               IN THE COURT OF APPEALS OF TENNESSEE
                           AT NASHVILLE
                                 May 24, 2012 Session

ARI, INC. v. JAMES G. NEELEY, COMMISSIONER OF THE TENNESSEE
   DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT

                Appeal from the Chancery Court for Davidson County
                      No. 1135I   Walter C. Kurtz, Sr. Judge


                No. M2011-02272-COA-R3-CV - Filed August 3, 2012


This is an appeal of the Chancery Court’s order upholding the Tennessee Department of
Labor and Workforce Development’s determination that ARI underpaid state unemployment
tax premiums. ARI appeals asserting its due process rights were violated in the
administrative hearing process and that there is not substantial and material evidence to
support the Department’s assessment. Finding no error, we affirm the Department’s
assessment of unpaid unemployment tax premiums.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

R ICHARD H. D INKINS, J., delivered the opinion of the court, in which F RANK G. C LEMENT,
J R. and A NDY D. B ENNETT, JJ., joined.

Robert E. Boston, Mark W. Peters, and Michael Thomas Harmon, Nashville, Tennessee;
Arthur M. Fowler, Johnson City, Tennessee; and Brian Nugent, Fort Collins, Colorado, for
the Appellant, ARI, Inc.

Robert E. Cooper, Jr., Attorney General and Reporter, William E. Young, Solicitor General;
and Lindsey Owusu Appiah, Nashville, Tennessee, for the Appellee, James G. Neeley,
Commissioner of the Tennessee Department of Labor and Workforce Development.

                                       OPINION

      I. Factual and Procedural History

       Rick and Sharon Thomason own and operate staff leasing companies in East
Tennessee, one of which is ARI, Inc. (d/b/a Southgate Styling Salon), the subject of this
appeal. On July 24, 2004, the Department notified ARI it had been selected for an audit to
determine whether ARI was in compliance with the Tennessee Employment Security Law and
Administrative Rules—the audit covered the time period from January 2002 through the end
of March 2004. After the audit was completed, the Department sent ARI a letter explaining
that the Department determined ARI had engaged in “a practice of reporting wages for
unemployment insurance premium purposes that violate[d] the experience rating principles
of the Tennessee Employment Security Law.” The Department found the total amount of
unpaid insurance premiums, including interest, was $527,502.45.1

       On May 17, 2005, ARI requested the Department to review its finding. On August 15,
2005, the Department issued a 102 page Redetermination Decision affirming its initial finding
that ARI had violated Tennessee Employment Security Law. The Redetermination Decision
included findings of fact, one of which is as follows:

        20. ARI, Inc. began reporting the majority of its payroll under account #0559-
        771 in the 4th quarter 2001 . . . . Transfers of payroll occurred from
        Administrative Resources, Inc. in 2001 (1,180 employees 2001 and only 98 in
        2002) to Human Resource Services, Inc. in 2002 (13 in 2001, 882 in 2002, and
        30 in 2003), and then to ARI, Inc./Southgate Styling Salon in 2003 (100 in
        2002, 928 in 2003 and 15 in 2004). . . .

In the Redetermination Decision, the Department held that ARI’s primary purpose in
restructuring was “shifting the workforce/payroll in order to reduce SUTA[2 ] premium rates
and not for the purpose of management risk issues dealing with the acquisition of workers’
compensation insurance coverage . . . .” The Department further held that “ARI, Inc.
misrepresented their major business activity as a beauty salon instead of a ‘staffing’ entity and
transferred employees between various entities without informing the division in order to
evade premium liability . . . .”

       ARI appealed the Redetermination Decision to the Appeals Tribunal which heard
ARI’s appeal on March 3, 2010.3 The Appeals Tribunal rendered a written decision affirming
the Department’s Redetermination Decision on May 10, 2010 which included the following
factual findings:



        1
         This amount was later recalculated to correct a typographical error. In the later Decision, the
amount owed was determined to be $591,291.24.
        2
            SUTA is the abbreviation for state unemployment tax act.
        3
          The record reflects that the appeal hearing was delayed as a result of attempts to settle the case as
well as the death of two principal participants.

