SB 320 – Withholding Tax Remittance
Authored by Sen. Linda Rogers (R-Granger)

Provides that the state Department of State Revenue shall only accept payment of employer withholding taxes that are made or withdrawn directly from the business account of the employer that is liable for withholding and remitting the tax. Prohibits the department from accepting payment of employer withholding taxes that are made or withdrawn from the account of a third party withholding agent, or otherwise remitted by a third party withholding agent, on behalf of an employer. Defines “third party withholding agent” to include a payroll service provider, an accounting firm or tax preparer, and a reporting agent that is authorized to prepare and file returns or take other similar reporting and compliance actions on behalf of a business client with regard to that client’s employer withholding taxes. Requires each employer that is required to remit withholding taxes to provide to the department an authorization for reoccurring payment of taxes from the employer’s business account that is designated by the employer on the department’s online INtax system. Requires the department to automatically withdraw from the employer’s business account the amount of tax withholdings that are reported as due and owing on the taxpayer’s Form WH-1 report. Requires the department to provide periodic notice to each employer through INtax of: (1) the date on which the employer’s Form WH-1 report is received by the department; and (2) the date on which the department has automatically withdrawn any amount of tax from the employer’s business account.

Chamber position: Support in part/oppose in part

The latest: Held by the Senate Tax and Fiscal Policy Committee.

The committee heard testimony from victims of a fraud committed by a large payroll company that had many clients in northern Indiana. The company stole millions of dollars from hundreds of customers and went bankrupt – leaving their customers responsible to fulfill the tax and withholding obligations even though they had already paid it to the payroll company for remittance. This company’s criminal act is what spurred this legislation. The testimony revealed, however, that the proposed changes would only protect a fractional segment of an employer’s funds since the Indiana withholding taxes are only part of what is held by payroll companies in the course of handling payroll obligations for their customers.

Recognizing that there will still be a large volume of funds in jeopardy (those held for federal taxes, Social Security, unemployment insurance, 401(k) plans, garnishments and more), this measure was spoke of as only a good “first step” and more, including federal regulation, would be needed to fix the problem.

Indiana Chamber action/commentary: The Chamber supports the intention of this bill to protect employers from the potential criminal misappropriation of their funds by unscrupulous third parties who they have authorized to hold their funds for remittance to the Department of Revenue (DOR). Unfortunately, in attempting to provide this (only) limited protection, the bill will result in a possibly significant disruption to the fuller range of services provided by these third party agents. Employers have come to rely on these companies, whose efficiency assures the employers’ compliance with the complexities of handling payrolls.

The Chamber acknowledged the good intention of this bill, but pointed out that the possible downside effects could prove more detrimental than any benefit offered by a limited protection that leaves a larger volume of funds exposed. Too much remains unknown: The benefits are nominal, and the practical ramifications are yet to be ascertained. To a large degree, this bill is attempting to fix a problem that employers do not perceive to exist and are not ready to have the convenience of these services disrupted. Additionally, this issue has not been adequately vetted and alternative protections need to be considered. Therefore, the Chamber is advocating the matter be studied sufficiently before enacting legislation that could cause more harm than good. There are also questions as to the burden this change places on the DOR to administer the substantial change in procedure.

Resource: Bill Waltz at (317) 264-6887 or email:
[email protected]