Employers seeking to appeal a EDD tax assessment relating to independent contractor status must follow particular procedures.
|
|
|
|
|
 |
California EDD Update:
Procedural Blunder Thwarts
Employer’s EDD Tax Appeal
By Christopher W. Olmsted
When the California EDD takes on a company for misclassifying employees as independent contractors, the battle starts on the EDD’s own turf, in an administrative review process. Ultimately, a company can appeal a tax determination to the courts, but only if the right procedures are followed. In a case titled Merchandising Concept Group, Inc. v. EDD, the employer did not follow the correct procedure and therefore could not challenge the EDD’s tax assessment.
A Big Tax Assessment
Merchandising Concept Group contracted with clothing manufacturers to provide attractive product displays to promote sales of goods in retail stores. The people who made the displays were called detailers, and Merchandising Concept Group classified them as independent contractors.
The Employment Development Department audited Merchandising Concept Group and determined the detailers were not independent contractors but employees subject to employment tax-related deductions. The Employment Development Department issued an assessment totaling approximately $110,000 plus a penalty on Merchandising Concept Group based on the reclassification of 148 of its workers.
The Appeal
The company challenged the assessment by filing a petition for reassessment of the tax. A reassessment is a request that the tax be reduced or eliminated. At an EDD administrative hearing, the tax assessment was upheld. Then the company appealed to the EDD Appeals Board. Again, the tax was upheld.
Since the EDD refused to reassess the tax, the company had to jump through more procedural hoops in order to avoid the tax. But it missed some of the hoops.
The Wrong Way vs. Right Way
The company paid the tax bill and then filed an appeal in the superior court (called a “writ of mandate”). The company skipped some procedural steps. There are actually six steps which must be followed before a claimant may bring a lawsuit against the Employment Development Department to recover a tax paid in the unemployment insurance arena:
(1) the claimant files a claim for refund or credit;
(2) the director of the Employment Development Department denies the claim for refund or credit;
(3) the claimant files a petition for review with an administrative law judge;
(4) the administrative law judge reviews the matter and renders a decision;
(5) the claimant or director of the Employment Development Department files an appeal to the Appeals Board regarding the petition for review of the denial of the claim for refund; and
(6) the Appeals Board issues its order or decision regarding the petition for review of the claim for refund and serves notice of the decision.
Here, Merchandising Concept Group completed only the first step -- filing a claim for refund -- before it filed its petition for writ of mandate, thus failing to satisfy the requirement to exhaust its administrative remedies.
The company argued that it should be allowed to appeal the superior court to challenge the denial of the petition for reassessment. It argued that it shouldn’t have to first pay the tax, then go through the administrative review, then file the court claim.
The court rejected this argument. Companies cannot challenge a reassessment decision in court. Companies must pay the tax, go through the EDD administrative review, and then sue in court for a refund.
The court reasoned that this procedure is not only required by law but is “better” for employers. “The refund suit will be a better remedy than what Merchandising Concept Group could obtain in this writ proceeding if it were allowed to go forward. Accepting Merchandising Concept Group’s position it will not receive a refund from this proceeding, all it would get is a determination that the Appeals Board (and therefore the Employment Development Department and the administrative law judge) were wrong in concluding the workers were employees. That determination is not as good as a determination the workers were not employees and a refund of taxes paid, which is what Merchandising Concept Group would get if it prevails in the refund suit.”
The Bottom Line
It is easy to get lost in the maze of EDD administrative procedures. Many advocates for employers would say the cards are stacked against the employer. Nevertheless, those are the cards we are dealt, playing the wrong cards can result in a bust. When challenging the EDD’s tax determination arising out of an independent contractor classification (as well as other employer tax cases) be sure to methodically follow the six steps outlined above. There are no shortcuts.
Related Articles:
Department of Labor Pursues Employer of Misclassified Independent Contractors
Worker Deemed Independent Contractor; Wrongful Termination Claims Fail
More Legal Update articles.
Download entire March 2010 Legal Update in PDF format.
This article is intended as a brief overview of the law and are not intended to substitute as legal advice. Any questions or concerns regarding any statute or case law should be addressed to a licensed attorney. Copyright © 2010 by Barker Olmsted & Barnier, APLC. San Diego, California. All rights reserved.
|
Copyright © 2007 Barker Olmsted & Barnier.
All Rights Reserved. Powered by Infinitude.net Disclaimer.
Privacy Notice. 