dohi 9. Perry Btioivn Opinion No. i#-247
dhalrmah Tetas Emplo$ment
Collimission Re: Taxability under the Texas
Brown ailding Unemployment Compensation
Austin, Texas Act of payment6 Into or
from Supplemental Uhem-
ployment Benefit Plan punds
@the Ford kotor company -
Dear Mr. Drowhi UAW-CIb type.
This is in reply to your requeet for an opinion a8
to the taxability under the Texas Unemployment Compenda-
tion Act of pafmentd made into &id out of Supplemehtal
Uhemployment Benefit Plah Funde of the Ford Motor Company -
UAW-CT0 typei
You aaked the foilowing questlond:
the z;tpz;n;; p;;$$& inFmde
to unemployed workers taxable under the
Texag Unemployment Compensation Act? If
either type of paymant ia taxable, against
whom is it taxable?"
Briefly;~this type of Supplemental Unemployment Bene-
fit Planprovide@ forthe edtablishmentby the employer of
a Trust Pund b cohtributions made Solely by the employer,
After payment fnto thb Fund, the employer his ho right, title
or ihterest in the aaseta. The Fund 1~ administered by in-
dependent trucrtees; There is a maximum funding amount
which when reached stops payments into the Pounduntil such
time as the amount remaining becomes leslsthan the maximum
finding &mount.
The Plan further provides that no employee has any
Hght in aiiy slbsetd of the Fund unless and until the em-
ployee,ie qualified and eligible. Among the ellgi,bllity
conditions ia the requirement that the employee must have
received state unemployment benefits for the week for
which application ia made for supplemental benefits.
The Plan alrsoprovides that: "Neither the Company's
contributions nor any benefit paid under the Plan shall
Hon. S. Perry Brown, page 2 (W-247)
be considered a part of any employees wages for any
purpose.”
Our Texas Unemployment Compensation Act provides
that employers who come witNn its scope must make contri-
butions to a Commission In amounts determined by the amount
of "wages" paid by the employers to their employees. These
contributions are placed in a fund and can only be used for
the purposes for which such fund was created. The Act
defines "wages" as "all remuneration for personal servieas,
including commissions and bonuses and the cash value of
all remuneration in any medium other than cash." (Art.
522113-17,V.C.S.).
There ha8 been no court decision on the taxability,
under the Texas Unemployment Compensation Act, of payments
into or from Supplemental Unemployment Compensation Plan
Funds, nor have the courts of any other state,passed on
the taxability of such Funds under their respective
state unemployment compensation statute. However, the
questions have been passed upon administratively by many
of the states. Of twenty-one states that have adminis-
tratively ruled on the taxability of payments into such
Funds, twenty have ruled that such payments are not
taxable. Of fifteen states that have administratively
ruled on the taxability of payments from such Funds, four-
teen have ruled that such payments are not taxable.
The Bureau of Internal Revenue ruled (Rev. Rul. 56-
249, IR - 156) that payments Into and out of such Funds
are not taxable under the Federal Unemployment Tax Act.
In arriving at such conclusion the Bureau used the follow-
ing language:
,t .it is concluded that the benefits
pkLi;l
to former employees of M Company
under the terms of the Supplemental Un-
employment Benefit Plan do not constitute
'wages' for purposes of the Federal Unem-
ployment Tax Act. It is also concluded
that the benefits paid to former employees
of M Company under the terms of the Supple-
mental Unemployment Benefit Plan do not
constitute 'wages' for purposes of the
Federal Insurance Contributions Act and
the Collection of Income Taxes at Source
on Wages."
Hon. 5. Perry Brown, page 3 (WJf-247)
Generally, 8 right to remuneration aaaruea upon the
rendition of serviaes by virtue of the contract of hire,
so that the provision that the employee has no rights
in the Fund indicates that whatever is paid the employee
out of the Fund is not intended as remuneration for
sellrlcea. The employee may work a lifetime and there-
upon retire or die and receive no payments. This Is an im-
ortant distinction from the concept of "remuneration" or
Rwages" which would be,payable In any event.
Moreover, the reaeipt of benefits by an employee is
not dependent on whether contribution8 to the Fund have
been made by the employer with respect to the hours worked'
by the employee. An employee may receive benefits although
no contributions were made during his entire employment with
that employer due to the Fund having reached and maintained
the presaribed maximum level. Conversely, If there ,isan
insufficient amount in the Fund, the applicant would receive
no benefits. If the Fund or the benefits paid therefrom
could be aalled "wagea" the applicant would have a vested
ihtereat and could bring an action. No such vested interest
or right exists under the Plan. In order to receive benefits
the applicant must have received state benefits for that
week. This requirement makes the Plan truly zsupplementaland
the benefits paid therefrom are supplemental unemployment
benefits.
We, therefore, are of the opinion that neither contri-
butions into the Fund nor benefits paid therefrom are taxable
under the Texas Unemployment Compensation Act.
Inasmuch aa neither contributions into the Fund nor
benefits paid therefrom are taxable under the Texas Unem-
ployment Compensation Act your last question Is moot.
To the extent that this opinion may be in conflict with
prior opinions of this office they are expressly overruled.
S.U M'MA,R.Y
Under Supplemental Unemployment
Benefit Plans of the Ford Motor
Compsny - UAW-CIO type, neither
Hon. S. Perry Brown, page 4 (W-247)
payments made into the Fund
p8yments
_ _ made therefrom to unem-
ployed applicants are taxable
under the Texas Unemployment Com-
pensation Act.
Very truly yours,
WILL WILSON
Attorney General
JACK GOODMAN
FCJG/f'b
APPROVED:
OPINION COMMITTEE
George P. Blackburn, Chliwan
U. V. Geppert
Howard Mays
SamLane
REVIEWED FORTHEATTORNEYGFNERAL
By: James N. Ludlum