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Declaratory Rulings

State of Rhode Island - Division of Taxation

Declaratory Rulings

Ruling Request No. 2000-01

 

Re: Ruling Regarding the Application of the Jobs Development Act to the Hiring of Certain Employees in Rhode Island

 

Request for Ruling

In accordance with the provisions of R.I.G.L. 42-35-8, you request a ruling on behalf of Company A regarding the application of the Jobs Development Act (R.I.G.L. 42-64.5-1) to certain Company A employees in this state.

 

Facts

The facts set forth herein are taken from the statement of facts presented in the request for ruling dated May 25, 2000.

The taxpayer, Company A, is in the business of providing a full range of services to consumer and commercial markets through over 300 offices. In September of 1999, Company A and its division, formalized its plan to acquire facilities being divested by Company B throughout Connecticut, Rhode Island, Massachusetts and New Hampshire.

As part of the terms of the acquisition, Company A contractually agreed to hire approximately 500 of the estimated 1,200 existing Company B employees that will be terminated by Company B. The remaining 700 Company B employees are being hired by Company A's own determination. Included within the 1,200 employees being hired by Company A are employees that work at a particular operations facility. Company A elected to hire these employees and take over the operations facility rather than build a new facility. Company A was under no obligation to take over that facility.

The estimated 1,200 employees were not employees of Company A or a Company A affiliate prior to their hire dates.

 

Ruling Requested

The estimated 1,200 employees being hired as a result of Company A's acquisition of Company B's facilities meet the definition of "new employment" pursuant to Title 42 of Chapter 64.5 of the Rhode Island General Laws, as amended, entitled "Jobs Development Act."

 

Discussion

The Rhode Island Jobs Development Act was enacted in 1994 as an incentive to provide new jobs and stimulate economic development in the State of Rhode Island. This act grants an incremental tax reduction to companies that create new employment in Rhode Island. An eligible company may permanently reduce its income tax rate by 0.25 percent for each unit of new employment provided all other eligibility requirements are met under the act.

The issue presented is whether the 1,200 former employees of Company B who are hired by Company A as a result of Company A's acquisition of Company B's branch offices and other operation facilities meet the definition of "new employment" under the Jobs Development Act. 1

Rhode Island General Law, Section 42-64.5-2(8) reads, in pertinent part, as follows:

"New employment" means for each taxable year the amount of adjusted current employment for each taxable year minus the amount of base employment, but in no event less than zero; provided, however, no eligible company is permitted to transfer, assign or hire employees who are already employed within the State by such eligible company from itself or any affiliated entity or utilize any other artifice or device for the purpose of artificially creating new employees in order to qualify for the rate reduction provided for in this chapter. . . .

Company A's acquisition of Company B's facilities was an "arm's length transaction." The former employees of Company B which Company A hires will be "new" employees as to Company A. In effect, these employees will enter into a new employment relationship with Company A.

There is nothing in the definition of "new employment" under §42-64.5-2(8), supra, which would disqualify these jobs as "new employment" for Company A absent Company A's utilization of an artifice or device for the purpose of artificially creating new employees in order to qualify for the rate reduction.

Company A's hiring of Company B's former employees under the facts set forth cannot be considered the utilization of an artifice or device for the purpose of artificially creating new employees.

 

Ruling

The estimated 1,200 employees being hired by Company A as a result of the acquisition of Company B's offices and facilities meets the definition of "new employment" pursuant to Title 42 of Chapter 64.5 of the Rhode Island General Laws, as amended, entitled "Jobs Development Act."

This ruling may be relied upon by Company A and shall be valid until expressly revoked or until the applicable statutory provisions of law are amended in a manner that requires a different result or the underlying facts described herein change.

1 In its request for ruling, Company A made certain assumptions relating to other eligibility requirements and to the computation of its rate reduction, neither of which are considered in this ruling.

 

R. Gary Clark
Tax Administrator

June 16, 2000