BILL ANALYSIS
AB 1537
Page 1
ASSEMBLY THIRD READING
AB 1537 (Horton)
As Amended May 16, 2001
Majority vote
INSURANCE 15-0
-----------------------------------------------------------------
|Ayes:|Calderon, Maddox, Bogh, | | |
| |Briggs, Chavez, Diaz, | | |
| |Dutra, Harman, Havice, | | |
| |Horton, Keeley, Kehoe, | | |
| |Richman, Steinberg, | | |
| |Vargas | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
-----------------------------------------------------------------
SUMMARY : Requires all federally recognized Indian tribes in
California to provide unemployment insurance coverage to their
employees and gives Indian tribes the option of reimbursable
financing for the unemployment insurance program. Specifically,
this bill :
1)Provides that federally recognized Indian tribes are employers for
purposes of unemployment insurance and that the term "employment"
includes services performed by an individual for an Indian tribe
with the exception of specified services.
2)Provides that an Indian tribe may elect to become an employer for
purposes of paying extended unemployment compensation benefits and
federal-state extended compensation benefits, and that an Indian
tribe not covered by the Tribal-State Gaming Compact (Compact) may
elect to become an employer for purposes of paying disability
insurance taxes, while tribes covered by the Compact must pay
disability insurance taxes.
3)Allows an Indian tribe to elect to finance its liability for
unemployment insurance taxes using either the experience-rated
method or the reimbursable method.
4)Requires the Director of Employment Development Department (EDD)
to notify the Internal Revenue Service (IRS) and the United States
(U.S.) Department of Labor (USDL) of any Indian tribe's failure to
pay state unemployment insurance taxes or any tribe's delinquency
in making payments of penalty or interest.
AB 1537
Page 2
5)Requires Indian tribes employing one or more workers on or after
December 21, 2001, and prior to the effective date of the statute
enacting this bill to register with EDD within 15 days of the
effective date, if the tribe has not already registered with the
department.
6)Provides that Indian tribes are subject to a penalty for knowingly
participating in unemployment tax evasion.
7)Provides that this bill will have a retroactive effect from
December 21, 2001, the effective date of the changes in federal
law.
FEDERAL LAW requires:
1)States to provide local and state government employers and certain
nonprofit organizations the option of reimbursing the Unemployment
Insurance Fund (UIF) on a dollar-for-dollar basis for all benefits
paid to their former employees that have been charged to their
accounts. This form of financing is called the reimbursable
method.
2)Employers, under a federal payroll tax established by the Federal
Unemployment Insurance Tax Act (FUTA), to pay 6.2% of the first
$7,000 of an employee's salary. However, employers in states with
unemployment insurance programs that conform to federal
guidelines, such as California, receive a 5.4% credit toward their
FUTA tax payment, resulting in a net federal tax rate of .8%.
Currently, Indian tribes that pay unemployment insurance taxes are
exempt from FUTA taxation. However, tribes failing to pay
unemployment insurance taxes are subject to the full 6.2% FUTA
tax.
EXISTING LAW does not require Indian tribes to participate in the
state's unemployment insurance program. However, tribes
participating in the Compact, agreed to by Governor Davis and more
than 50 tribal leaders on September 10, 1999, stipulated that their
gaming operations will participate in the state's unemployment and
disability insurance programs with respect to persons employed at
the gaming facility.
FISCAL EFFECT : According to EDD, minimal fiscal impact on UIF.
There are only about eight Indian tribes that are not participating
in the state's unemployment insurance program. The increased costs
to UIF for paying the additional benefits to unemployed workers of
these Indian tribes would be offset by an increase in unemployment
AB 1537
Page 3
insurance contributions from these tribes. The sponsor of this
bill, EDD, states that the administrative costs needed to implement
the provisions of this bill would be offset by EDD.
COMMENTS : The sponsor requested introduction of this bill in order
to bring California into conformity with federal legislation that
was recently enacted as part of the Consolidated Appropriations Act
of 2001 (Act). The Act, signed by President Clinton on December 21,
2000, reforms FUTA to require all federally recognized Indian tribes
to pay state unemployment insurance taxes. In addition, federal law
now provides Indian tribes with the option of using the reimbursable
method of financing. According to the sponsor, this federal
legislation received no opposition from any of the 311 federally
recognized Indian tribes.
On January 12, 2001, USDL issued an unemployment insurance program
letter formally directing all states having federally recognized
Indian tribes to conform their laws to the new federal provisions.
If California does not conform to federal law, USDL could withhold
$340 million in federal unemployment insurance administrative
grants. Moreover, according to EDD, if the state does not conform,
all California employers would be subject to the full 6.2% federal
unemployment insurance tax rather than the current .8% federal tax
on the first $7,000 of each employee's salary, resulting in
increased costs of approximately $5.6 billion annually. USDL has
advised that state law must conform to the federal provisions by
October 31, 2001.
If this bill becomes law, Indian tribes that do not pay state
unemployment insurance taxes or become delinquent in payments of
penalty or interest will have the federal unemployment insurance tax
exemption revoked by the IRS, resulting in a 6.2% tax on the first
$7,000 of each employee's salary.
Analysis Prepared by : M. Christine Iway / INS. / (916) 319-2086
FN: 0000814