[Federal Register Volume 69, Number 62 (Wednesday, March 31, 2004)]
[Notices]
[Pages 16965-16971]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7172]


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DEPARTMENT OF LABOR

Employment and Training Administration


Workforce Security Programs: Training and Employment Guidance 
Letter Interpreting Federal Law

    The Employment and Training Administration interprets Federal law 
requirements pertaining to unemployment compensation (UC). These 
interpretations are issued in Unemployment Insurance Program Letters 
(UIPLs) to the State Workforce Agencies. The UIPLs described below are 
published in the Federal Register in order to inform the public.

UIPL 14-01

    UIPL 14-01 informs states of the amendments made by the 
Consolidated Appropriations Act of 2001 (CAA) affecting the federal-
state UC program. The CAA amended Federal law to change the way 
American Indian tribes are treated under the Federal Unemployment Tax 
Act (FUTA). The Indian tribes are now treated similarly to state and 
local governments. States with ``Indian tribes,'' as defined by the CAA 
amendments, within their state boundaries were required to amend their 
laws to implement the requirements created by the CAA.

UIPL 14-01, Change 1

    UIPL 14-01, Change 1 responded to questions concerning the 
treatment of Indian tribes under the FUTA. This issuance addresses the 
scope of the law, answers questions about the Model Language provided 
in UIPL 14-01, and responds to questions concerning financing UC for 
businesses owned by Indian tribes.

    Dated: March 25, 2004.
Emily Stover DeRocco,
Assistant Secretary of Labor.

 U.S. Department of Labor,

 Employment and Training Administration, Washington, DC 20210

Classification: UI
Correspondence Symbol: TEUL
Date: January 12, 2001

     Directive: Unemployment Insurance Program Letter No. 14-01.
     To: All State Employment Security Agencies.
     From: Grace A. Kilbane, Administrator, Office of Workforce 
Security.
     Subject: Treatment of Indian Tribes under Federal Unemployment 
Compensation Law--Amendments made by the Consolidated Appropriations 
Act, 2001.
     1. Purpose: To inform States of the amendments made by the 
Consolidated Appropriations Act, 2001 affecting the Federal-State 
Unemployment Compensation (UC) program.
    2.  References. Section 166 of the Community Renewal Tax Relief 
Act of 2000 as enacted by the Consolidated Appropriations Act, 2001 
(CAA), P.L. 106-554; Sections 3304(a)(6), 3306(c)(7), 3306(u), and 
3309 of the Federal Unemployment Tax Act (FUTA); Section 204(a) of 
the Federal-State Extended Unemployment Compensation Act; Section 
4(e) of the Indian Self-Determination and Education Assistance Act 
(25 U.S.C. 450b(e)); 20 C.F.R. Part 615; Draft Legislation to 
Implement the Employment Security Amendments of 1970 * * * H.R. 
14705 (1970 Draft Language); Draft Language and Commentary to 
Implement the Unemployment Compensation Amendments of 1976-P.L. 94-
566 (1976 Draft Language); Unemployment Insurance Program Letter 
(UIPL) No. 21-80 (February 29, 1980); UIPL No. 29-83 (September 13, 
1983); UIPL No. 11-86 (January 31, 1986); UIPL No. 43-93 (September 
13, 1993); UIPL No. 14-96 (April 12, 1996); and UIPL No. 30-96 
(August 8, 1996).
     3. Background. On December 21, 2000, the President signed the 
CAA into law. The CAA amended Federal law to change the way American 
Indian tribes are treated under the FUTA. Specifically, the Indian 
tribes are now treated similarly to State and local governments. 
This means--
     Rescissions: None
     Expiration Date: Continuing
     Services performed in the employ of tribes 
generally are no longer subject to the FUTA tax.
     As a condition of participation in the 
Federal-State UC program:
    Services performed in the employ of tribes are, with specified 
exceptions, required to be covered under State UC laws. Prior to the 
CAA amendments, coverage was at the option of the State.
    Tribes must be offered the reimbursement option. Prior to the 
CAA amendments, States were prohibited from offering the 
reimbursement option to Indian tribes. (See UIPL No. 4-96.)
     Extended Benefit payments based on services 
performed in the employ of tribes no longer qualify for Federal 
sharing.
     Unlike State and local governments, if an Indian tribe fails to 
make required payments to the State's unemployment fund or payments 
of penalty or interest, then the tribe will become liable for the 
FUTA tax and the State may remove tribal services from State UC 
coverage.
     States with ``Indian tribes,'' as defined by the CAA 
amendments, within their State boundaries will need to amend their 
laws to implement the requirements created by the CAA.
     4. Discussion.

[[Page 16966]]

     a. What is the definition of Indian Tribe? The CAA added a new 
provision to the FUTA defining Indian tribe. For FUTA purposes--

the term ``Indian tribe'' has the meaning given to such term by 
section 4(e) of the Indian Self-Determination and Education 
Assistance Act (25 U.S.C. 450b(e)), and includes any subdivision, 
subsidiary, or business enterprise wholly owned by such an Indian 
tribe. [Section 3306(u), FUTA.]

