A nine-member commission headed by Deputy State Comptroller David Roose is in the beginning phases of a study to determine if Maryland should regulate private payroll services companies.
The study comes after Bel Air-based payroll services company, AccuPay, allegedly failed to pay state and federal income tax withholdings for as many as 600 clients, prompting lawsuits and an investigation headed by the Bel Air Police Department.
Jim Lockard, spokesperson for the Bel Air Police Department, said the investigation was turned over to the Internal Revenue Service about two weeks into the investigation. He said he could not provide any further details.
A representative from the IRS could not be reached because of the federal government shutdown.
AccuPay filed for Chapter 7 federal bankruptcy protection in Maryland after clients claimed in lawsuits that some $465,000 was not remitted to tax authorities. A bankruptcy attorney for the company's owners said following an initial bankruptcy conference in April that his clients believe they will have funds available to pay creditors.
During the waning days of the 2013 Maryland General Assembly session, Northern Harford State Sen. Barry Glassman pushed through Senate Bill 1068, which established the study commission.
"I got so many constituent calls from equipment dealers and small businesses in the county – what shocked them is that they thought they paid their taxes," Glassman said. "A lot of them were suddenly faced with figuring out how they would pay their taxes."
The commission is comprised of officials designated by the state's comptroller's office, department of assessment and taxation, the attorney general's office, chamber of commerce, the office of the secretary of labor licensing and regulation and the governor's office. Two of the members are Harford County legislators, Glassman and Del. Mary-Dulany James.
James could not be reached for comment Monday.
The commission is charged with studying Maryland's payroll service industry, the process of making state and federal tax payments on behalf of clients and how Maryland compares with the oversight, licensing and bond requirements of other states.
The commission held its first meeting on Sept. 19 in Annapolis, where Pete Isberg, president of the National Payroll Reporting Consortium, an industry trade group, presented a report estimating the number of payroll services firms in the industry and how many have been involved in non-filing of the state and federal income tax of their clients or other misdealings.
According to his report, Isberg said there are at least 13,000 active payroll tax reporting companies in the United States.
"In the last 10 years there have only been a handful of incidents each year of companies who fail to forward their client's payroll taxes," Isberg said Thursday.
He added, however, that Maryland is "unusual" with two incidents in the past 10 years, which is a significant amount considering most states had none.
"Only one out of every thousand payroll companies doesn't file their clients' taxes," he said.
Isberg said he's not sure the increase in incidents in Maryland shows need for reform of the state's tax regulation system. He said new federal laws were put in place in November 2012 to curb such issues, but they were a few months too late to apply to the AccuPay scandal.
"Now, they do regulate payroll firms," Isberg said. "Firms are subject to background checks, fingerprinting and have to do filing and payment electronically. Payroll firms also have to disclose to their clients quarterly a site to they can go to make sure their taxes were paid."
Isberg said employers can visit http://www.eftps.gov to check to see if their federal payroll taxes have been filed. He said, however, there is no system at the state level in Maryland to provide similar data to employers.
"One recommendation I might make is for the state of Maryland to make enhancements to their site to include a similar quarterly payroll tax lookup center for employers," Isberg said.
Glassman said most of AccuPay's former clients have worked out payment plans and other deals with the IRS to pay on those missing funds. He said the businesses have worked it out with Maryland's comptroller's office so they will not have to pay delinquent fees or fines.
"Eighty-four percent of small businesses use payroll service companies," Glassman said. "The U.S. tax code and state tax code have become so complex it's easier for small businesses to use payroll systems."