[Federal Register: November 18, 2005 (Volume 70, Number 222)]
[Notices]
[Page 69991-69992]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18no05-77]
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DEPARTMENT OF LABOR
Employment and Training Administration
Workforce Security Programs: Training and Employment Guidance
Letter Interpreting Federal Law
The Employment and Training Administration interprets Federal law
requirements pertaining to unemployment compensation (UC) and workforce
program. These interpretations are issued in Training and Employment
Guidance Letters (TEGLs) to the State Workforce Agencies. The TEGL
described below is published in the Federal Register in order to inform
the public.
TEGL 6-05
TEGL 6-05 advises states of the Federal law requirements related to
determining and allocating the cost of assessing and collecting state
taxes that are collected along with state unemployment compensation
(UC) taxes, but are not used solely for UC purposes.
The laws in many states require the state UC agency to collect
taxes that are used for non-UC purposes, and additional states have
considered enacting such laws. Examples of non-UC taxes collected by
state UC agencies include personal income, temporary disability,
economic development, and job training-related taxes.
In General Administration Letter (GAL) 4-91, the Department
outlined the requirements related to the costs of collecting these non-
UC taxes. Specifically, these costs may not be paid from UC grant
funds, and when a state UC agency collects non-UC taxes, the state must
submit a plan for allocating such costs. Although that GAL has expired,
these requirements remain in effect.
TEGL 6-05 is being issued to eliminate any confusion caused by the
expiration of GAL 4-91. Although this advisory merely states what is
already required by Federal law and regulation regarding the allocation
of costs for all Federal grants to states, states have found it useful
to have a concise statement of these requirements available,
particularly as it regards tax collection.
Dated: November 14, 2005.
Emily Stover DeRocco,
Assistant Secretary of Labor.
Employment and Training Administration, Advisory System, U.S.
Department of Labor, Washington, D.C. 20210
Classification: Grants/Cost Allocation
Correspondence Symbol: OWS/DL
Date: September 29, 2005
Training and Employment Guidance Letter No. 6-05
To: All State Workforce Agencies. All State Workforce Liaisons.
All One-Stop Center System Leads.
From: Emily Stover DeRocco, Assistant Secretary.
Subject: Allocation of Costs of Assessing and Collecting State
Taxes that are Collected in Conjunction with the State. Unemployment
Compensation Tax.
1. Purpose. To provide guidance to the states in determining and
allocating the costs of assessing and collecting state taxes that
are collected along with state unemployment compensation (UC) taxes,
but are not used solely for UC purposes.
2. References. Title III of the Social Security Act (SSA); 39
U.S.C. 3201(1); 29 CFR 97.22; Office of Management and Budget (OMB)
Circular No. A-87, ``Cost Principles for State and Local
Governments'' (as revised May 10, 2004); General Administration
Letter (GAL) No. 4-91; Unemployment Insurance Program Letter (UIPL)
No. 25-92; and One-Stop Comprehensive Financial Management Technical
Assistance Guide, Part II.
3. Background. The laws in many states requires the state UC
agency to collect taxes that are used for non-UC purposes, and
additional states have considered enacting such laws. Examples of
non-UC taxes collected by state UC agencies include personal income,
temporary disability, economic development, and job training-related
taxes.
In GAL 4-91, the Department outlined the requirements related to
the costs of collecting these non-UC taxes. Specifically, these
costs may not be paid from UC grant funds, and when a state UC
agency collects non-UC taxes, the state must submit a plan for
allocating such costs. Although that GAL has expired, these
requirements remain in effect.
Recissions: None
Expiration Date: Continuing
This advisory is being issued to eliminate any confusion caused
by the expiration of GAL 4-91. Also, although this advisory merely
states what is already required by Federal law and regulation
regarding cost allocation for all Federal grants to states, states
have found it useful to have a concise statement of these
requirements available, particularly as it regards tax collection.
4. Federal law and cost principles. Section 302(a), SSA,
provides that the Secretary of Labor shall certify for payment to a
state such amounts as the Secretary determines to be necessary for
the proper and efficient administration of the state's UC law. These
payments are sometimes referred to as Title III grants. Further,
section 303(a)(8), SSA, provides that, as a condition of receiving a
Title III grant, the state may expend its Title III grant solely
``for the proper and efficient administration'' of the state's UC
law. Since state UC tax administration is an integral part of
administering a state's UC law, these administrative costs may be
charged to Title III grants consistent with Federal laws and
regulations. Conversely, since collecting taxes that will not be
used for state UC
[[Page 69992]]
purposes is not necessary for the proper and efficient
administration of a state's UC law, the costs of collecting those
taxes may not be charged to Title III grants.