                                                      -2-
      A.R.I. operated or exercised common ownership and control of numerous
      entities engaged in the business of staff leasing. A.R.I.’s SUTA premium rate
      was calculated to be 3.3%.

      On or about April 2002, A.R.I. acquired a beauty salon doing business as
      Southgate Styling Salon (“Southgate”). Southgate was taxed at a SUTA
      premium rate of .20%. The employer then began shifting its payroll from
      entities under its control to the payroll of Southgate. By December, 2002 there
      were 100 employees being compensated on Southgate’s payroll. By the end of
      the second quarter of 2003, more than a thousand employee payroll accounts
      had been transferred to Southgate.

      A.R.I. failed to notify the Department of the change in ownership by the end of
      the calendar quarter of the acquisition.

      No evidence was adduced at hearing to establish that any of the 100 employees
      transferred were qualified to work as hair stylists, nor was any evidence
      introduced that Southgate had ever engaged in the business of a staff leasing
      company.

      A visit to the premises of Southgate on July 12, 2004 by two Agency auditors
      uncovered the fact that Southgate was occupied and being operated by only
      three working hairstylists.

In its conclusions of law, the Appeals Tribunal concluded:

      The issue is whether the employer engaged in the transfer of employees among
      multiple accounts to avoid unemployment insurance premium liability and
      whether the employer is in compliance with Tennessee employment security
      law and administrative regulations under T.C.A. § 50-7-101 et seq.

      An employer who mergers with or acquires another business entity with an
      experience rating is required by law to notify the Division of Employment
      Security of the transfer under T.C.A. §§ 50-7-403(b)(4) . . .

      In the instant case, it appears that the employer has not complied with this
      requirement. On this basis alone, the argument may be made that the transfer
      of experience rating of Southgate may be denied. Assuming for the purpose of
      argument that it could be transferred regardless, the remaining factors also point
      to a denial of the transfer of experience rating.

                                             -3-
The Appeals Tribunal discussed at length the applicability of Tenn. Code Ann. § 50-7-
403(b)(5)(A) to the facts of the case and concluded that “in acquiring Southgate and then
transferring staff to its payroll, it was [ARI’s] sole or primary purpose to obtain a lower
unemployment premium rate.”

       On May 20, 2010, ARI appealed the Appeals Tribunal’s decision to the Department’s
Board of Review. On November 29, 2010, the Board of Review issued its decision which
included the following findings of fact and conclusions of law:

      Based upon the entire record in this case, the Board of Review finds that the
      prior Appeals Tribunal decision dated May 10, 2010 involving the employer
      entities listed below should be affirmed.

             ARI, Inc. d/b/a/ Southgate Styling Salon
             Staffing Solutions, Inc.
             Human Resources Services, Inc.
             Administrative Resources, Inc.
             ARI Payroll Transfers Div.
             Management Resources

      The employer entities, as listed, were at all relevant times under the common
      ownership, management and control of Mr. Rick Thomason. The relevant facts
      are that the employer entities listed operated as a styling salon, as a temporary
      employment service and as a temporary leasing company. Each entity listed
      had an individual account with [the Department] and reported wages of its
      employees on a quarterly basis and paid unemployment insurance premiums.

      As a result of a 2004 audit of these accounts, for the years 2003 and 2004, it
      was discovered and undisputed that there were repeated employee transfers
      between the various entities without proper notification to [the Department].
      Such action resulted in an underpayment of unemployment insurance
      premiums. The employer testifies that the transfers were made for the purpose
      of providing affordable workers’ compensation benefits. As a result of a
      recalculation of the premiums due to these transfers, ARI, Inc. was determined
      to owe $591,291.24 in additional premiums, plus interest at a rate if [sic] 1.5%
      per month.

      The applicable statutes in this matter are T.C.A. section 50-7-401 et seq. The
      issue in this case is whether these employer entities are liable for unemployment
      insurance benefits under the state unemployment tax act (SUTA). Under

                                             -4-
       T.C.A. section 50-7-402, all non-governmental covered employers are required
       to pay SUTA premiums of 5.5% of wages unless premiums are paid based on
       the employer’s experience in the payment of premiums and with respect to the
       benefits charged against their accounts.

