factor used.”
In 2005 the Idaho Legislature increased the late penalty from 2 to 4 percent. Data received from IDOL through a public records request shows that penalties statewide have nearly doubled from 2005 ($667,000) to 2012 ($1,290,000).
The state policy is not without its critics, one of whom is Wayne Hoffman, executive director of the Idaho Freedom Foundation. “Idaho has one the most extensive unemployment insurance taxes in the country. The tax dis-incentivizes new businesses from locating here and the punitive way which the department treats businesses in the state is a further disincentive for new and continued expansion. What Idaho should do is find ways to encourage growth and not find ways to punish businesses that are producing,” according to Wayne Hoffman, executive director of the Idaho Freedom Foundation.
But why the rigid approach to businesses that historically pay their tax? Marlor questions the motive and sensibility of it. She says there are hundreds of businesses avoiding paying their taxes. And she is correct.
According to IDOL, there are 715 companies with fines and penalties unpaid for 180 days or more and the department currently has over 4,400 liens on businesses.
Marlor says that the “department needs to refocus its approach and promote Idaho as a business friendly state where owners are welcomed and encouraged to expand.” In spite of the down economy, she says she has grown her company by 30 percent during the last 10 years and is trying to grow more. However, she says the more she is taxed and the more regulations the state places on business owners, her efforts to grow are curtailed.
Note: IdahoReporter.com is published by the Idaho Freedom Foundation.