     Section 4(e) of the Indian Self-Determination and Education 
Assistance Act provides--
     ``Indian tribe'' means any Indian tribe, band, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established 
pursuant to the Alaska Native Claims Settlement Act (85 Stat. 688) 
(43 U.S.C. 1601 et seq.), which is recognized as eligible for the 
special programs and service provided by the United States to 
Indians because of their status as Indians.
     A listing of these Indian tribes as of March 13, 2000, is 
contained in the attached Federal Register Notice. The amendments 
made by the CAA apply only to these Indian tribes. States are not 
required to cover services for Indian tribal entities not meeting 
this definition. States are prohibited from offering the 
reimbursement option to Indian tribal entities not meeting this 
definition.
     b. How does the CAA exempt tribal services from the FUTA tax? 
Section 3306(c)(7), FUTA, excludes services performed by State and 
local governments from the FUTA definition of ``employment'' with 
the result that these services are not subject to the FUTA tax. The 
CAA amended this section to now provide that ``employment'' does not 
include--

service performed in the employ of a State, or any political 
subdivision thereof, or in the employ of an Indian tribe, or any 
instrumentality of any one or more of the foregoing which is wholly 
owned by one or more States or political subdivisions or Indian 
tribes; and any service performed in the employ of any 
instrumentality of one or more States or political subdivisions to 
the extent that the instrumentality is, with respect to such 
service, immune under the Constitution of the United States from the 
tax imposed by section 3301. [Amendments in bold.]

     The exception from employment applies only to services 
performed ``in the employ of an Indian tribe.'' It does not except 
from employment services performed for a private entity on 
reservation lands.
     The Internal Revenue Service (IRS) is charged with 
administering this section and is therefore responsible for 
addressing any questions concerning services performed ``in the 
employ of an Indian tribe.''
    c. How does the CAA require coverage of tribal services? As a 
condition of employers in the State receiving credit against the 
FUTA tax, FUTA requires State law to provide that UC must be--

payable on the basis of service to which 3309(a)(1) applies, in the 
same amount, on the same terms, and subject to the same conditions 
as compensation payable on the basis of other service subject to 
such law. [Section 3304(a)(6)(A), FUTA.]

    These requirements are generally referred to as the ``required 
coverage'' and ``equal treatment'' provision. They apply to the 
services described in Section 3309(a)(1), FUTA. Section 
3309(a)(1)(B) applies to ``service excluded from the term 
`employment' solely by reason'' of Section 3306(c)(7), FUTA. Since 
services performed in the employ of an Indian tribe are now included 
in Section 3306(c)(7), FUTA, they fall within the scope of the 
required coverage and equal treatment provisions.
    In brief, this means that services performed in the employ of a 
tribe must be covered for State UC law purposes when the services 
are excluded from the FUTA definition of ``employment'' solely by 
reason of being performed for the tribe. It also means that ``equal 
treatment'' must be provided in the payment of UC based on services 
performed in the employ of a tribe. States may not create special 
eligibility provisions related to tribal services within the scope 
of Section 3306(c)(7), FUTA, without conflicting with Federal law.
    d. Are any services excepted from the required coverage of 
tribal services? Yes. The same services which may be excluded from 
coverage for State and local governments may be excluded when 
performed for a tribe. These services are found in paragraphs (1) 
through (6) and (8) through (20) of Section 3306(c) and Section 
3309(b) of the FUTA. The CAA amended three of the FUTA exceptions to 
specifically address their application to services performed for 
tribes. These exceptions now provide that States are not required to 
cover services performed--

     ``as a member of legislative body, or a 
member of the judiciary, of a State or political subdivision 
thereof, or of an Indian tribe.'' (Section 3309(b)(3)(B), FUTA; 
amendment in bold.)
     ``in a position, which under or pursuant to 
the State or tribal law, is designated as (i) a major nontenured 
policymaking or advisory position, or (ii) a policymaking or 
advisory position the performance of the duties of which ordinarily 
does not require more than 8 hours per week.'' (Section 
3309(b)(3)(E), FUTA; amendment in bold.)
     ``as part of an unemployment work-relief or 
work-training program assisted or financed in whole or in part by 
any Federal agency or an agency of a State or political subdivision 
thereof or of an Indian tribe, by an individual receiving such work 
relief or work training.'' (Section 3309(b)(5), FUTA; amendment in 
bold.)

    Guidance on the exclusions relating to members of a legislative 
body or judiciary and to major nontenured policymaking or advisory 
position is found on pages 26-29 of the 1976 Draft Language. 
Guidance on work-relief or work-training programs is found in UIPL 
No. 30-96.
    States are not required to except any services performed for a 
tribe from coverage. This decision is entirely a State option.
    e. How does the CAA give tribes the reimbursement option? How 
does the CAA allow States to terminate coverage and the 
reimbursement option? FUTA also requires, as a condition of 
employers in the State receiving credit against the FUTA tax, that 
State law provide that--

payments (in lieu of contributions) with respect to service to which 
section 3309(a)(1) applies may be made into the State unemployment 
fund on the basis set forth in section 3309(a)(2). [Section 
3304(a)(6)(B), FUTA.]

    Since, as discussed in the preceding item, services performed in 
the employ of Indian tribes now fall under Section 3309(a)(1), the 
reimbursement option must be offered to Indian tribes. Therefore, 
the States are required to offer the option of ``payments in lieu of 
contributions'' (or reimbursement) option to Indian tribes.
    The reimbursement option is described in Section 3309(a)(2), 
FUTA--

the State law shall provide that a governmental entity, including an 
Indian tribe, or any other organization (or group of governmental 
entities or other organizations) which, but for the requirements of 
this paragraph, would be liable for contributions with respect to 
service to which paragraph (1) applies may elect, for such minimum 
period and at such time as may be provided by State law, to pay (in 
lieu of such contributions) into the State unemployment fund amounts 
equal to the amounts of compensation attributable under the State 
law to such service. The State law may guards to ensure that 
governmental entities or other organizations so electing will make 
the payments required under such elections. [Amendment in bold.]

