Wells Fargo & Co. has introduced a service that lets small businesses pay federal taxes using its PC banking program.

The service, launched last week, transfers funds to the Internal Revenue Service using automated clearing house credit transactions. The account holder can initiate a transaction as late as 3 p.m. the day before tax is due.

In 1993 the IRS declared that larger small businesses-those that would owe more than $50,000 in taxes for 1996-would have to start paying electronically as of June 30, 1998. That date was later extended to next Jan. 1.

Such businesses will face a 10% penalty if they pay by check. Those with less tax liability are not required to file electronically but can do so if they want to.

The Wells program is unusual in using credit transactions initiated by the taxpayer; most such programs involve debit transactions, authorized in advance but initiated by the IRS.

Stephen Belford, a Wells senior vice president, said the credit approach gives business owners more control, since they choose when to pay.

"The cash flow of small businesses tends to be very unpredictable," Mr. Belford said. "This way they have control over their money."

There is no extra charge for the tax service, because it costs Wells less than the ordinary alternatives. Users of the PC banking service pay $14.95 at start-up and $5 a month.

Wells hopes the tax service will build relationships with customers and introduce them to initiating ACH transactions using their PCs, he said.

San Francisco-based Wells, which has $97.5 billion of assets, introduced its small-business PC banking service, called Business Gateway, in 1996. Customers can use it to check their balances and transactions and to transfer money, but not to pay bills-except, now, federal tax bills. Mr. Belford said the company hopes to add a wider bill-payment service.

Wells also offers a telephone service for businesses to pay taxes, but Mr. Belford said the PC program is easier to use.

Cleveland-based KeyCorp also offers a telephone based service, which it launched last year. Jacqueline Baer-Cowdery, vice president for small- business services, said the automated service is telephone-based because it could not be added to KeyCorp's on-line banking program, which uses Intuit Inc.'s QuickBooks.

The tax service got off to a slow start, Ms. Baer-Cowdery said, but now it is used by about 30% of KeyCorp's small-business customers with sales of more than $1 million a year.

"We were ahead of the curve offering the product a year ago," she said.

KeyCorp, which has $74 billion of assets, charges $6 for each tax payment. It plans to update its PC banking program this spring to include a tax payment service, Ms. Baer-Cowdery said.

More than 1.5 million businesses have already used the IRS' electronic payment system, which now handles $20 billion in payments each week, the agency says.

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