       Under T.C.A. section 50-7-402, the statute provides for combining employer
       entities. The successor entity will, in circumstances such as these, succeed to
       the taxable payroll, benefit and premium experience of the predecessor unless
       it is shown that to the satisfaction of the administrator that both are not the same
       parties of interest. In this case, based on the employer’s own testimony and the
       attempts to shift the business interests to provide benefit to the employer, this
       is the same parties of interest. Although there may have been another intent
       involved in the moving the employees, the result is still that the employer did
       not report the changes to the department as required and failed to pay the
       appropriate tax rate. The employer owes $591,291.24 in additional premiums,
       plus interest at a rate if [sic] 1.5% per month.

       DECISION: The decision of the Appeals Tribunal which found the employer
       liable for the additional premiums and interest is affirmed.

       Next, ARI appealed to the Chancery Court for Davidson County. ARI asserted that the
transfer of employees was for a “reasonable business purpose” and that the Department’s
decision was not supported by substantial and material evidence. ARI further argued that the
Department’s decisions upholding the Redetermination Decision were in violation of its due
process rights because the Department “purport[ed] to establish liability based upon an
argument for which ARI was offered no notice prior to the hearing.” Specifically, ARI
alleged that the Department asserted, for the first time, that the liability in the Redetermination
Decision was based on “failure to notify” the Department of the transfers.

      The court held a hearing on August 23, 2011, and entered a Memorandum and Order
upholding the Department’s decision on September 26, 2011. The court rejected ARI’s due
process argument and held:

       at no time during the pendency of these proceedings has ARI or its related
       companies contended that they gave notice of employee transfers. Nor has ARI
       made any tender of proof that if only they had known it was an issue, they could
       have rebutted the contention. Even though the failure to notify [the
       Department] was not interjected into the proceedings until 2010, there is no
       showing by petitioner of prejudice other than its objection that its opponent
       changed theories. Furthermore, this “sneak in a new theory” issue was not

                                                -5-
       raised by petitioner on motion to reconsider before the Appeals Tribunal, nor
       was it raised before the Board of Review.

Finally, the court held that the evidence supported the Department’s finding of the amount of
the underpaid SUTA premiums. ARI appeals.

II. Standard of Review

       When reviewing the decision of an administrative agency, this Court employs the same
standard of review as the lower court. Armstrong v. Neel, 725 S.W.2d 953, 955 n.1 (Tenn.
Ct. App. 1986). Specifically, our review is prescribed in Tenn. Code Ann. § 50-7-
304(i)(2)–(3) as follows:

       (2) The chancellor may affirm the decision of the board, or the chancellor may
       reverse, remand or modify the decision if the rights of the petitioner have been
       prejudiced because the administrative findings, inferences, conclusions or
       decisions are:

              (A) In violation of constitutional or statutory provisions;

              (B) In excess of the statutory authority of the agency;

              (C) Made upon unlawful procedure;

              (D) Arbitrary or capricious or characterized by abuse of discretion or
              clearly unwarranted exercise of discretion; or

              (E) Unsupported by evidence that is both substantial and material in the
              light of the entire record.

       (3) In determining the substantiality of evidence, the chancellor shall take into
       account whatever in the record fairly detracts from its weight, but the
       chancellor shall not substitute the chancellor’s judgment for that of the board
       of review as to the weight of the evidence on questions of fact. No decision of
       the board shall be reversed, remanded or modified by the chancellor unless for
       errors which affect the merits of the final decision of the board.

Tenn. Code Ann. § 50-7-304(i)(2). Under subsection (2)(E), substantial and material evidence
is “such relevant evidence as a reasonable mind might accept to support a rational conclusion
and such as to furnish a reasonably sound basis for the action under consideration.” Sweet v.

                                              -6-
State Tech. Inst. at Memphis, 617 S.W.2d 158, 161 (Tenn. Ct. App. 1981) (quoting Pace v.
Garbage Disposal Dist. of Washington Cnty., 390 S.W.2d 461, 463 (Tenn. Ct. App. 1965)).
We do not substitute our judgment for that of the administrative agency “as to the weight of
the evidence on questions of fact.” Tenn. Code Ann. § 50-7-304(i)(3).

