SSR 68-24: Section 218(s).—State and Local Coverage— Commissioner's Ruling on State's Request for Review—Michigan—Interest Assessment for Failure to Make Timely Payment of Contributions Due
CFR 404.1225, 404.1255, 404.1260, 404.1261, 404.1270-404.1274
Pursuant to the State's request for review under section 218(s) of the Social Security Act, the Commissioner affirmed the assessment of interest charges made on the basis of a finding that the State of Michigan failed to pay timely the contributions due on an underreporting of wages, as provided by section 218 of the Social Security Act and the Michigan agreement for coverage of State and local employees.
The State of Michigan timely requested a review pursuant to section 218(s) of the Social Security Administration's assessment of interest charges. The Secretary of the Department of Health, Education, and Welfare has delegated to the Commissioner of Social Security authority to make reviews and findings and to give notice of his findings as required by section 218(s). The assessment was made as a result of the State's failure to pay the contributions due on an underreporting of wages discovered by the Administration, within the time prescribed by regulations. The position taken by the State was that additional time for paying the contributions without interest should be allowed for "good cause."
The facts are that the Administration determined that the State failed to report certain wages paid by the city of Williamston to one of its employees during the period January 1, 1962, through March 31, 1966, for services covered under the terms of the State's section 218 agreement. Timely wage reports and contribution returns were filed by the State for other employees of the city. An audit statement assessing the State for contributions due on the unreported wages was issued on June 10, 1966. The State was informed that if the underpayment was not paid on or before July 10, 1966, interest would be charged.
The State official, in a letter dated June 13, 1966, notified the city officials of the amount due and requested payment by June 23. On June 29, 1966, the State official again requested payment and advised that interest would be charged. The payment was received in the State official's office on July 11. The State did not disagree with the substantive issued involved and paid the Administration on July 22, 1966. Since the payment was not made on or before July 10, the Administration on August 10, 1966, issued a letter of assessment of interest charges to the State in the amount of $96.93.
The Michigan section 218 coverage agreement, entered into on December 17, 1951, provides that the State will pay, at the time or times prescribed by regulation, the appropriate contributions due on wages paid for covered services; that the State will comply with the regulations prescribed by the Administration to carry out the purpose of section 218; and that failure to make payment when due will cause interest at the rate of 6 percent per annum from the date due until paid to be added as part of the amounts due.
Subsections 218(e)(1) and 218(j) of the Social Security Act as amended; and sections 17.803(3)(A), 17.811(11)(A), and 17.812(12) of the Michigan Statutes, Annotated, provide the Federal and State authority, respectively, regarding the above-described conditions of the Michigan section 218 coverage agreement.
Social Security Administration Regulations No. 4 provide in pertinent part as follows:
Section 404.1225. Rate of interest.
If the contribution is not paid to the Federal Reserve Bank, or branch thereof, when due and is not adjusted under section 404.1261, interest accrues at the rate of 6 percent per annum.
Section 404.1255. Place and Time for Filing Contribution Return
(a) . . . the contribution return and wage report for any . . . calendar quarter shall be filed on or before the fifteenth day of the second month following the calendar quarter for which it is made . . . Provided, however, that the Secretary, for good cause shown, may, upon application by a State, allow such further time as he may deem proper for the filing of contribution returns and wage reports for the periods for which they are made.
Section 404.1260. Adjustment in General.
Errors in the payment of contributions must be adjusted in certain cases without interest. Not all corrections of erroneous payments of contributions, however, constitute adjustments within the meaning of the regulations in this subpart. The various situations under which such adjustments shall be made are set forth in section 404.1261 . . .
Section 404.1261. Adjustment of the Underpayment of Contributions.
(a) Method of Making Adjustment
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(2) If an underpayment of contributions is due to an underreporting of or a failure to report one or more employees on a Form OAR-S3:
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(ii) Where the underreporting or failure to report has been ascertained by the Social Security Administration, a notification of underpayment on Form OAR-S9 (Audit Statement) and Form OAR-S30 (Federal Determination of Error in State's Wage Reports) shall be forwarded to the State, and the State may cause an adjustment of the underpayment by returning to the Social Security Administration, within 30 days from the date of the notification, a Form OAR-S1 prepared in accordance with the instructions contained therein. (Form OAR-S1 is the Contribution Return.)
There is no disagreement as to the facts. It is the State's position, however, that the interest charges should be canceled because circumstances beyond the control of the State contributed to the delay in payment of the assessment. The State suggests that favorable consideration be given by the Administration to a finding of "good cause" for the failure of the State to make the payment timely, such finding to result in an extension to July 22, 1966, of the 30-day period for payment after notification by the Administration of the contributions due.
The State listed the following reasons why it believes the interest should be canceled:
The State did not properly inform the city officials in reasonable time that interest would be charged if payment was not made within the prescribed time;
The State's accounting procedures require more than the normal time to process vouchers for payment of social security contributions; and
- The city officials did not intend to delay payment, but they did want to satisfy themselves that the payment was justified and considerable time lapsed before their contact with the local social security representatives.
In addition, the State indicated the city officials mailed the payment to the State on July 6, but it was not delivered until July 11. The State attributes this delay to abnormally slow mail deliveries and the fact that the State office was closed July 9 and 10.
The State official cites the advice given in that section of the Supplement to the Handbook for State OASIS Administrators dealing with the provisions of section 218(s) of the Act as the basis for the request for consideration of "good cause" for an extension of the filing time. The section reads, in pertinent part: "There will be situations in which a State agrees with the determination of assessment of interest but may feel that 'good cause' exists for an extension of the filing time. . . ."
The Commissioner found, on review pursuant to the State's request, that the evidence in file established that quarterly wage reports and contribution returns with respect to the city were filed timely for the quarters involved and that the wages of the particular employee were not included in those wage reports and the contributions due thereon were not included in the contribution returns. In addition, the Commissioner found the evidence established that this underpayment of contributions was not adjusted in accord with the provisions of section 404.126(a)(2)(ii) of the regulations. The Commissioner concluded that although section 404.1225(a) of the regulations allows for extension of the filing date for quarterly wage reports and contribution returns beyond the established period after the end of a calendar quarter upon showing of "good cause," it does not allow for such an extension with respect to adjustment reports an payment. The Commissioner concluded also that pursuant to section 404.1225 interest must be charged from the original date due on any underpayment of contributions due ascertained by the Administration unless such underpayment is adjusted pursuant to section 404.1261(a)(2)(ii) of the regulations, that section requiring the payment to be made within 30 days of the notification to the State of the underpayment by the Administration, and that there is no regulatory or administrative provision for granting an extension of this 30-day period for any reason. On the basis of these findings, the Commissioner affirmed the interest assessment.