[Federal Register Volume 70, Number 222 (Friday, November 18, 2005)]
[Notices]
[Pages 69991-69992]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-6387]


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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) and workforce 
program. These interpretations are issued in Training and Employment 
Guidance Letters (TEGLs) to the State Workforce Agencies. The TEGL 
described below is published in the Federal Register in order to inform 
the public.

TEGL 6-05

    TEGL 6-05 advises states of the Federal law requirements related to 
determining and allocating the cost of assessing and collecting state 
taxes that are collected along with state unemployment compensation 
(UC) taxes, but are not used solely for UC purposes.
    The laws in many states require the state UC agency to collect 
taxes that are used for non-UC purposes, and additional states have 
considered enacting such laws. Examples of non-UC taxes collected by 
state UC agencies include personal income, temporary disability, 
economic development, and job training-related taxes.
    In General Administration Letter (GAL) 4-91, the Department 
outlined the requirements related to the costs of collecting these non-
UC taxes. Specifically, these costs may not be paid from UC grant 
funds, and when a state UC agency collects non-UC taxes, the state must 
submit a plan for allocating such costs. Although that GAL has expired, 
these requirements remain in effect.
    TEGL 6-05 is being issued to eliminate any confusion caused by the 
expiration of GAL 4-91. Although this advisory merely states what is 
already required by Federal law and regulation regarding the allocation 
of costs for all Federal grants to states, states have found it useful 
to have a concise statement of these requirements available, 
particularly as it regards tax collection.

     Dated: November 14, 2005.
Emily Stover DeRocco,
Assistant Secretary of Labor.

Employment and Training Administration, Advisory System, U.S. 
Department of Labor, Washington, D.C. 20210

Classification: Grants/Cost Allocation
Correspondence Symbol: OWS/DL
Date: September 29, 2005

Training and Employment Guidance Letter No. 6-05

    To: All State Workforce Agencies. All State Workforce Liaisons. 
All One-Stop Center System Leads.
    From: Emily Stover DeRocco, Assistant Secretary.
    Subject: Allocation of Costs of Assessing and Collecting State 
Taxes that are Collected in Conjunction with the State. Unemployment 
Compensation Tax.
    1. Purpose. To provide guidance to the states in determining and 
allocating the costs of assessing and collecting state taxes that 
are collected along with state unemployment compensation (UC) taxes, 
but are not used solely for UC purposes.
    2. References. Title III of the Social Security Act (SSA); 39 
U.S.C. 3201(1); 29 CFR 97.22; Office of Management and Budget (OMB) 
Circular No. A-87, ``Cost Principles for State and Local 
Governments'' (as revised May 10, 2004); General Administration 
Letter (GAL) No. 4-91; Unemployment Insurance Program Letter (UIPL) 
No. 25-92; and One-Stop Comprehensive Financial Management Technical 
Assistance Guide, Part II.
    3. Background. The laws in many states requires the state UC 
agency to collect taxes that are used for non-UC purposes, and 
additional states have considered enacting such laws. Examples of 
non-UC taxes collected by state UC agencies include personal income, 
temporary disability, economic development, and job training-related 
taxes.
    In GAL 4-91, the Department outlined the requirements related to 
the costs of collecting these non-UC taxes. Specifically, these 
costs may not be paid from UC grant funds, and when a state UC 
agency collects non-UC taxes, the state must submit a plan for 
allocating such costs. Although that GAL has expired, these 
requirements remain in effect.

Recissions: None
Expiration Date: Continuing

    This advisory is being issued to eliminate any confusion caused 
by the expiration of GAL 4-91. Also, although this advisory merely 
states what is already required by Federal law and regulation 
regarding cost allocation for all Federal grants to states, states 
have found it useful to have a concise statement of these 
requirements available, particularly as it regards tax collection.
    4. Federal law and cost principles. Section 302(a), SSA, 
provides that the Secretary of Labor shall certify for payment to a 
state such amounts as the Secretary determines to be necessary for 
the proper and efficient administration of the state's UC law. These 
payments are sometimes referred to as Title III grants. Further, 
section 303(a)(8), SSA, provides that, as a condition of receiving a 
Title III grant, the state may expend its Title III grant solely 
``for the proper and efficient administration'' of the state's UC 
law. Since state UC tax administration is an integral part of 
administering a state's UC law, these administrative costs may be 
charged to Title III grants consistent with Federal laws and 
regulations. Conversely, since collecting taxes that will not be 
used for state UC