Departmental regulations at 29 CFR 97.22(b) provide that, for
purposes of determining allowable costs under a grant to a state
(including the Title III grant), the Department will follow the cost
principles in OMB Circular A-87. Section C.3 of Attachment A of the
Circular provides that--
(a) A cost is allocable to a particular cost objective if the
goods or services involved are chargeable or assignable to such cost
objective in accordance with relative benefits received.
* * *
(d) Where an accumulation of indirect costs will ultimately
result in charges to a Federal award, a cost allocation plan will be
required. * * *
Applying these principles to Title III grants, a cost allocation
plan must be developed whenever a state UC agency incurs costs for a
``cost objective'' unrelated to the administration of the UC
program. Collection of a tax that is not used entirely for Title III
(that is, UC) purposes is such a cost objective.
5. Application.
a. In general. Whenever a state UC agency collects a tax that is
not used entirely for UC purposes, the state must obtain the
cognizant Federal agency's approval of its plan for allocating the
costs of assessing, processing, and collecting the tax. The
following indicates whether Title III grants may be used to collect
a tax and whether collection of the particular tax requires a plan
for allocating costs:
Title III grants may be used to administer a tax when
all revenues from the tax are (1) deposited in the state's
unemployment fund to be used for the payment of compensation, (2)
used to pay interest on advances under Title XII, SSA, or (3) used
for the administration of the UC program. No cost allocation plan is
required.
Title III funds may not be used for any costs of
collecting a tax that is used entirely for non-UC purposes, such as
administering other workforce programs (including providing
employment services to UC claimants), job training, economic
development, temporary disability payments, health related benefits,
or state income tax. A cost allocation plan is required.
Title III grants may be used in proportion to the
benefit received by the UC program if a portion of the revenues of a
tax are used for UC purposes and a portion for non-UC purposes. A
cost allocation plan is required.
Cost allocation plans addressing taxes will generally be
included with the state's annual submission of its Indirect Cost
Rate Proposal. However, in some cases (such as newly enacted taxes
that are assessed immediately after enactment), it will be necessary
to submit the tax plan as soon as possible to assure proper
allocation of costs.
b. Taxes which might be used for UC purposes. Many state UC
agencies collect taxes which permit (but do not require) the
revenues, or a part thereof, to be used for UC purposes. As a
result, there is no guarantee that the UC program will receive any
benefit from these taxes. For any year in which such taxes are
collected, the state's cost allocation plan will need to address, to
the extent possible and taking into account prior history regarding
the tax's revenues, whether any of the revenues will be used for UC
purposes.
c. Penalty mail. When a UC agency collects a tax that is not
solely restricted to UC purposes, penalty mail, as defined in 39
U.S.C. 3201(1), must not be used for any mailing related to the tax,
whether or not the mailing also includes UC material. When a state
UC agency collects a tax (or taxes) for other than UC purposes, the
allocation of postage costs between the programs supported by the
tax (or taxes) must be addressed in the state's cost allocation
plan.
d. Use of non-UC grants and state financing. Funds granted for
administering the Wagner-Peyser Act and the Workforce Investment Act
are restricted to activities in support of the specific purposes set
forth in those Acts. Unlike Federal UC law, these Acts do not
authorize the collection of taxes, even if tax revenues enhance
program activities performed under either of these Acts. As a
result, funds granted under these Acts may not under any
circumstances be used to collect any tax revenues. Aside from any
Federal limitations on the use of granted funds, states are
otherwise free to determine how to finance the costs of collecting
non-UC or mixed-use taxes. States may use state general revenues or
deduct the costs of collection from the revenues generated by the
non-UC or mixed-use tax.
e. Identification of taxes for FUTA credit purposes. States must
assure that employers are aware that only contributions deposited in
the state's unemployment fund may be used to obtain credit against
the Federal unemployment tax. See UIPL 25-92. (This matter does not
need to be addressed in the cost allocation plan.)
6. Action required. Administrators should distribute this
advisory to appropriate staff.
7. Inquiries. Please direct questions to the appropriate
Regional Office.
[FR Doc. E5-6387 Filed 11-17-05; 8:45 am]
BILLING CODE 4510-30-P