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OVERVIEW The Tax Audits unit performs regular audits of employers’ work records. A complete payroll audit involves an examination of any subsidiary records, including payment records for services that were not classified as employment or wages. The Colorado Employment Security Act (CESA) 8-72-107 requires that all records must be open for inspection so that the records may be audited and verified at any reasonable time and as often as necessary. Employers are required to keep work records for a minimum of 5 years. STATE UNEMPLOYMENT TAX ACT DUMPING What is State Unemployment Tax Act dumping? What issues are created by State Unemployment Tax Act dumping? How is State Unemployment Tax Act dumping being addressed? What is State Unemployment Tax Act dumping? State Unemployment Tax Act (SUTA) dumping is a tax-avoidance method used by some employers to reduce their unemployment insurance (UI) tax rate. More specifically, SUTA dumping is a practice of employers to create new business entities and transfer employees. In some cases, a part of the organization, trade, or business is transferred to deliberately avoid an increase in the UI tax rate caused by UI benefit payments attributable to an existing company. The practice of avoiding the proper payment of UI taxes places an undue burden on all employers who are paying UI taxes correctly according to the requirements established in CESA 8-76-103 and CESA 8-76-104. To read additional information, click on SUTA Dumping Alert (PDF). What issues are created by State Unemployment Tax Act dumping? Employers who engage in SUTA dumping are jeopardizing the solvency of Colorado’s UI Trust Fund. The UI Trust fund is a pool of money from which UI benefits are paid. When some employers avoid contributing the correct amount of taxes to the UI Trust Fund, all employers are burdened with higher tax rates in future years. Employers’ tax rates are adjusted each year according to the tax-rate schedule defined in the CESA 8-76-103 (3)(b)(II) to ensure the UI Trust Fund remains solvent. How is State Unemployment Tax Act dumping being addressed? House Bill 05-1092, State Unemployment Tax Act Dumping Prevention, was enacted by the 2005 Colorado General Assembly. This legislation closed loopholes that existed previously and allowed the Colorado Department of Labor and Employment (CDLE) to impose civil and criminal penalties on individuals who knowingly violate or attempt to violate the provisions in CESA 8-76-104. The Tax Audits unit actively identifies and pursues employers engaged in tax-avoidance activities. As stated in CESA 8-72-108, CDLE has the authority to subpoena records and individuals in its investigations. Employers can help protect the integrity of the UI Trust Fund and minimize the negative impact that SUTA dumping has on UI tax rates by informing the UI Program about this activity. Information may be reported to the Director of UI Integrity at 303-318-8147. The source of the information is kept confidential. FREQUENTLY ASKED QUESTIONS ABOUT TAX AUDITS Who is considered an employee, and who is considered an independent contractor? Who is considered an employee, and who is considered an independent contractor? The definition of employment in CESA 8-70-115 is broad and inclusive, and it is not limited to the common-law relationship of master and servant (as used by the Internal Revenue Service). If there is an employer-employee relationship, it makes no difference how the employer describes the relationship. It does not matter if the individual is called an employee, partner, co-adventurer, subcontractor, agent, contract laborer, or independent contractor. It does not matter how the payments are measured; what they are called; or whether the individual is a full-time, part-time, or temporary employee. The two main concepts used to determine who is an independent contractor are:
There are several other factors that may be considered in determining if an individual is an employee or independent contractor. For help in determining if a worker is an independent contractor or employee, contact the Tax Audits unit at 303-318-9100, and select Option 6. UI tax auditors perform a detailed audit of all records. A complete payroll audit involves an examination of all subsidiary records, including payment records for services that were not classified as employment or wages. CESA 8-72-107 requires that all records are open for inspection so that the records may be audited and verified at any reasonable time and as often as necessary. Denver Office Colorado Department
of Labor and Employment Field Audit Offices Outside of the Denver-Metro Area UI audit offices are located throughout the state. UI tax auditors are assigned to each office to inform employers about UI tax. The offices below are listed alphabetically by city. Colorado Department of
Labor and Employment Colorado Department of Labor and Employment Colorado Department of Labor and Employment Colorado Department of Labor and Employment Colorado Department of Labor and Employment
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