[[Page 69992]]

purposes is not necessary for the proper and efficient 
administration of a state's UC law, the costs of collecting those 
taxes may not be charged to Title III grants.
    Departmental regulations at 29 CFR 97.22(b) provide that, for 
purposes of determining allowable costs under a grant to a state 
(including the Title III grant), the Department will follow the cost 
principles in OMB Circular A-87. Section C.3 of Attachment A of the 
Circular provides that--
    (a) A cost is allocable to a particular cost objective if the 
goods or services involved are chargeable or assignable to such cost 
objective in accordance with relative benefits received.
    * * *
    (d) Where an accumulation of indirect costs will ultimately 
result in charges to a Federal award, a cost allocation plan will be 
required. * * *
    Applying these principles to Title III grants, a cost allocation 
plan must be developed whenever a state UC agency incurs costs for a 
``cost objective'' unrelated to the administration of the UC 
program. Collection of a tax that is not used entirely for Title III 
(that is, UC) purposes is such a cost objective.
    5. Application.
    a. In general. Whenever a state UC agency collects a tax that is 
not used entirely for UC purposes, the state must obtain the 
cognizant Federal agency's approval of its plan for allocating the 
costs of assessing, processing, and collecting the tax. The 
following indicates whether Title III grants may be used to collect 
a tax and whether collection of the particular tax requires a plan 
for allocating costs:
     Title III grants may be used to administer a tax when 
all revenues from the tax are (1) deposited in the state's 
unemployment fund to be used for the payment of compensation, (2) 
used to pay interest on advances under Title XII, SSA, or (3) used 
for the administration of the UC program. No cost allocation plan is 
required.
     Title III funds may not be used for any costs of 
collecting a tax that is used entirely for non-UC purposes, such as 
administering other workforce programs (including providing 
employment services to UC claimants), job training, economic 
development, temporary disability payments, health related benefits, 
or state income tax. A cost allocation plan is required.
     Title III grants may be used in proportion to the 
benefit received by the UC program if a portion of the revenues of a 
tax are used for UC purposes and a portion for non-UC purposes. A 
cost allocation plan is required.
    Cost allocation plans addressing taxes will generally be 
included with the state's annual submission of its Indirect Cost 
Rate Proposal. However, in some cases (such as newly enacted taxes 
that are assessed immediately after enactment), it will be necessary 
to submit the tax plan as soon as possible to assure proper 
allocation of costs.
    b. Taxes which might be used for UC purposes. Many state UC 
agencies collect taxes which permit (but do not require) the 
revenues, or a part thereof, to be used for UC purposes. As a 
result, there is no guarantee that the UC program will receive any 
benefit from these taxes. For any year in which such taxes are 
collected, the state's cost allocation plan will need to address, to 
the extent possible and taking into account prior history regarding 
the tax's revenues, whether any of the revenues will be used for UC 
purposes.
    c. Penalty mail. When a UC agency collects a tax that is not 
solely restricted to UC purposes, penalty mail, as defined in 39 
U.S.C. 3201(1), must not be used for any mailing related to the tax, 
whether or not the mailing also includes UC material. When a state 
UC agency collects a tax (or taxes) for other than UC purposes, the 
allocation of postage costs between the programs supported by the 
tax (or taxes) must be addressed in the state's cost allocation 
plan.
    d. Use of non-UC grants and state financing. Funds granted for 
administering the Wagner-Peyser Act and the Workforce Investment Act 
are restricted to activities in support of the specific purposes set 
forth in those Acts. Unlike Federal UC law, these Acts do not 
authorize the collection of taxes, even if tax revenues enhance 
program activities performed under either of these Acts. As a 
result, funds granted under these Acts may not under any 
circumstances be used to collect any tax revenues. Aside from any 
Federal limitations on the use of granted funds, states are 
otherwise free to determine how to finance the costs of collecting 
non-UC or mixed-use taxes. States may use state general revenues or 
deduct the costs of collection from the revenues generated by the 
non-UC or mixed-use tax.
    e. Identification of taxes for FUTA credit purposes. States must 
assure that employers are aware that only contributions deposited in 
the state's unemployment fund may be used to obtain credit against 
the Federal unemployment tax. See UIPL 25-92. (This matter does not 
need to be addressed in the cost allocation plan.)
    6. Action required. Administrators should distribute this 
advisory to appropriate staff.
    7. Inquiries. Please direct questions to the appropriate 
Regional Office.

 [FR Doc. E5-6387 Filed 11-17-05; 8:45 am]
BILLING CODE 4510-30-P