Untitled Texas Attorney General Opinion ( 1957 )

dohi 9. Perry Btioivn Opinion No. i#-247 dhalrmah Tetas Emplo$ment Collimission Re: Taxability under the Texas Brown ailding Unemployment Compensation Austin, Texas Act of payment6 Into or from Supplemental Uhem- ployment Benefit Plan punds @the Ford kotor company - Dear Mr. Drowhi UAW-CIb type. This is in reply to your requeet for an opinion a8 to the taxability under the Texas Unemployment Compenda- tion Act of pafmentd made into &id out of Supplemehtal Uhemployment Benefit Plah Funde of the Ford Motor Company - UAW-CT0 typei You aaked the foilowing questlond: the z;tpz;n;; p;;$$& inFmde to unemployed workers taxable under the Texag Unemployment Compensation Act? If either type of paymant ia taxable, against whom is it taxable?" Briefly;~this type of Supplemental Unemployment Bene- fit Planprovide@ forthe edtablishmentby the employer of a Trust Pund b cohtributions made Solely by the employer, After payment fnto thb Fund, the employer his ho right, title or ihterest in the aaseta. The Fund 1~ administered by in- dependent trucrtees; There is a maximum funding amount which when reached stops payments into the Pounduntil such time as the amount remaining becomes leslsthan the maximum finding &mount. The Plan further provides that no employee has any Hght in aiiy slbsetd of the Fund unless and until the em- ployee,ie qualified and eligible. Among the ellgi,bllity conditions ia the requirement that the employee must have received state unemployment benefits for the week for which application ia made for supplemental benefits. The Plan alrsoprovides that: "Neither the Company's contributions nor any benefit paid under the Plan shall Hon. S. Perry Brown, page 2 (W-247) be considered a part of any employees wages for any purpose.” Our Texas Unemployment Compensation Act provides that employers who come witNn its scope must make contri- butions to a Commission In amounts determined by the amount of "wages" paid by the employers to their employees. These contributions are placed in a fund and can only be used for the purposes for which such fund was created. The Act defines "wages" as "all remuneration for personal servieas, including commissions and bonuses and the cash value of all remuneration in any medium other than cash." (Art. 522113-17,V.C.S.). There ha8 been no court decision on the taxability, under the Texas Unemployment Compensation Act, of payments into or from Supplemental Unemployment Compensation Plan Funds, nor have the courts of any other state,passed on the taxability of such Funds under their respective state unemployment compensation statute. However, the questions have been passed upon administratively by many of the states. Of twenty-one states that have adminis- tratively ruled on the taxability of payments into such Funds, twenty have ruled that such payments are not taxable. Of fifteen states that have administratively ruled on the taxability of payments from such Funds, four- teen have ruled that such payments are not taxable. The Bureau of Internal Revenue ruled (Rev. Rul. 56- 249, IR - 156) that payments Into and out of such Funds are not taxable under the Federal Unemployment Tax Act. In arriving at such conclusion the Bureau used the follow- ing language: ,t .it is concluded that the benefits pkLi;l to former employees of M Company under the terms of the Supplemental Un- employment Benefit Plan do not constitute 'wages' for purposes of the Federal Unem- ployment Tax Act. It is also concluded that the benefits paid to former employees of M Company under the terms of the Supple- mental Unemployment Benefit Plan do not constitute 'wages' for purposes of the Federal Insurance Contributions Act and the Collection of Income Taxes at Source on Wages." Hon. 5. Perry Brown, page 3 (WJf-247) Generally, 8 right to remuneration aaaruea upon the rendition of serviaes by virtue of the contract of hire, so that the provision that the employee has no rights in the Fund indicates that whatever is paid the employee out of the Fund is not intended as remuneration for sellrlcea. The employee may work a lifetime and there- upon retire or die and receive no payments. This Is an im- ortant distinction from the concept of "remuneration" or Rwages" which would be,payable In any event. Moreover, the reaeipt of benefits by an employee is not dependent on whether contribution8 to the Fund have been made by the employer with respect to the hours worked' by the employee. An employee may receive benefits although no contributions were made during his entire employment with that employer due to the Fund having reached and maintained the presaribed maximum level. Conversely, If there ,isan insufficient amount in the Fund, the applicant would receive no benefits. If the Fund or the benefits paid therefrom could be aalled "wagea" the applicant would have a vested ihtereat and could bring an action. No such vested interest or right exists under the Plan. In order to receive benefits the applicant must have received state benefits for that week. This requirement makes the Plan truly zsupplementaland the benefits paid therefrom are supplemental unemployment benefits. We, therefore, are of the opinion that neither contri- butions into the Fund nor benefits paid therefrom are taxable under the Texas Unemployment Compensation Act. Inasmuch aa neither contributions into the Fund nor benefits paid therefrom are taxable under the Texas Unem- ployment Compensation Act your last question Is moot. To the extent that this opinion may be in conflict with prior opinions of this office they are expressly overruled. S.U M'MA,R.Y Under Supplemental Unemployment Benefit Plans of the Ford Motor Compsny - UAW-CIO type, neither Hon. S. Perry Brown, page 4 (W-247) payments made into the Fund p8yments _ _ made therefrom to unem- ployed applicants are taxable under the Texas Unemployment Com- pensation Act. Very truly yours, WILL WILSON Attorney General JACK GOODMAN FCJG/f'b APPROVED: OPINION COMMITTEE George P. Blackburn, Chliwan U. V. Geppert Howard Mays SamLane REVIEWED FORTHEATTORNEYGFNERAL By: James N. Ludlum