III. Analysis

        ARI challenges the Department’s assessment of unpaid unemployment taxes for three
reasons. First, ARI contends that its due process rights were violated when the Board of
Review upheld the Appeals Tribunal decision on the basis of “a theory of liability that was
not a part of the Redetermination Decision.” Second, ARI urges that the remedy ordered in
the Redetermination Decision—the aggregation of multiple accounts—is not allowed when
calculating its liability. Finally, ARI insists that the Department has not substantiated its claim
with material evidence as to the amount of taxes ARI owes. We will address each contention
in turn.

       The Department determined that ARI violated two provisions of Tennessee
Employment Security Law. First, in the initial determination and in the Redetermination
Decision, the Department found that ARI violated provisions of Tenn. Code Ann. § 50-7-
403(b)(5)(A)4 by effectuating payroll transfers for the primary purpose of obtaining a more
favorable premium rate. When ARI appealed the Redetermination to the Appeals Tribunal,
the Tribunal, in addition to affirming the initial finding of a violation under Tenn. Code Ann.
§ 50-7-403(b)(5)(A), determined that ARI also violated Tenn. Code Ann. § 50-7-403(b)(4)
due to ARI’s failure to notify the Department of its mergers, acquisitions, and transfers of
taxable payroll.5 The Board of Review upheld the Department’s decision that ARI violated


        4
          The Department seeks to impose liability under the 2002–2004 version of Tenn. Code Ann. § 50-7-
101 et seq. Neither party appeals the Department’s reliance on the 2002–2004 version of Tenn. Code Ann.
§ 50-7-101 et seq. Accordingly, all citations herein are to the 2002–2004 version of our code.

        Tenn. Code Ann. § 50-7-403(b)(5)(A) states as follows:

       (5)(A) Notwithstanding any of the foregoing provisions of this section, if the administrator
       finds in any case that the acquisition of any business or a distinct, severable, identifiable and
       segregable part thereof is made solely or primarily for the purpose of obtaining a more
       favorable rate of premiums, the transfer of accounts shall not be approved. The acquisition
       shall be deemed to have been made solely or primarily for such purpose if the administrator
       finds an absence of any reasonable business purpose of the acquisition other than a more
       favorable rate.
        5
            Tenn. Code Ann. § 50-7-403(b)(4) provides in relevant part as follows:
                                                                                                    (continued...)

                                                      -7-
Tenn. Code Ann. § 50-7-403(b)(4); the trial court likewise upheld the Department’s
assessment of unpaid unemployment taxes on the basis of a violation of Tenn. Code Ann. §
50-7-403(b)(4).

       A. Due Process

        ARI asserts it was unfairly prejudiced when the lower court upheld the Board of
Review’s decision based on theory of liability that was not part of the Redetermination
Decision. In particular, ARI argues that it was not notified regarding the second theory of
liability, namely, Tenn. Code Ann. § 50-7-403(b)(4), and due to this lack of notice, ARI’s due
process rights were violated.

        Article I, Section 8 of the Tennessee Constitution and the Due Process Clause of the
Fourteenth Amendment to the United States Constitution prohibit the State from taking
property without due process of law. The “process” that is “due” varies depending on the
situation presented. See Case v. Shelby Cnty. Civil Service Merit Bd., 98 S.W.3d 167, 172
(Tenn. Ct. App. 2002) (citing Matthews v. Eldridge, 424 U.S. 319, 334 (1976) (“[D]ue
process is flexible and calls for such procedural protections as the particular situation
demands.”). In administrative proceedings, such as the one presented here, “the minimum
requirements of due process must . . . be satisfied when an agency’s decision could adversely
affect vested property interests or other constitutional rights.” Martin v. Sizemore, 78 S.W.3d
249, 267 (Tenn. Ct. App. 2001). While due process does not dictate particular procedures in
every instance, administrative proceedings must afford parties: 1) adequate notice, 2) an
opportunity for a hearing at a meaningful time and in a meaningful manner, and 3) an
opportunity to obtain judicial review of the board’s or agency’s decision. Id. (internal
citations omitted).