    In addition to making the reimbursement requirements of Section 
3309(a)(2) applicable to the tribes, the CAA added a new Section 
3309(d) to FUTA concerning elections of reimbursement status by an 
Indian tribe. It provides that--
    The State law shall provide that an Indian tribe may make 
contributions for employment as if the employment is within the 
meaning of section 3306 or make payments in lieu of contributions 
under this section, and shall provide that an Indian tribe may make 
separate elections for itself and each subdivision, subsidiary, or 
business enterprise wholly owned by such Indian tribe. State law may 
require a tribe to post a payment bond or take other reasonable 
measures to assure the making of payments in lieu of contributions 
under this action. Notwithstanding the requirements of section 
3306(a)(6) [sic--should be 3304(a)(6)], if, within 90 days of having 
receiving a notice of delinquency, a tribe fails to make 
contributions, payments in lieu of contributions, or payment of 
penalties or interest (at amounts or rates comparable to those 
applied to all other employers covered under the State law) assessed 
with respect to such failure, or if the tribe fails to post a 
required payment bond, then service for the tribe shall not be 
excepted from employment under section 3306(c)(7) until any such 
failure is corrected. This subsection shall apply to an Indian tribe 
within the meaning of section 4(e) of the Indian Self-Determination 
and Education Assistance Act (25 U.S.C. 450b(e)).
    f. What is the effect of these amendments on the reimbursement 
option? The

[[Page 16967]]

amendments to FUTA establish the following rules for offering tribes 
the reimbursement option--
     States must offer the reimbursement option to 
tribes.
     A tribe must be given the option of making 
separate reimbursement elections for itself, each subdivision, 
subsidiary, or business enterprise wholly owned by the tribe.
     Tribes must be allowed to combine into group 
reimbursement accounts if they so choose.
     States may require a payment bond or take 
other reasonable measures to assure reimbursements are made. (See 
the discussion contained in the 1970 Draft Language, pages 99-103, 
concerning bonds or other security.)
     States may establish minimum periods for 
which an election (or the declining of the election) is a applicable 
and the times at which elections may be made.
    g. What happens if a tribe fails to make payments required under 
State law? Concerning any failure of a tribe to make payments 
required under State law--
     The failure applies to any contributions, 
reimbursements, penalties, interest, and bonds required by State 
law.
     The amount of the penalty or rate of interest 
must be ``comparable'' to those applied to all other employers 
covered under State law. For ease of administration, States are 
encouraged to apply identical amounts or rates. States should not 
vary the amount or rate from that which would be charged other 
employers by more than 10 percent.
     If, within 90 days of receiving a delinquency 
notice, the tribe fails to make a required payment, then the 
services performed will no longer ``be excepted from unemployment 
under section 3306(c)(7) until any such failure is corrected.'' This 
means that--
     Services performed for the Indian tribe 
become subject to the FUTA tax.
     States are, at their option, no longer 
required to cover services performed for the tribe.
     States are prohibited from allowing the tribe 
to reimburse the State's unemployment fund. If the State chooses to 
continue coverage of tribal services, the tribe must be converted to 
contributing status.
    Whether a tribe fails to make the required payment within 90 
days of receiving a delinquency notice is a determination made under 
State law. Since the effects of unpaid liabilities for Indian tribes 
differs from the effect on other employers, States should advise the 
tribes at the time of mailing of the delinquency notice that non-
payment will result in the tribe becoming subject to the FUTA tax, 
the exclusion of tribal services from coverage (if the State decides 
to exercise this option), and loss of reimbursement status.
    Under Section 3309(d), FUTA, if ``a tribe fails to make'' ``a 
payment or fails to post a required payment bond,'' then ``service 
for the tribe'' shall not be excepted from the FUTA definition of 
employment. When any subdivision, subsidiary, or business enterprise 
wholly owned by the tribe (``tribal units'') fails to make a payment 
or post a required bond, all services performed for the tribe become 
subject to the FUTA and States are no longer required to cover the 
services. If, however, the services continue to be covered, the 
tribe must be converted to contributing status. In cases where 
tribal units have separately elected the reimbursement option, 
States may wish to consider making the entire tribe and its tribal 
units jointly and severally liable so that the risk of the Indian 
tribe losing its privileges is minimized.
    States are not required to terminate coverage due to nonpayment. 
If a State elects to do so, the State should terminate coverage due 
to non-payment only as a last resort because terminating coverage 
publishes workers who have no control over whether their employers 
satisfy the UC liabilities.
    States have some flexibility to determine when the termination 
of reimbursement status becomes final. For example, the termination 
could become effective either immediately or the following tax year. 
Also, if the State has reason to believe the tribe will pay the 
amounts due, termination may be delayed. For example, States may 
enter into payment schedules, which, if adhered to by the tribe, 
would be a basis for delaying termination. Similarly, once the tribe 
satisfies its liabilities, the State has the option of immediately 
converting the tribe back to a reimbursing employer, waiting until 
the following tax year, or requiring a new election. States may also 
choose to treat certain delinquencies differently depending on the 
nature of the delinquency. For example, if a tribe is delinquent in 
posting the initial required payment bond for purposes of becoming a 
reimbursing employer, the State may grant reimbursing status 
immediately upon the bond being paid. Alternatively, if the 
delinquency is for unpaid reimbursements, the State may wait until 
the following tax year to again grant reimbursing status.
    The IRS will determine any FUTA tax liability resulting from 
State determinations made under provisions of State law consistent 
with Section 3309(d), FUTA. To assure proper determination of FUTA 
liability, the State will need to advise the IRS and the Department 
of Labor of any determination it has made concerning an Indian 
tribe's failure to make required payments or post a required bond 
and whether the tribe has subsequently satisfied these liabilities.
    h. What options exist for allocating UC costs when the tribe 
elects reimbursement status.? Under the FUTA, State law must provide 
for payment by reimbursing employers ``of amounts equal to the 
amounts of compensation attributable under the State law to such 
service.'' As explained in UIPL No. 21-80, whether UC paid is 
attributable to service in the employ of a reimbursing employer 
(and, therefore, whether the UC costs must be reimbursed by that 
employer) is to be determined under provisions of State UC law which 
reasonably interpret and implement FUTA. As a general rule, if an 
amount may be noncharged to a contributory employer, the State may 
similarly find that the payment is not ``attributable to'' a 
reimbursing employer. When this occurs, there is the possibility of 
unrecovered UC costs. UIPL No. 44-93 explains acceptable methods for 
establishing liability for these unrecovered UC costs.
    i. Is there any affect on Federal sharing under the Extended 
Benefit (EB) program? Yes. States may no longer claim the Federal 
share of EB based on services performed for Indian tribes. The 
Federal-State Extended Unemployment Compensation Act (EUCA) provides 
that, with exceptions related to certain waiting weeks and rounding 
of benefits, the Federal share of EB will be 50 percent of benefit 
costs. (Section 204(a), EUCA.) Since, as discussed above, services 
performed for Indian tribes are now included in Section 3306(c)(7), 
the Department is prohibited from providing a Federal share based on 
these services. (The rationale for this prohibition is that the 
entities in question do not pay the FUTA tax which funds the Federal 
share of EB.)
    How States allocate the costs of EB is controlled by 20 CFR 
615.10. Contributory employers may be noncharged the costs of EB. In 
the case of reimbursing employers, the employer must reimburse at 
least 50 percent of the EB costs. As is the case for State and local 
governments, when Federal sharing is not permitted, the State may 
either charge the tribe for the all its EB costs or socialize its EB 
costs to the extent allowed by 20 CFR.
    j. Does the ``between and within terms denial'' for employees of 
education institutions apply? Yes. The between and within terms 
denial provisions are an exception to the ``equal treatment'' 
requirements discussed in item 4.d. (Section 3304(a)(6)(A)(i)-(vi), 
FUTA.) some of these provisions are required; others are optional 
Denial between and within terms is required based on services 
performed in an instructional, research or principal administrative 
(that is, a ``professional'' capacity. (See UIPL No. 43-83 for a 
general discussion of these requirements.) When an Indian tribe 
operates an educational institution, UC based upon professional 
services for that institution are subject to the between and within 
terms denial. (Note that educational institutions on tribal lands 
may be operated by the Federal government. Treatment of these 
institutions is unchanged. See UIPL No. 11-86.)
    k. What is the CAA's Transition Rule for Indian Tribes? The 
CAA's transition rule provides that, if a tribe has unpaid FUTA 
liabilities prior to its date of enactment, then the services for 
the tribe ``shall not be treated as employment''--that is, the FUTA 
tax will not be due--provided the tribe reimburses the State's 
unemployment fund for any UC paid prior to the date of enactment. 
This transition rule only affects the tribe's liability for FUTA tax 
prior to the date of enactment of the CAA. It has no effect on the 
requirement that coverage be extended to tribal services or on the 
requirement that tribes be offered the reimbursement option.
    l. Which States must amend their laws? Only States with ``Indian 
tribes'' within their State boundaries must amend their laws. These 
States are:

