(a) When withheld. Payment of funds to States or yearend
certification of State laws, or both, are withheld when the Secretary
finds, after reasonable notice and opportunity for hearing:
(1) That any provision required by section 303(a) of the Social
Security Act is no longer included in the State unemployment
compensation law; or
(2) That the State unemployment compensation law has been so changed
as no longer to meet the conditions required by section 3303(a) of the
Internal Revenue Code of 1954 (section 3303(b)(3) of the Internal
Revenue Code); or
(3) That the State unemployment compensation law has been so amended
as no longer to contain the provisions specified in section 3304(a) or
has failed to comply substantially with any such provision and such
finding has become
effective (section 3304(c) of the Internal Revenue Code of 1954); or
(4) That in the administration of the State unemployment
compensation law there has been a failure to comply substantially with
required provisions of such law (section 303(b)(2) of the Social
Security Act and section 3303(b)(3) of the Internal Revenue Code of
1954); or
(5) That in the administration of the State unemployment
compensation law there has been a denial, in a substantial number of
cases, of benefits due under such law, except that there may be no such
finding until the question of entitlement has been decided by the
highest judicial authority given jurisdiction under such State law
(section 303(b)(1) of the Social Security Act); or
(6) That a State fails to make its unemployment compensation records
available to the Railroad Retirement Board or fails to cooperate with
Federal agencies charged with the administration of unemployment
compensation laws (section 303(c) of the Social Security Act); or
(7) That a State no longer has a plan of operation for public
employment offices complying with the provisions of the Wagner-Peyser
Act; or
(8) That a State agency has not properly expended, in accordance
with an approved plan of operation, the Federal monies paid it for
administration of its public employment service.
(b) Informal discussion. Such hearings are generally not called,
however, until after every reasonable effort has been made by regional
and central office representatives to resolve the question involved by
conference and discussion with State officials. Formal notification of
the date and place of a hearing does not foreclose further negotiations
with State officials.
(c) Notice of noncertification. If, at any time during the taxable
year, the Secretary of Labor has reason to believe that a State whose
unemployment compensation law he has previously approved may not be
certified, he promptly notifies the Governor of the State to that effect
(section 3304(d) of the Internal Revenue Code of 1954).
(d) Notice of hearing. Notice of hearing is sent by the Secretary of
Labor to the State employment security agency. The notice sets forth the
purpose of the hearing, the time, date, and place at which the hearing
will be held, and the rules of procedure which will be followed. At a
hearing the State is given an opportunity to present arguments and all
relevant evidence, written or oral. The Secretary makes the necessary
determination or findings, on the basis of the record of such hearings.
A notice of the Secretary's determination or finding is sent to the
State employment security agency.
(e) Civil Rights Act issues. To the extent that any proposed
withholding of funds involves circumstances within the scope of title VI
of the Civil Rights Act of 1964 and the regulations promulgated
thereunder, the procedure set forth in 29 CFR part 31 shall be
applicable.
(f) Tax credit reductions. (1) Section 3302(c)(2) of the Internal
Revenue Code of 1954 prescribes the conditions under which the total
credits otherwise allowable under section 3302 for a taxable year in the
case of a taxpayer subject to the unemployment compensation law of a
State shall be reduced on account of an outstanding balance of advances
made to the State pursuant to title XII of the Social Security Act. As
amended by section 110(a) of the Emergency Compensation and Special
Unemployment Assistance Extension Act of 1975 (Pub. L. 94-45, approved
June 30, 1975; 89 Stat. 236, 239), and as further amended by title II of
the Emergency Unemployment Compensation Extension Act of 1977 (Pub. L.