       ARI does not argue that the Department failed to afford it an opportunity to be heard
at a meaningful time and in a meaningful manner, nor does it find fault with the opportunities
for judicial review available to it, thus, we focus our inquiry on whether ARI was sufficiently
notified regarding the basis upon which the deficiency was assessed. To satisfy the basic due
process notice requirement, the notice provided must be “‘reasonably calculated under all the
circumstances, to apprise interested parties’ of the claims of the opposing parties.” McClellan



       5
           (...continued)
       No total or partial transfer of taxable payroll, benefit and premium experience may be made
       without the written consent of all employers or employing units involved and filed with the
       division of employment security during the calendar quarter in which the acquisition occurs
       or during the calendar quarter immediately following such quarter.

                                                   -8-
v. Bd. of Regents of State Univ., 921 S.W.2d 684, 688 (Tenn. 1996) (citing Mullane v. Central
Hanover Bank Trust Co., 339 U.S. 306, 314 (1950)).

       ARI was notified regarding the Department’s finding of a violation of Tenn. Code
Ann. § 50-7-403(b)(4) on March 10, 2010 when the Appeals Tribunal issued its decision.6
This finding was predicated on the testimony of Mr. Thomason, the owner of ARI, and the
testimony of Mr. Jones, the Department’s auditor. Mr. Thomason testified as follows:

        [Q]: Okay. Let me just ask you, when you moved these employees between the
        different accounts did you notify the department in any other manner other than
        the Quarterly Wage Reports?

        Mr. Thomason: After this came up twice we did, my general manager LouAnn,
        sent a list of names.

        [Q]: Now are you talking about during the period of this audit, 2002, 2004 or
        afterward?

        Mr. Thomason: Oh, no, we just reported it on the Quarterly Reports.

Mr. Jones stated:

        Mr. Jones: Well the main thing was that the department was not notified of the
        transfers. At no point in my audit and no point in my investigation or my
        review of any of the records could I come to the conclusion that the employer
        had informed me that he was transferring employees among accounts. . . .




        6
            Although the Redetermination Decision does not specifically cite Tenn. Code Ann. § 50-7-
403(b)(4) as a basis for liability, paragraph 13 on page 101 of the Redetermination Decision discusses ARI’s
failure to notify the Department of employee transfers and states in pertinent part as follows:

        13. That ARI, Inc. misrepresented their major business activity as a beauty salon instead of
        a “staffing” entity and transferred employees between various entities without informing the
        division in order to evade premium liability and failed to produce or permit the inspection
        or copying of records as required to determine status of employer accounts . . . .

(emphasis added).

                                                    -9-
ARI did not object to this line of questioning at the hearing, nor did it offer any countervailing
proof at the hearing. Moreover, ARI did not request the Board of Review to reopen the proof
on the notice issue when the Board reviewed the Appeals Tribunal’s decision.7

        As our Supreme Court has previously opined:

        it is no less incumbent for a party to an administrative proceeding to raise issues
        of procedural irregularity than it is for a party in a judicial proceeding. The
        administrative tribunal, like the trial court, must be given the opportunity to
        correct procedural errors. Allowing parties to acquiesce in the procedures, but
        to challenge those same procedures on appeal is inefficient and unreasonable.

Bailey v. Blount County Bd. of Educ., 303 S.W.3d 216, 237 (Tenn. 2010) (quoting McClellan,
921 S.W.2d at 690). An agency’s full consideration of such procedural concerns “will assure
that the responsible agency has a full opportunity to reach a considered decision on a complete
record after a fair proceeding.” Richardson v. Tenn. Bd. of Dentistry, 913 S.W.2d 446, 455
(Tenn.1995).

       Our review of the record shows that ARI did not avail itself of the opportunity to bring
the asserted constitutional violation to the Board of Review’s attention or to reopen the proof;
as a consequence, its due process argument is deemed to be waived. See Bailey, 303 S.W.3d
at 237 (Tenn. 2010).