Alabama
Alaska
Arizona

[[Page 16968]]

California
Colorado
Connecticut
Florida
Idaho
Iowa
Kansas
Louisiana
Maine
Massachusetts
Michigan
Minnesota
Mississippi
Montana
Nebraska
Nevada
New Mexico
New York
North Carolina
North Dakota
Oklahoma
Oregon
Rhode Island
South Carolina
South Dakota
Texas
Utah
Washington
Wisconsin
Wyoming

    In addition, petitions for Federal recognition have been filed 
in the following States which do not currently have federally 
recognized tribes:

Arkansas
Delaware
Georgia
Indiana
Maryland
Missouri
New Jersey
Ohio
Tennessee
Vermont
Virginia

    We recommend that States where Federal recognition has not been 
granted, but where petitions have been filed, amend their laws to 
assure State UC law automatically conforms with Federal law in the 
event Federal recognition is granted.
    m. By what date must amendments to State UC law be made? The 
amendments ``apply to services performed on or after the date of 
enactment'' of the CAA. (Section need time to introduce and enact 
legislation, the Department will take no enforcement action prior to 
October 31, 2001.)
    n. Is the Department of Labor supplying model legislative 
language for States to use? Model legislative language to aid States 
in developing their amendments is attached. States are not required 
to use this model legislation. As an alternative to using the model 
legislation, States may, for example, integrate the coverage 
provisions into the coverage provisions relating to State and local 
governments and integrate the reimbursement/bonding provisions into 
the reimbursement/bonding provisions applicable to all other 
employers who may elect the reimbursement option.
    5. Action Required. Administrators are requested to provide this 
information to the appropriate staff. Action should be taken by the 
States with Indian tribes within their State boundaries listed in 
item 4.1. to implement the new Federal requirements discussed in 
this program letter as soon as possible.
    6. Inquiries. Questions should be directed to the appropriate 
Regional Office.

