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Vt. employers face new federal tax after state fails to pay bill - WCAX.COM Local Vermont News, Weather and Sports-

Vt. employers face new federal tax after state fails to pay bill

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MONTPELIER, Vt. -

At Myers Containers they deal in trash, recycling and the bottom line.

"This business is growing," said Joe Sinagra of Myers.

The family owned business best known for its red cans has 45 employees.

"Every dollar counts," Sinagra said. "We are working on small margins."

Those margins are getting smaller. All employers will soon be paying more to do business in Vermont.

Let's rewind. During the economic downturn almost three years ago, the fund that pays the unemployed went bankrupt-- too many people collecting; not enough money coming in. So state leaders made a deal, cutting some worker benefits and increasing taxes employers paid into the fund. The state also borrowed almost $78 million from the federal government with one condition-- the money had to be paid back in two years. Gov. Peter Shumlin was the Senate leader who helped negotiate the deal.

"There is going to be some pain for everybody; not everybody is going to like the solution," Shumlin said in May 2010.

And now that state debt is past due. The federal government is hitting employers with a penalty: $21 an employee. The state estimates there are 304,000 workers, so the tax adds up to about $6.4 million.

We wanted to talk to Shumlin, but were told he was unavailable because he was traveling for the inauguration.

Reporter Kristin Carlson: Do you think employers should be surprised about this tax coming?

Vt. Labor Commissioner Annie Noonan: No, we've been telling employers about it. I think some forgot about it.

Noonan says the state considered options to pay back the feds on time, sparing employers the $21 tax penalty, but decided against it. The state did not want to bond because of unknown costs with Tropical Storm Irene and officials also ruled out state money because they were worried about a budget deficit.

Noonan says the unemployment fund is back in the black and the state has taken $20 million out to repay part of the federal loan. The state is set to make another $20 million payment soon. The goal-- pay back the final $38 million this year or next.

Kristin Carlson: Is now a good time for employers to be having to pay this tax?

Annie Noonan: I don't think it's a very a good time for employers to have to pay a tax, but it is what it is.

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Kristin Carlson: Do you think the state should have been more proactive at finding some other solution to this?

Joe Sinagra: Absolutely.

For Myers, the tax will cost about $945. If the state takes another year to pay back the federal loan, the tax against employers will double.

"Twenty-one dollars by itself isn't the end of the world, but $21 on top of everything else with the potential of being $42-- that's when it starts to make it harder to do business," Sinagra said.

The state says it has worked to let employers know about this tax penalty. But many employers I talked to say when the deal was struck several years ago, they knew they would have to pay more into the fund, but did not realize they would bear the additional brunt of a federal tax penalty because of the state's late payment.

Let's look at the numbers that made the unemployment fund bankrupt. At the height of the recession, three times as much money was being paid out as now-- $6 million was going to 20,000 people. Now, about $2.5 million is going to 8,000 people who are unemployed.

State officials say in addition to changes made several years ago to shore up the fund, they have also hired a full-time person to make sure laid off workers are meeting the requirements to collect from the fund, cutting down on fraud. But Noonan says even so, with another steep downturn the state could be back in the same position.

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