       We have also reviewed the record and find there is substantial and material evidence
to support the finding that ARI failed to notify the Department of the repeated employee
transfers between the various entities in violation of Tenn. Code Ann. § 50-7-403(b)(4).
Accordingly, we affirm the finding of a violation of the statute.

        B. Statutory Authority

       ARI argues that the Department imposed an “extra-statutory” remedy when it
recalculated the amount of state unemployment taxes ARI owed. ARI specifically contends
that the Department did not have authority to aggregate the accounts of the entities under
Thomason’s control when recalculating ARI’s tax obligation.



        7
           Pursuant to Tenn. Code Ann. § 50-7-304(e)(1), “The board of review may on its own motion affirm
modify or set aside any decision . . . on the basis of the evidence previously submitted in such case, or direct
the taking of additional evidence, or may permit any of the parties to such decision to initiate further appeals
before it.”

                                                      -10-
        In resolving this issue, we are mindful that, “[w]ith respect to an agency’s
interpretation of its own rules and regulations, courts afford deference and controlling weight
to such determinations unless plainly erroneous or inconsistent with the regulation.” Jones
v. Bureau of TennCare, 94 S.W.3d 495, 501 (Tenn. Ct. App. 2002) (citing Profill Dev., Inc.
v. Dills, 960 S.W.2d 17, 27 (Tenn. Ct. App. 1997) (citing Jackson Express, Inc. v. State Public
Serv. Comm'n, 679 S.W.2d 942, 945 (Tenn. 1984)). A reviewing court should not “disturb
a reasonable decision of any agency which has expertise, experience and knowledge in a
particular field.” Ford v. Traughber, 813 S.W.2d 141, 144 (Tenn. Ct. App. 1991).

      Tenn. Code Ann. § 50-7-602(a) empowers the Commissioner to administer and enforce
Tenn. Code Ann. § 50-7-101 et seq. stating:

        It is the duty of the administrator to administer this chapter. The commissioner
        has the power and authority to adopt, amend or rescind rules and regulations,
        to employ persons, make expenditures, require reports, make investigations, and
        take other action the commissioner deems necessary or suitable to that end.

Under this authority, it was appropriate for the Department to commence an audit of ARI and
ascertain the appropriate remedies for violations of Tenn. Code Ann. § 50-7-101 et seq.

        In determining the amount of state unemployment taxes owed by ARI, the Department
applied Tenn. Code Ann. § 50-7-403(b)(2)(A) and (5)(B) 8 which provided in relevant part,
at that time:

        (2)(A) In the event of a successorship or merger of employers or employing
        units and the combined or successor employer is a new entity, the combined
        taxable payroll, benefit and premium experience of the employers or employing
        units involved shall be computed as of the effective date of successorship or
        merger to determine a new reserve ratio and premium rate applicable to the
        combined or successor employer. In the event that any employing unit
        subsequent to January 1, 1951, acquires or has acquired a distinct, severable,
        identifiable and segregable portion of the business of an employer and
        continues or has continued such an acquired portion of the business of the
        predecessor, the successor shall succeed to that part of the taxable payroll,


        8
            ARI takes issue with the Board of Review’s citation to Tenn. Code Ann. § 50-7-402 as the
authority allowing the Department to aggregate multiple employer accounts and to recalculate ARI’s
appropriate tax rate. Tenn. Code Ann. § 50-7-402(a) references Tenn. Code Ann. § 50-7-403, which is the
statute relied upon in the Redetermination Decision originally calculating the amount of tax owed. We have
considered the entire statutory scheme in resolving this issue.

                                                   -11-
        benefit, and premium experience of the predecessor which is attributable solely
        to that portion of the business which was acquired. . . .

        ...

        (5)(B) Unless and until it has been shown to the satisfaction of the administrator
        that both the successor and the predecessor are not the same parties of interest,
        any successor, whether or not an employer at the time of acquisition, that is
        controlled either directly or indirectly by legally enforceable means or other
        wise by any individual, type of organization, or employing unit having a
        commonality of beneficial interest or interests as those of the predecessor will
        be considered the same party of interests as the predecessor and will acquire the
        experience rating factors of the predecessor employer. These factors consist of
        premiums paid, benefit experience, annual taxable payrolls of the predecessor
        employer, and any remaining liabilities. . . .