Attachments--
    Listing of Indian Tribes\1\
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    \1\ The attachment was published in the Federal Register, Vol. 
65, No. 49, pp. 13298-13303, on Monday, March 13, 2000.
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    Model Legislative Language

Model Legislative Language

Section--------. Treatment of Indian Tribes

    (a) The term ``employer'' shall include any Indian tribe for 
which service in employment as defined under this Act \1\ is 
performed.
---------------------------------------------------------------------------

    \1\ ``Act'' refers to the State employment security law.
---------------------------------------------------------------------------

    (b) The term ``employment'' shall include service performed in 
the employ of an Indian tribe, as defined in Section 3306(U) of the 
Federal Unemployment Tax Act (FUTA), provided such service is 
excluded from ``employment'' as defined in FUTA solely by reason of 
Section 3306(c)(7), FUTA, and is not otherwise excluded from 
``employment'' under this Act. For purposes of this section, the 
exclusions from employment in section [insert provision of State law 
relating to State and local government exclusions] shall be 
applicable to services performed in the employ of an Indian tribe.
    (c) Benefits based on service in employment defined in this 
section shall be payable in the same amount, on the same terms and 
subject to the same conditions as benefits payable on the basis of 
other service subject under this Act.
    (d)(1) Indian tribes or tribal units (subdivisions, subsidiaries 
or business enterprises wholly owned by such Indian tribes) subject 
to this Act shall pay contributions under the same terms and 
conditions as all other subject employers, unless they elect to pay 
into the State unemployment fund amounts equal to the amount of 
benefits attributable to service in the employ of the Indian tribe.
    (2) Indian tribes electing to make payments in lieu of 
contributions must make such election in the same manner and under 
the same conditions as provided in [enter section of State law] 
pertaining to State and local governments and nonprofit 
organizations subject to this Act. Indian tribes will determine if 
reimbursement for benefits paid will be elected by the tribe as a 
whole, by individual tribal units, or by combinations of individual 
tribal units.
    (3) Indian tribes or tribal units will be billed for the full 
amount of benefits attributable to service in the employ of the 
Indian tribe or tribal unit on the same schedule as other employing 
units that have elected to make payments in lieu of contributions.
    (4) At the discretion of the commissioner, any Indian tribe or 
tribal unit that elects to become liable for payments in lieu of 
contributions shall be required within ---- days after the effective 
date of its election, to:
    (A) execute and file with the commissioner s surety bond 
approved by the commissioner or
    (B) deposit with the commissioner money or securities on the 
same basis as other employers with the same election option. 
(e)(1)(A) Failure of the Indian tribe or tribal unit to make 
required payments, including assessments of interest and penalty, 
within 90 days of receipt of the bill will cause the Indian tribe to 
lose the option to make payments in lieu of contributions, as 
described in section (d), for the following tax year unless payment 
in full is received before contribution rates for next tax year are 
computed.
    (B) Any Indian tribe that loses the option to make payments in 
lieu of contributions due to late payment or nonpayment, as 
described in subparagraph (A), shall have such option reinstated if, 
after a period of one year, all contributions have been made timely, 
provided no contributions, payments in lieu of contributions for 
benefits paid, penalties or interest remain outstanding.
    (2)(A) Failure of the Indian tribe or any tribal unit thereof to 
make required payments, including assessments of interest and 
penalty, after all collection activities deemed necessary by the 
commissioner have been exhausted, will cause services performed for 
such tribe to not be treated as ``employment'' for purposes of 
subsection (b).
    (B) The commissioner may determine that any Indian tribe that 
loses coverage under subparagraph (A), may have services performed 
for such tribe again included as ``employment'' for purposes of 
subsection (b) if all contributions, payments in lieu of 
contributions, penalties and interest have been paid.
    (C) The commissioner will notify the United States Internal 
Revenue Service and the United States Department of Labor of any 
termination or reinstatement of coverage made under subparagraphs 
(A) and (B).
    (f) Notices of payment and reporting delinquency to Indian 
tribes or their tribal units shall include information that failure 
to make full payment within the prescribed time frame:
    (1) will cause the Indian tribe to be liable for taxes under 
FUTA;
    (2) will cause the Indian tribe to lose the option to make 
payments in lieu of contributions;
    (3) could cause the Indian tribe to be excepted from the 
definition of ``employer,'' as provided in paragraph (a), and 
services in the employ of the Indian tribe, as provided in paragraph 
(b), to be excepted from ``employment.''
    (g) Extended benefits paid that are attributable to service in 
the employ of an Indian tribe and not reimbursed by the Federal 
government shall be financed in their entirety by such Indian tribe.

U.S. Department of Labor,

Employment and Training Administration, Washington, DC 20210

Classification: UI
Correspondence Symbol: OWS/OIS/DL
Date: April 6, 2001

    Directive: Unemployment Insurance Program Letter, No. 14-01, 
Change 1
    To: All State Employment Security Administrators

[[Page 16969]]

    From: Grace A. Kilbane, Administrator, Office of Workforce 
Security.
    Subject: Treatment of Indian Tribes under Federal Unemployment 
Compensation Law--Questions and Answers.
    1. Purpose. To respond to questions concerning the treatment of 
Indian tribes under the Federal Unemployment Tax Act as amended by 
the Consolidated Appropriations Act, 2001.
    2. References. Section 166 of the Community Renewal Tax Relief 
Act of 2000 as enacted by the Consolidated Appropriations Act, 2001 
(CAA), P.L. 106-554; the Internal Revenue Code, including the 
Federal Unemployment Tax Act (FUTA); Section 303(a)(1) of the Social 
Security Act (SSA); Section 2079 of the Revised Statutes (25 U.S.C. 
71); Internal Revenue Service (IRS) Revenue Ruling 59-354; 
Unemployment Insurance Program Letter (UIPL) No. 24-89 (April 4, 
1989); UIPL No. 11-92 (December 30, 1991); UIPL No. 14-96 (August 8, 
1996); and UIPL No. 14-01 (January 12, 2001).
    3. Background. The Department of Labor (Department) has received 
numerous questions on the treatment of Indian tribes under the FUTA, 
as amended by the CAA. The Department has also received several 
questions concerning the Model Legislative Language issued in UIPL 
No. 14-01. The attachment to this UIPL responds to these questions. 
Note the Question and Answer pertaining to notifying the IRS of 
delinquent payments provides new language modifying the Model 
Legislative Language.
    3a. Inquiries. Questions should be directed to the Appropriate 
Regional Office.
    Attachment--Questions and Answers
    Rescissions: None
    Expiration Date: Continuing

