Inspections department won’t defend decision in tax-rate dispute

The Iowa Department of Inspections and Appeals won’t be defending its actions in a court proceeding initiated by Iowa Workforce Development over the way the state taxes construction companies.

In January, Iowa Workforce Development filed a petition in Polk County District Court challenging a decision rendered by the Iowa Department of Inspections and Appeals late last year.

That decision involved Gillmann Services, a Virginia staffing company that primarily provides construction-industry companies with workers.

When Gillmann began operating in Iowa last summer, Iowa Workforce Development categorized the business as a construction firm, which has its own special tax rate. In Iowa, construction companies typically pay higher unemployment insurance rates than other industries because their workers file for unemployment more frequently due to the seasonal nature of their work.

Gillmann appealed the decision, arguing that it was not a construction company and that every other state in which it operates recognizes that fact.

In November, the matter went before Administrative Law Judge Joseph Ferrentino in DIA’s Administrative Hearings Division. He ruled in the company’s favor and said Gillmann should be categorized and taxed as a non-construction employer.

Doing so, Ferrentino ruled, would avoid the “absurd” result of turning a temp agency “into a construction business” – and of having all other temp agencies in Iowa recategorized as the businesses they primarily serve.

Iowa Workforce Development sought a rehearing on the matter, but the request was denied. That prompted the workforce agency to ask a district court judge to review what it characterized as DIA’s decision in the matter.

DIA, named by IWD as the respondent in the case, recently filed an answer in the case, arguing that it was “not the true party in interest” in the case. The agency said it was up to Gillmann Services as “the true party in interest” to defend the decision issued by DIA’s administrative law judge.

Lawyers for DIA also told the court they do not intend to participate any further in the court proceedings.

IWD has said it believes DIA’s administrative law judge misinterpreted Iowa’s unemployment statute and rules, and that his decision may have “serious, negative consequences for the Iowa’s Unemployment Insurance Trust Fund.”