Audit: Md. lags in policing business 

Posted: 7:00 pm Sun, August 15, 2010
By Nicholas Sohr
Daily Record Business Writer

Maryland does not adequately police companies that illegally conduct business in the state, an issue that has dogged corporate regulators for at least a decade, according to a state audit.

The state Department of Assessments and Taxation let required checks of corporate tax filings fall by the wayside and did not do enough to take action against businesses when violations were discovered, according to the audit by the Department of Legislative Services.

Those companies that were not pursued could owe the state fees and fines of up to $220,900 and additional taxes to local jurisdictions, according to the audit.

Despite the audit’s findings, Robert Young, acting deputy director of the department said Friday, “We do check this, and we do take it seriously. Otherwise you encourage somebody who is filing to say ‘Why should I file? They don’t check this.’”

The department has long struggled to ferret out businesses operating illegally in the state. Audits covering 2000 to 2006 found the department was slow to add state tax databases and other software to its arsenal, and later, did not take advantage of the computerized help it did have.

The department issues corporate charters, collects the annual $300 filing fee and oversees some pieces of the state tax law that pertain to businesses.

Young said the department’s computer systems, which match its own records against those held by the comptroller, “need refinement,” adding that changes could be forthcoming in response to the audit’s findings.

But the department’s problems appear to go deeper than its software.

Auditors found the department did not compare its data to the comptroller’s sales tax data for 2008.

Young said the computerized comparison was completed, but it was not reviewed by department employees before the audit period ended in February.

The previous comparison found 793 companies that were potentially conducting business in the state illegally. In 501 cases, the audit found, the department didn’t do enough to pursue businesses, including 75 companies that admitted fault but still hadn’t submitted tax returns and filing fees by early 2010.

The department may beef up its auditing software to include more tax information, Young said, to refute claims by companies that they don’t have enough of a presence in the state to be required to pay taxes.

“We want a level playing field for all businesses here in Maryland, and we don’t want businesses operating here without meeting their legal registration requirements,” said Ron Wineholt, a Maryland Chamber of Commerce lobbyist, and former head of the assessments department.

Wineholt blamed budget and staffing cuts for leaving the department short-handed.

The department shrank from 735 employees in 2003 to fewer than 600 this year. Young said two employees are responsible for sifting through the corporate filing fee and tax data.

And, as part of the accounting maneuvers the state took earlier this year to balance the budget, $3 million was taken from the account into which corporate filing fees are deposited.

“It’s frustrating not only for the department, but for businesses who are filing documents and filing fees that are supposed to be, by law, used to make sure the department does its job,” Wineholt said.