Treatment of Indian Tribes for FUTA Purposes

Questions and Answers

MODEL LEGISLATIVE LANGUAGE

    Q. Exclusions From Employment. Subsection (b) of the Model 
Legislative Language provided in UIPL No. 14-01 says that the 
``exclusions from employment in section [insert provision of State 
law relating to State and local government exclusions] shall be 
applicable to service performed in the employ of an Indian tribe.'' 
What does this accomplish?
    A. The amendments to the FUTA allow the exclusions from 
employment currently available to State and local governments, such 
as those related to work-relief and work-training, to also be 
available to Indian tribes. (See pages 4 and 5 of UIPL No. 14-01.) 
Since these State law exclusions are currently written to apply only 
to State and local governments (and in some cases to nonprofit 
organizations), States wishing to exclude these services when 
performed for tribes will need to amend their laws to do so. Using 
subsection (b) of the Model Legislative Language is one method of 
doing so. Another method is to amend the sections of State law 
containing the exclusions.
    Q. Current State Law Covers Tribal Services. My State law 
currently requires coverage of all Indian tribal services except in 
those cases where Federal law permits an exclusion from coverage. 
Also, my State law currently determines eligibility based on tribal 
services the same as all other services. The Model Legislative 
Language seems to assume that tribal services are not currently 
covered and that tribal services are treated differently for 
eligibility purposes. As a result, adding this language would be 
redundant. Is it necessary to add this language?
    A. No. As noted in UIPL No. 14-01, States are not required to 
use the Model Legislative Language.
    If your State already covers tribal services and if tribal 
services are treated the same as all other services in determining 
benefit eligibility, then subsections (a) through (c) of the Model 
Legislative Language are not necessary.
    States are cautioned, however, that in some cases their laws may 
contain exclusions from coverage which are not found in FUTA. These 
exclusions do not raise conformity issues when they are limited to 
FUTA taxable services.
    However, when the services are performed for State and local 
governmental entities or nonprofit organizations, and now for 
federally recognized Indian tribes, those services not excluded by 
FUTA must be covered. States not using the Model Legislative 
Language will need to ensure that any such exclusions do not apply 
to tribal services.
    States are also cautioned to examine their between- and within-
terms denial provisions to ensure that they apply to tribal 
services. (See UIPL No. 14-01, item 4.j.)
    Q. Termination of Coverage. Is it necessary for States to adopt 
the provisions in subsection (e)(2) of the Model Legislative 
Language regarding the termination of coverage of tribal services 
for failure to make a required payment?
    A. Although the amendments to the FUTA permit termination of 
coverage, they do not by their own terms require termination. 
However, Section 303(a)(1), SSA, requires ``[s]uch methods of 
administration * * * as are found by the Secretary of Labor to be 
reasonably calculated to insure full payment of unemployment 
compensation when due.'' We interpret this provision to mean that a 
State must have administrative means to prevent drains on its 
unemployment fund. Therefore, if the State has no other effective 
means of enforcing tribal liabilities to its fund, then the State 
will need to include a provision for termination of coverage.
    As noted in UIPL No. 14-01, termination of coverage should be 
used as a last resort because termination punishes workers who have 
no control over whether their employers satisfy their UC 
liabilities. For this reason, the termination provisions are written 
to give the head of the State agency considerable discretion in 
determining whether and when to terminate coverage.
    Whether or not a State opts to terminate coverage, the State is 
prohibited from allowing a tribe to continue reimbursing its 
unemployment fund if the tribe fails to make a required payment 
within 90 days of receiving the delinquency notice and until such 
delinquency is corrected. As explained in UIPL No. 14-01, item 4.g., 
if the State chooses to continue coverage of tribal services, the 
tribe must be converted to contributing status.
    Q. Delinquency Notices. Is it necessary for States to adopt the 
provisions in subsection (f) of the Model Legislative Language 
regarding the content of delinquency notices sent to tribes?
    A. No. State law need not spell out the contents of the 
delinquency notice. However, since the effects of unpaid 
delinquencies differ from those on non-tribal employers, inclusion 
of subsection (f) is recommended.
    Q. When to Notify the IRS. Page (item 4.g.) of UIPL 14-01 states 
that a State ``will need to advise the IRS and the Department of 
Labor of any determination it has made concerning an Indian tribe's 
failure to make required payments or post a required bond and 
whether the tribe has subsequently satisfied these liabilities.'' 
However, the Model Legislative Language only requires such 
notification when the State has terminated the tribe from coverage. 
Which is correct?
    A. Under Section 3309(d), FUTA, services performed for the tribe 
are not excepted from the FUTA definition of employment if ``within 
90 days of having received a notice of delinquency, a tribe fails to 
make contributions, payments in lieu of contributions, or payment of 
penalties or interest * * * or if the tribe fails to post a required 
payment bond.'' Therefore, page 8, item 4.g. of UIPL 14-01 correctly 
states the requirement of Federal law as it relates to a tribe's 
delinquency in making required payments, but not to State coverage 
of services.
    The Model Legislative Language in UIPL No. 14-01 should 
accordingly be modified by striking subsection (e)(2)(C) and 
inserting the following new subsection:
    (h) If an Indian tribe fails to make payments required under 
this section (including assessments of interest and penalty) within 
90 days of a final notice of delinquency, the commissioner will 
immediately notify the United States Internal Revenue Service and 
the United States Department of Labor

