Buyer Beware: South Carolina Unemployment Insurance Taxes

Many businesses are purchased in South Carolina every year. Many of these same businesses, however, have high worker unemployment claims, and are paying high South Carolina Unemployment Insurance taxes to the state to fund these claims.

South Carolina pays unemployment benefits to people that are out of work.  The state funds these benefits through a special tax on employers in the state – the South Carolina Unemployment Insurance Tax, or “UI Tax.”  The more unemployment claims that are filed with the state and related to an employer, the higher the employer’s UI Tax rate will be.

Where a business is purchased in South Carolina, and the purchaser “acquires by purchase, merger, consolidation … or other means substantially all of the assets of the business of any employer and continues the acquired business,” the purchaser is deemed to be the successor and “succeeds to the employment experience record” of the purchased business.  The term “substantially all” means 95% or more of the business of the seller as determined by the state in each case.

So, when a purchaser buys at least 95% of a business in South Carolina, and the business has a high state UI Tax rate, the purchaser assumes the seller’s high tax rate.  This, of course, can have unintended consequences for a buyer.

Determining what a “business” may be, and whether “95% or more” of the “business” has been “acquired by purchase, merger, consolidation … or other means” can all be important to the issue of whether or not a buyer must be responsible for increased taxes resulting from his seller’s high state unemployment claims.

About the Author

Erik P. Doerring
Erik leads the firm's economic development and tax practices. He is a business lawyer, with the skills of a tax litigator. Prior to joining McNair, Erik was an attorney with the IRS Office of Chief Counsel and the U.S. Department of Justice, Tax Division.