DWD seeks wider net for overdue taxes

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If various state officials have their way, business managers no longer could hide behind limited liability partnerships to avoid paying overdue unemployment taxes and could see the owed money taken out of their tax returns.

Proposals put forward by the state’s Department of Workforce Development on Thursday would let managers of limited liability partnerships be held personally responsible for money their employers owe to the state’s unemployment-benefits fund. Another suggested policy, if approved by the state Legislature and signed by Gov. Scott Walker, would let the overdue payments be drawn directly from the income-tax returns of business owners and managers.

Victor Forberger, a labor and employment lawyer in Madison, said the first of the two policies really would do nothing more than make the law more consistent. He said Wisconsin statutes already let the state collect overdue unemployment payments from the managers and owners of corporations and limited liability companies, but not limited liability partnerships.

“This just closes a loophole,” Forberger said. “It would say that with employers, even in these types of corporations, some sort of personal liability attaches.”

The proposed law would require that an “officer, employee or other responsible person of a corporation” holding at least a 20 percent ownership interest be held personally liable. Forberger said he doubts large numbers of companies will be affected by the proposed change.

Most business owners, he said, elect to form corporations or limited liability companies rather than limited liability partnerships, which often are viewed as more complicated to establish. The DWD‘s proposal attempts to cast a wide net around various types of organizations by extending personal liability to “other forms of business association.”

Andrew Rubsam, a DWD attorney, said the language was suggested to ensure new types of business organizations cannot be used to shield managers or owners from collections of overdue unemployment taxes. He said language in the proposal mirrors existing statutory language letting the state hold company principals personally liable for unpaid sales and use taxes.

Scott Manley, who represents business interests on the state’s Unemployment Insurance Advisory Council, said he is concerned about the apparent broadness of the proposal’s language. Manley, who also is vice president of government relations at the business lobbying group Wisconsin Manufacturers & Commerce, said he wants time to study the proposal before commenting further.

If principals in limited liability partnerships were to be made personally responsible for paying overdue unemployment taxes, the DWD’s second proposal Thursday would mean the money could be taken directly out of their tax returns. Of all industries in Wisconsin, the change threatens to fall heaviest on construction.

According to figures released in 2013 by the DWD, about $19.73 million of the $79.51 million that companies owed to the Wisconsin unemployment system was a liability of construction companies. Wisconsin officials have been searching for ways to bring more money into the state’s unemployment fund after it went more than $1 billion into the red during the recent recession.

Forberger said company officials often assume that forming a corporation or limited liability entity shields them from all sorts of risks and obligations, not just lawsuits and debts. The truth, he said, is that many types of overdue taxes still can be made a personal responsibility.

“The liability would still attach to the rich CEO of a company that went bankrupt,” Forberger said, “but still has a $1 million house.” Follow @TDR_WLJDan