Scope of Amendments/Coverage of Services

    Q. Applicability. Do the amendments to the FUTA apply to all 
enterprises wholly owned by an Indian tribe, including those that 
might compete with similar private businesses?
    A. Yes. The amendments to Section 3306(a)(7), FUTA, apply to 
service performed ``in the employ of an Indian tribe.'' Section 
3306(u) defines ``Indian tribe'' to include ``any subdivision, 
subsidiary, or business enterprise wholly owned by such an Indian 
tribe.'' (Emphasis added.) As a result, the amendments apply to all 
wholly-owned tribal enterprises, regardless of whether they compete 
with private businesses. This parallels the treatment of 
governmental entities performing business activities, such as the 
operation of resorts or the sale of beer, wine and liquor.
    The amendments do not apply when the service is performed in the 
employ of an enterprise jointly-owned by an Indian tribe (as defined 
in Section 3307(u), FUTA) and another entity. In this case, the 
services are

[[Page 16970]]

not ``performed in the employ of'' the tribe itself, but for the 
jointly-owned entity or partnership. In addition, the amendments do 
not apply when the service is performed in the employ of a 
contractor who may operate a tribally-owned business because the 
services are not ``performed in the employ of'' the tribe itself, 
but for the contractor.
    Q. Coverage of Tribal Councils. Are services performed as a 
member of an Indian tribal council required to be covered?
    A. No. IRS Revenue Ruling 59-354 states that ``amounts paid to 
members of Indian tribal councils for services performed by them as 
council members do not constitute `wages' for the purposes of `the'' 
FUTA. As a result, the required coverage provisions of the FUTA do 
not apply to these services.
    Q. Exceptions to Coverage. My State law contains several 
exceptions from the definition of ``employment'' which are not found 
in FUTA. Does the Model Legislative Language automatically override 
these non-FUTA exceptions? If not, will other amendments to State 
law be needed to assure coverage of tribal services?
    A. The Model Legislative Language does not override any non-FUTA 
exceptions from employment found in State law. As a result, States 
may need additional amendments to their UC laws.
    As explained in item 4.c. of UIPL No. 14-01, FUTA requires 
coverage of services ``excluded from the FUTA definition of 
`employment' solely by reason of being performed for the tribe.'' 
(Emphasis in original.) If no other exclusion of the services from 
``employment'' or ``employee'' is found in Federal law, then the 
services must be covered. these exclusions are described in 
paragraphs (1)-(6) and (9)-(21) of Section 3306(c), FUTA; Section 
3309(b), FUTA; and Sections 3121(d)(3)(B) and (C), and 3508 of the 
Internal Revenue Code. An exclusion related to fishing rights 
activities is described in the following Question and Answer.
    States will need to determine if any non-FUTA exclusions are 
present in their laws. If any are present, the State will need to 
determine whether other provisions of State law require coverage 
when provided for a tribe. For example, under some State laws, non-
FUTA exceptions from the State definition of ``employment'' are 
covered when the services are performed for State and local 
governmental entities and nonprofit organizations. Such provisions 
will need to be amended to add services performed for Indian tribes. 
Other State laws provide for the required coverage by specific 
reference to Section 3306(c)(7), FUTA, (pertaining to services 
performed for State and local governmental entities and, following 
the CAA amendments, for Indian tribes) or by a general statement 
that the non-FUTA exceptions will not apply if Federal law requires 
coverage. If the State determines that these provisions result in 
coverage of non-FUTA exceptions, then no additional amendments are 
necessary.
    Q. Treatment of Certain Fishing Rights-Related Activities. 
Section 7873 of the Internal Revenue Code provides that no 
employment tax (including FUTA ) will be imposed on services 
performed ``in a fishing rights-related activity of an Indian tribe 
by a member of such tribe for another member of such tribe or for a 
qualified Indian entity'' as defined in Section 7873(b). Are States 
required to cover these services?
    A. No. Section 2079 of the Revised Statutes (25 U.S.C. 71) 
provides that States may not impose taxes on the activities 
described in Section 7873 of the Internal Revenue Code. As explained 
on pages 7 and 8 of the Attachment to UIPL No. 24-89--
    Section 7873 and 2079 exempt fishing rights income from Federal 
and State tax, ``including income, social security, and unemployment 
compensation insurance taxes.'' * * * Therefore, States may no 
longer tax remuneration paid for services to which Section 7873 
pertains for State unemployment compensation purposes.
    States are not required to cover services which they are 
prohibited from taxing. However, nothing prevents tribes from 
voluntarily entering into coverage for such services.
    Q. Tribe Has Employees in Other State(s). Item 4.1. of UIPL No. 
14-01 says that ``[o]nly States with `Indian tribes' within their 
State boundaries must amend their laws'' and then lists 33 States 
which have tribes ``within their State boundaries.'' My State is not 
included in the list of 33 States, but a tribe based in another 
State has employees in my State. In my State required to cover these 
services?
    A. Yes. The State is also required to offer the reimbursement 
option. In this case, the situation is no different from a nonprofit 
organization headquartered in one State but having employees in 
another State.
    As a result, there may be cases when States not listed in UIPL 
No. 14-01 will need to amend their laws to conform with the FUTA 
requirements related to Indian tribes.

