Schumer Fights to End Tax Required on WNY Small Businesses to Pay Interest for State's Unemployment Fund

August 18, 2011 Updated Aug 18, 2011 at 1:31 PM EDT

By WKBW News

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Schumer Fights to End Tax Required on WNY Small Businesses to Pay Interest for State's Unemployment Fund

August 18, 2011 Updated Aug 18, 2011 at 1:31 PM EDT

(WKBW release) On Thursday, New York Senator Charles E. Schumer announced a major effort to end a required tax that small businesses have to pay on interest to the New York State Unemployment Insurance Fund, after Congress failed to include an extension in the debt ceiling compromise negotiated two weeks ago.

As part of the American Recovery and Reinvestment Act, states were permitted to borrow money, interest free, from the Federal Unemployment Trust Fund through 2011, to help finance the state’s increasing unemployment burden during the recession.

New York State borrowed $3 billion to pay for their unemployment programs, but because Congress didn’t extend the interest-free provision, New York State now owes the federal government $95 million in interest that is being passed on to businesses like Taber Industries in the form of over $20 per employee tax.

Schumer announced that he is introducing legislation to retroactively extend the interest-free lending program from the FUTF, refunding fees already paid by local businesses and ending the tax.

“At a time when we need to be doing everything we can to help our businesses like Taber Industries create and retain jobs, this tax is an anchor that will only drag us down,” said Schumer. “We need to free small business owners from the shackles of this fee and instead help them invest in their business to create new jobs. This is a whopping $95 million that should go to hiring more workers and reinvesting in businesses to help them grow. That’s one way to get our economy back on track.”

“Taber Industries is a small and growing manufacturing company in Western New York,” said Dan Slawson, President of Taber Industries. “We export products world-wide and staying in business is difficult enough without the Interest Assessment Surcharge (IAS). Every dollar we are forced to spend on the IAS is a dollar we cannot spend on improving our manufacturing process, hiring and improving the skills of our employees, and developing new innovative products. We are never going to get the economy back on track by forcing small businesses to continually be burdened by tax increases.”

This week, employers across New York were forced to pay a surcharge for each employee on the payroll in order to help the state cover its obligations in unemployment insurance. The surcharge can be as high as $21.25 per employee with the state average at approximately $18 according to the Labor Department. The state levied the surcharge to come up with the $95 million interest payment, due September 30th, that the federal government required after the interest-free lending program from the federal unemployment fund expired.

After the economic crisis that began in 2008, states across the country were forced to borrow money from the federal government after their own tax revenue dropped and the number of individuals receiving unemployment insurance skyrocketed. Schumer’s legislation would retroactively reinstate interest free borrowing for states to help them cover their unemployment insurance obligations, and require that New York State refund the surcharge payments for small businesses that have already paid the fee.

The Schumer bill would extend interest-free borrowing through 2012, and waive the interest payments from 2011, thus relieving New York small businesses of a $95 million tax. By requiring states to refund the money, Schumer’s legislation would guarantee that small businesses are the ultimate savers, and would see a full refund of their surcharge payment.

“This week, small business owners are licking stamps to mail in checks to pay this painful tax, and it’s leaving a bad taste in their mouth,” continued Schumer. “This bill would put $95 million back where it belongs – in the accounts of small business owners who can hire new workers and drive our economic recovery.”