Did approximately 1,200 former Company B employees hired by Company A after an arm's-length facilities acquisition count as new employment under Rhode Island's Jobs Development Act?

Plain-English summary

Approximately 1,200 former Company B employees hired by Company A after an arm's-length facilities acquisition counted as “new employment” under Rhode Island's Jobs Development Act. They entered new employment relationships with Company A and had not previously worked for Company A or one of its affiliates.

Company A agreed to hire about 500 employees as part of the acquisition terms and independently chose to hire the remaining roughly 700. The group included workers at an operations facility that Company A voluntarily took over instead of building a new facility.

The statute barred an eligible company from moving or hiring employees already employed in Rhode Island by that company or an affiliate, or using an artifice to create artificial new-employment numbers. Those restrictions did not disqualify the former Company B employees because Company B was not Company A or its affiliate and the transaction was at arm's length.

The ruling addressed employee classification only. It did not decide whether Company A met the Act's other eligibility requirements or whether its assumed rate-reduction computation was correct.

What this means for you

Companies acquiring facilities

Hiring a seller's former employees can produce new employment for the buyer when the workers were not already employed by the buyer or an affiliate and the transaction is genuine rather than a device to create incentive-eligible jobs.

Payroll and tax teams

Document each employee's prior employer, the relationship between buyer and seller, hiring dates, acquisition terms, and which hires were required or discretionary.

Transaction planners

This ruling did not make the acquisition automatically eligible for a Jobs Act rate reduction. Employee classification was only one element; all remaining statutory tests still had to be satisfied.

Common questions

Did it matter that the employees had already worked in Rhode Island? Not by itself. The statutory restriction focused on employees already working for the eligible company or an affiliated entity.

Were all 1,200 hires contractually required? No. Company A agreed to hire about 500 and chose to hire the remaining approximately 700.

Why was the acquisition important? The Division described it as an arm's-length transaction that created new employment relationships rather than an artificial internal transfer.

Did the ruling approve Company A's tax-rate calculation? No. The footnote says that computation and other eligibility requirements were not considered.

Who could rely on the ruling? Company A, until one of the order's stated termination conditions occurred.

Citations and references

• R.I. Gen. Laws § 42-35-8 — authority for the declaratory-ruling request.
• R.I. Gen. Laws § 42-64.5-1 — Jobs Development Act citation identified in the request.
• R.I. Gen. Laws § 42-64.5-2(8) — definition of new employment and the anti-artifice restriction.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 2000-01

Original ruling text

Ruling Request No. 2000-01

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