Financing

    Q. Experience Rating Systems. My State has a separate experience 
rating system for State and local governments. Do the amendments to 
the FUTA require that Indian tribes be made part of this system when 
they do not elect the reimbursement option?
    A. No. When Indian tribes are experienced rated, they must be 
assigned rates under your State's general experience rating 
provisions.
    The experience rating requirements of Section 3303(a)(1), FUTA, 
apply to ``persons.'' ``Person'' is defined in Section 7701(a)(1) of 
the Internal Revenue Code to ``mean and include an individual, a 
trust, estate, partnership, association, company or corporation.'' 
Tribes have been considered persons for purposes of experience 
rating. (See UIPL No. 14-96.) The amendments to the FUTA did not 
change the definition of ``person'' and therefore did not change the 
fact that the experience rating provisions are applicable to tribes 
which do not reimburse the State's unemployment fund. Rather, the 
amendments simply required States to offer Indian tribes the option 
of electing reimbursement in lieu of contributions under an approved 
experience rating plan.
    Q. Use of Positive Reserve Balances. Under my State law, 
employers reimburse the State's unemployment fund for weeks of 
unemployment which begin during the effective period of such 
election. May tribes which convert from contributory to reimbursing 
status use any positive balances accumulated as a contributory 
employer to pay reimbursements?
    A. No. The reimbursement option is controlled by Section 
3309(a)(2), FUTA, which provides that an entity ``may elect, for 
such minimum period and at such times as may be provided by State 
law, to pay (in lieu of such contribution [i.e., reimbursements]) 
into the State unemployment fund amounts equal to the amounts of 
compensation attributable under the State law to such service.'' 
(Emphasis added.) Simply put, an employer in reimbursement status 
must reimburse 100 percent of all UC costs attributable to service 
with that employer. Because FUTA does not contain any exception to 
this reimbursement requirement, a past contribution may not be 
treated as a ``reimbursement.'' This rule applies to all entities 
eligible for the reimbursement option. Indeed, in 1970 and 1976, 
amendments to FUTA were necessary to allow nonprofit entities which 
had previously been contributory employers to apply their positive 
balances to reimbursements during a transition period which has 
since expired. (See 3303(f) and (g), FUTA.)
    Q. Retroactivity of Reimbursement Option. UIPL No. 14-01 says 
that ``The coverage and reimbursement requirements were. . 
.effective on December 21, 2000, and all affected States must enact 
conforming legislation immediately and retroactive to December 21, 
2000.'' Does this mean States are required to permit tribes 
currently covered by State UC law to convert to reimbursement status 
retroactive to that date?
    A. No. The Department's main concern regarding retroactivity is 
to ensure that States cover all tribal services as of December 21, 
2000.
    In addition, allowing tribes to retroactively change from 
contributory to reimbursement status may offer the tribes no 
advantages for State UC purposes. As noted in UIPL No. 11-92, 
Federal UC law authorizes only the withdrawal of ``compensation'' 
from a State's unemployment fund ``unless a clear and unambiguous 
exception is found in Federal law.'' Under UIPL No. 11-92, refunds 
of contributions are permissible only if the payment was in error 
and ``results in an amount being paid into the fund which was not 
required by the State law in effect at the time the payment was 
made.'' In short, a retroactive conversion to reimbursing status 
would not result in a refund of contributions paid as a contributory 
employer.
    Q. State Effective Date of Reimbursement Option. Must tribes be 
allowed to convert to the reimbursement option as of the date of 
enactment of the State's law?
    A. No. Under Section 3309(a)(2), FUTA, the reimbursement option 
applies ``for such minimum period and at such time as may be 
provided by State law.'' Therefore, regular State law provisions 
governing conversion will apply. For example, if a State's law is 
amended on July 31, and the State law provides that the next 
effective date for converting employers to reimbursing status is 
January 1, then the State will convert tribes to reimbursing status 
on such January 1.

[[Page 16971]]

Similarly, in the case of newly covered tribes, State law provisions 
governing the election of the reimbursement option at the time of 
establishing liability will apply.

Transition Provision

    Q. Transition Payments. The transition provisions permits an 
Indian tribe to escape unpaid FUTA tax liability for services 
performed for the tribe before the enactment of the amendments to 
the FUTA if the tribe reimburses the State unemployment fund for UC 
attributable to this service. Does this mean my State must, for 
conformity and compliance purposes, permit an Indian Tribe to 
convert to reimbursement status for the period before the enactment 
of the amendments if it makes a transition payment?
    A. No. The transition provision does not affect conformity and 
compliance. The reimbursement option of Section 3309(a)(2), FUTA, 
(as well as the mandatory coverage requirement of Section 
3304(a)(6)(A), FUTA) only applies when services excluded from the 
term ``employment'' solely by reason of Section 3309(a)(1)(B), FUTA. 
Services performed for an Indian tribe before the enactment of the 
amendments on December 21, 2000, are not excluded from the term 
``employment'' solely by reason of Section 3306(c)(7), FUTA. Rather, 
these services are excluded because the transition provision 
provides that they ``shall not be treated as employment (within the 
meaning of section 3306 of [FUTA]).'' As a result, FUTA does not 
require a state to permit an Indian tribe to elect the reimbursement 
option with respect to services performed before December 21, 2000, 
nor does it mandate coverage for these services.
    The transition provision does not require the State to convert 
tribes to reimbursement status in order for the State to accept a 
tribal transition payment. The State may, in addition to accepting 
the tribal transition payment, waive outstanding liabilities for 
contributions for the period to which the transition payment 
applies.
    The terms and conditions under which States accept transition 
payments and apply waivers will be determined under State law. 
However, the transition provision clearly contemplates that States 
will accept transition payments because they are necessary if an 
Indian tribe chooses unpaid FUTA liability. States therefore should 
accept any tribe's transition payment.
    IRS Bulletin 2001-8 discusses the transition provision as it 
affects an Indian tribe's liability for unpaid FUTA taxes.

[FR Doc. 04-7172 Filed 3-30-04; 8:45 am]
BILLING CODE 4510-30-M