More N.C. firms fall behind on Payroll Tax
As unemployment hovers at record highs and the recession's lingering effects batter businesses, state authorities say a growing number of companies are falling behind on paying unemployment insurance taxes.
More than 11,300 businesses statewide – about 6 percent of those that contribute the payroll taxes that fund jobless benefits, were delinquent as of the end of June, owing $13.5 million, state officials say.
The shortage of cash means laid-off employees of delinquent companies are waiting longer for their unemployment checks or aren't getting them at all. The decline is also causing the N.C. Employment Security Commission, the state agency that doles out unemployment benefits, to borrow more from the federal government.
Ultimately, it could mean higher unemployment taxes and lower benefits for businesses and workers, as state officials scramble to pay back the debt.
“The number of employers who are delinquent is a serious concern for us,” said Moses Carey Jr., the ESC's chairman. “… We've got a hole to dig ourselves out of.”
Unemployment climbed to record levels over the last year as the economy soured, resulting in legions of people tapping benefits for longer periods and heavier federal borrowing to plug the deficits.
The Charlotte region's jobless rate is 12.4 percent, topping the statewide 11.1 percent. New U.S. data is out today, and some economists expect the national rate to tick up to 9.5 percent.
Meanwhile, some of the 180,000 N.C. businesses that contribute payroll taxes have struggled to make their payments, state officials say. From January through July, the ESC collected $508 million in payroll taxes, down from $570.6 million the same period last year, ESC spokesman Larry Parker said.
By contrast, the state paid $2.7 billion in benefits the first seven months of this year, though that number was inflated because of federal funding for additional benefits, he said. Over that period last year, authorities doled out $688.2 million, still far more than they collected.
The state has borrowed almost $925 million from the federal government since February – the sixth highest in the nation, according to the U.S. Department of Labor.
N.C. Tax Rate varies
The N.C. unemployment insurance tax rate, 1.2 percent for new businesses this year, is based on how often a company lays off workers and whether it pays taxes on time, among other factors.
A company's tax rate can increase or decrease each year. It ranges from zero to 6.84 percent of payroll, with $19,300 the highest taxable wage for any one employee.
ESC officials cite three major reasons for their shrinking tax collections. Fraud is one, with some companies folding and reforming under another business name, for instance, or failing to file quarterly reports that detail the number of employees and how much they're paid, Parker said.
Some companies are paying less because they've laid off a large number of workers, leading to lower tax payments, which are based on the size of a company's workforce.
A growing number of others have closed or filed for bankruptcy protection, resulting in millions of dollars that won't likely be repaid. So far this year in the western district of North Carolina, there have been more than 50 Chapter 11 bankruptcy filings, most of them businesses, up from 42 in all of 2008, court data show.
It's a problem nationwide. About 9 percent of employers nationwide were not timely on their tax payments last year, the labor department found. That left states short more than $748 million, the department said.
Liens in Mecklenburg
Locally, ESC officials have hired more tax auditors and appeals staffers to ramp up collection efforts. Court records show the ESC had nearly 30 liens against Mecklenburg companies in August. The businesses, many of which have since closed, range from contractors to health care companies.
The Graduate Food & Pub in east Charlotte, for instance, owed the ESC about $624, court records show. Dentist Charles Payet, who has an office in SouthPark, owed the state more than $1,370. The companies didn't return phone calls.
Ballabox Co. Inc., a 50-year-old Matthews company that manufactures folding cartons, is working with the ESC to pay $6,850 in delinquent taxes, said a company official who declined to give her name. She said it's gotten harder to pay the taxes as the economy worsens.
Not all companies have had a hard time paying the taxes.
Randy Lambeth, who owns Martinizing Dry Cleaning, which has about 20 employees in several Huntersville-area stores, pays about 15 percent of his payroll to a service that handles unemployment and workers compensation taxes.
He never misses the money, but he's helped by the fact that he's never had to lay off employees, he said.
“If you … wrongfully terminate somebody, yeah, it's going to go way up,” he said.