95-19, approved April 12, 1977; 91 Stat. 39, 43), the incremental
reductions in total credits will not apply to a State with respect to
the taxable years beginning on January 1, 1975, January 1, 1976, January
1, 1977, January 1, 1978, and January 1, 1979, if the Secretary of Labor
finds as to each such year that the State has studied and taken
appropriate action with respect to the financing of its unemployment
compensation program so as substantially to accomplish the purpose of
restoring the fiscal soundness of the State's unemployment account in
the Unemployment Trust Fund and permitting the repayment within a
reasonable time of any advances made to
the State's account pursuant to title XII of the Social Security Act.
(2) The Secretary of Labor's finding with respect to a State as to
any of the taxable years 1975, 1976, 1977, 1978, and 1979 will be based
on his determination as to whether the State has taken appropriate
action resulting in:
(i) Amendment of its unemployment compensation law, effective in or
prior to the taxable year with respect to which the finding is made, or
effective at the beginning of the succeeding taxable year, increasing
the State's unemployment tax rate, increasing the State's unemployment
tax base, or changing the State's experience rating formula, or a
combination of such changes, so as to be estimated by the Secretary to
achieve for the taxable year with respect to which the finding is made
or for the period following the effective date of the amendment:
(A) An average employer tax rate, computed as a percentage of the
total wages in employment covered by the State's unemployment
compensation law, which exceeds the State's average annual benefit cost
rate, computed as a percentage of the total wages in employment covered
by the State's unemployment compensation law, for the ten calendar years
immediately preceding the year with respect to which the finding is
made; and
(B) An effective minimum employer tax rate which is not less than
1.0 percent of the wages of any employer which are subject to tax under
the Federal Unemployment Tax Act for the same year; and
(C) An effective maximum employer tax rate which exceeds 2.7 percent
of the wages of any employer which are subject to tax under the Federal
Unemployment Tax Act for the same year, or provision for no reduced rate
of contributions for any employer subject to the State unemployment
compensation law; or
(ii)(A) Amendment of its unemployment compensation law increasing
the State's unemployment tax rate, increasing the State's unemployment
tax base, or changing the State's experience rating formula, or a
combination of such changes, so as to be estimated by the Secretary of
Labor to result in increasing contributions to the State's unemployment
fund, for the taxable year with respect to which the finding is made,
and the allocation from such increased contributions of a sum sufficient
to make the repayment in the amount and within the time limit prescribed
in paragraph (f)(2)(ii)(B) of this section; and
(B) Repayment to the Treasury of the United States, for credit to
the Federal unemployment account in the Unemployment Trust Fund, prior
to November 10 of the taxable year with respect to which the finding is
made, of an amount equal to the amount of the additional tax which would
be payable by all taxpayers subject to the unemployment compensation law
of the State for that taxable year if (1) for any year prior to 1978,
the reduction in total credits prescribed by section 3302(c)(2)(A) of
the Internal Revenue Code of 1954 for that taxable year was applied
without regard to the amendment added by section 110(a) of the Emergency
Compensation and Special Unemployment Assistance Extension Act of 1975,
and (2) for any year after 1977, the reduction in total credits
prescribed by the applicable provisions of section 3302(c)(2) of the
Internal Revenue Code of 1954 for that taxable year was applied without
regard to the amendment added by section 110(a) of the Emergency
Compensation and Special Unemployment Assistance Extension Act of 1975;
and
(C) Determination by the Secretary that unemployment reserves and
income from contributions in the State unemployment fund will be
adequate to meet benefit payment obligations without title XII advances
during the 6-month period beginning November 1 of the year in which such
determination is made.
(3)(i) An application for deferral under this paragraph (f) must be
requested and filed with the Secretary of Labor by the Governor of a
State no later than July 1 of the taxable year for which such deferral
is requested. Such application shall be in such form, and shall be
accompanied by such documentation, as the Secretary of Labor shall
prescribe.
(ii) A finding by the Secretary of Labor with respect to a State
shall be made as of November 10 of the taxable
year with respect to which the finding is made, and such finding shall
be published in the Federal Register together with the reasons for the
finding.
[30 FR 6942, May 22, 1965, as amended at 43 FR 13828, Mar. 31, 1978]
