Jefferson County Occupational Tax Update (September 2011)

Refund and Proposed Settlement of Jefferson County Occupational Tax and Business License Tax

Update 12/20/11 - Refunds

Update 8/15/11 - Jefferson County Occupation Tax Qualified Settlement Fund website has updates and a list of employers who have not submitted their Employee Refund Data form (Due 10/17/11)

All businesses in Jefferson County should have received information pertaining to the refund and settlement process of occupational and business license taxes that were levied by Jefferson County for the period January 12, 2009 through August 13, 2009.

Business License Tax Refunds
There is no additional work required on the employer’s behalf in order to receive a refund for business license tax paid during the above listed period.

Occupational Tax Refunds
There are two primary requirements by the employer in order for the refund process to be completed for your employees.

  1. You must complete an “Employee Refund Data Form” and return it to Settlement Administrator no later that October 17, 2011. (*Extended from August) 
    1. The Employee Refund Data Form will be used to determine the amount to be refunded to your present and former employees.
    2. Refund checks will be sent to you to distribute to affected employees.
    3. If you timely complete and submit the “Employee Refund Data Form”, then you will be paid an Employer Expense Offset equal to 1.5% of the aggregate amount paid to your affected employees (approximately 83% of the refunded amount).
       
  2. You must give Notice of the Proposed Settlement to all affected employee (past or present).
    1. It is recommended that you provide this notice by U.S. Mail or email.
    2. It is also recommended that you post both the Short Form Notice and the Long Form Notice in the workplace. These notices were included in the package you received from the settlement administrator.
    3. This notice should be distributed no later than June 24, 2011.

If Payroll & Benefit Solutions, BMSS sister company, handled your payroll during the above noted period, then we can assist you in meeting the requirements of the refund and settlement process. Please notify your Payroll & Benefit Solutions payroll specialist as soon as possible.

Background Information

On March 22, 2011, Jefferson County notified employers they should stop withholding occupational tax from their employees.

On December 1, 2010, Circuit Judge Charles Price ruled that the current Jefferson County occupational tax is unconstitutional.

The Court did not rule in favor of a retroactive refund of collected taxes, but did enjoin the County from imposing or collecting the occupational tax. Press reports Friday indicate the County has asked the Court if the County could continue to collect the tax during its appeal to the ruling. 

We have attempted to gather additional information regarding the exact meaning of the ruling and the manner in which affected employers should respond. We have had two conversations with the County and received no meaningful or definitive guidance. 

Employers have obviously been put in a difficult position, facing the possibility that whatever course of action is chosen, they may suffer detrimental consequences: 

  • If employers do not continue to withhold, and the court grants the county request to allow withholding during appeal, employers may have to pay the tax out of their own pocket if some employees are no longer employed.
  • If employers do continue to withhold, employees might argue they wrongfully lost the use of their money and are entitled to compensation, particularly if later refunded without interest.

At this time, given the uncertainty, the most prudent course of action in the short term would be to continue to withhold the tax and set aside the withholdings in an escrow or other segregated account until more information is forthcoming.

Open communication with employees may assist in avoiding issues should the withholdings later need to be refunded. If the ruling is upheld and the Court does not allow the County to collect the tax during the appeal process, employers taking this course of action would need to return any withheld tax to the employees from whom it was withheld.

IRS Circular 230 Notice: Federal regulations apply to written communications (including emails) regarding federal tax matters between our firm and our clients. Pursuant to these federal regulations, we inform you that any U.S. federal tax advice in this communication (including any attachments) is not intended or written to be used, and cannot be used, by the addressee or any other person or entity for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.