Page 229 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
I N THE REAL WORLD
The Case of the

Missing States

A Colorado company purchased a Maryland-based consulting com-
pany that had conducted operations in a variety of states during the
past decade. The acquiree had processed payroll using an internal
software system and had manually remitted tax withholdings to many
states. Shortly after the acquisition, the acquirer began to receive a
number of unpaid withholding notices from various states, all claiming
that taxes had not been paid for years, along with substantial penalties
and interest charges. The underlying problem was that the acquiree
had done business in so many states that its accounting staff had
not kept up with making withholding filings with all required govern-
ments. The acquirer found itself in the unpleasant position of being
liable for all of these payments. Furthermore, it did not know when
the next notice to pay might arrive in the mail. Since the acquiree’s tax
remittance records were not complete, there was no way to research
the extent of the problem.
Subsequently, the acquirer’s finance team decided to include in its
acquisition review documentation a warning flag that this problem
could arise whenever a potential acquiree’s payroll operations were
not conducted through a payroll supplier (which would have made
the filings on behalf of the company); the team also noted that
future acquisition deals should make the owner of an acquiree liable
for any unpaid payroll tax liabilities for several years following the
closure of the acquisition transaction.

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