Effect on laid-off workers
The workers also face some consequences when a company falls behind. Because people seeking unemployment benefits have to prove they held a job and made the money they claim, they're out of luck if their employer hasn't paid or filed its quarterly report with the ESC, Parker said.
Many laid-off workers don't get paid until their company pays, he said. The delinquencies don't affect the vast majority of the nearly 235,000 or so people now receiving benefits.
The ESC files tax liens in 1,500 to 2,200 cases a quarter, and a small number of cases reach local courtrooms, where judges can shut down the companies – leaving their employees out of work, Parker said.
In most cases, though, the agency tries to work with employers who are behind on their payments. “I think they know it's an outstanding liability,” Carey, the ESC chairman, said. “Most of them are pretty cooperative.”
Agency officials expect the fund's debt to reach $1 billion in the next week or two.
The money is interest-free through December 2010, which saves a significant amount of money, Carey said. But unless the federal government forgives states' debt, which is a possibility, the ESC will have to consider new ways to pay back its debt, he said.
“Under normal circumstances, you borrow money during difficult times, and hope that when the economy turns around, there will be a surplus” as new taxes roll in, he said. “…These don't happen to be normal circumstances.”
ESC officials have discussed raising payroll tax rates or requiring employees themselves to pay into the benefits fund, as is the rule in a handful of other states. Carey said it's too early to make any decisions.
Charlotte Observer----
Charlotte-Meck. County probes whether taxes go uncollected
(Politicians hearing complaints that some property owners haven't paid their taxes for a decade or longer.)
In response to sharp criticism from Charlotte Politicians, Mecklenburg County is looking into complaints that officials have failed to collect taxes from some property owners for years.
The county tax collector's office is compiling a report to show whether problems are widespread or limited to a relatively few cases. Officials will report the findings to the county Board of Commissioners.
The action comes after commissioner Bill James and other elected officials chastised the county for allowing some people to avoid paying taxes for a decade or longer.
Charlotte City Council members John Lassiter and Susan Burgess earlier this year complained that failure to collect taxes cost the city badly needed revenue. The county collects taxes for Charlotte and other municipalities in Mecklenburg.
Stable revenue stream
Property taxes are one of the largest sources of money for local government and are widely seen as the county's most stable revenue stream.
But officials reported in April that the county is owed $26.7 million in delinquent taxes for 2008. An advertisement the county ran in the Observer listed more than 28,800 overdue tax bills for land, buildings and business equipment.
James said he requested the report about tax delinquent properties after receiving a complaint from a citizen about an uptown condo. Records show the condo owner has not paid taxes on the property in 12 years, James said.
“People are gaming the system,” he said. “If we allow that to happen, it will undermine public confidence.”
Mecklenburg Tax Collector Neal Dixon acknowledged there are properties where bills have remained unpaid for years, but said his office has taken aggressive steps to collect the money. Collectors send notices, knock on doors or threaten to garnish wages, bank accounts and income tax refunds in those cases, Dixon said.
In many cases, he said, delinquent tax bills stem from bankruptcies, disputes over ownership and legal wrangling that make it difficult for the county to recover past-due taxes.
“It's more complex than it looks on the surface,” Dixon said.
County collects 99%
A report city officials produced earlier this year showed Mecklenburg tax collection rates were comparable to or better than those of counties of similar size.
Over the last 10 years, the county has collected 99 percent of the tax dollars owed, Dixon said.
But anecdotes about unpaid taxes have prompted some officials to call for action.
At a City Council meeting in May, Lassiter said officials had received information about several properties where taxes have not been paid in 10 to 12 years. “This is a good time to tighten down the screws on those folks who owe the government money,” he said.
Burgess said she received a complaint letter from a constituent about a rental property where the landlord avoided paying taxes for years. The county tax office confirmed information contained in the letter, she said.
“That's outrageous,” she said. “It's not fair to our citizens – the 97 percent who paid taxes – for 3 percent just to walk away from us. I think we ought to get aggressive about it.”
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Sources: Charlotte Observer, Newsobserver, MSNBC, The Answer Desk, Charmeck.org, Wikipedia, Google Maps
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