       The record reflects that Mr. Thomason made various employee transfers that fell within
the purview of the above mentioned statutes including the following:

        • Between the 4th quarter of 2001 and the 1st quarter of 2002 approximately
        800 employees were moved from Administrative Resources, Inc. to Human
        Resources Services.

        • Between the 4th quarter of 2002 and the 1 st quarter of 2003 approximately
        800 employees were moved from Human Resources Services to ARI, Inc.
        (d/b/a Southgate Styling Salon).

        • Between the 4th quarter of 2003 and the 1 st quarter of 2004 approximately
        800 employees were moved from ARI, Inc. (d/b/a Southgate Styling Salon) to
        ARI Payroll Transfers Div. and Staffing Solutions.

It is undisputed that all of the employer entities, listed above, were under the common
ownership and control of Mr. Thomason at the time of the transfers. It is also undisputed that
ARI’s employee transfers resulted in an unemployment tax liability rate of .20% rather than
a “new employer” rate.9 The Department correctly construed and applied Tenn. Code Ann.


        9
         Employers are considered “new employers” and pay at the new employer rate until they are eligible
to be “experience rated.” To qualify for an experience rating, an employer’s account must have been
chargeable with benefits and subject to premiums for 36 consecutive months. See Tenn. Code Ann. § 50-7-
                                                                                              (continued...)

                                                   -12-
§ 50-7-403(b)(2)(A) and (5)(B) to find that the transfers established a predecessor/successor
relationship for the purpose of unemployment tax liability. Due to the fact that the entities
were commonly owned by Mr. Thomason, the Department properly combined the premium
rates for all of the entities involved into a single experience rate common to all of the entities
to determine the appropriate amount of unpaid unemployment taxes owed by ARI. In sum,
the Department’s assessment of unpaid unemployment taxes was not in violation of statutory
provisions or in excess of the statutory authority of the agency; therefore, we affirm the
Department’s recalculation of the unemployment premium liability of ARI.

       C. Evidence in Support of the Department’s Assessment

      ARI argues that the Redetermination Decision should be set aside because the
Department “failed to provide any evidence to support the amount of back SUTA taxes ARI
owes.” In deciding this issue, the trial court stated:

       The recalculation is set out in Exhibit 3 to the Appeals Tribunal hearing and in
       the reconsideration opinion. No testimony at the hearing impeaches Exhibit 3,
       nor does it impeach the findings of the amount found in the reconsideration
       decision. Given the scope of review, the Court affirms this finding.

       We agree with the trial court. The spreadsheet attached as Exhibit 3 sets out the
taxable wages, premiums due, and interest due to each of the entities owned by Mr.
Thomason. This documentation provides ARI with itemized details regarding how the
Department arrived at the amount of unpaid unemployment premiums assessed. ARI asserts
that the record “does not contain any evidence as to where the Department found these
numbers nor does anything in the record reflect how the Department used any numbers in
Exhibit 3 to calculate the amount that it claims ARI owes.” ARI also contends that the
Department failed to provide “a witness with firsthand knowledge of the methodology or
calculations.”

        The question before this court is whether there is substantial and material evidence, in
light of the entire record, in support of the Board of Review’s decision; Exhibit 3 meets that
standard. The Department has particular expertise, experience and knowledge in the
calculation of unemployment taxes, to which we defer and afford controlling weight. See
Jones, 94 S.W.3d 495. To the extent ARI wished to challenge the calculation of back taxes
or Exhibit 3, it had its opportunity to do so.



       9
           (...continued)
403(f). Premium rates can be as low as 0.0% and as high as 10.0% depending on the employer.

                                                -13-
IV. Conclusion

      For the foregoing reasons, the decision of the trial court affirming the Department’s
assessment of unpaid unemployment taxes against ARI is affirmed.




                                                  __________________________________
                                                  RICHARD H. DINKINS, JUDGE




                                           -14-
