Owed a Tax Refund? Ohio and Other States Want to Let You Know

Every year, taxpayers anxiously await their refund checks. Opening the mailbox to find that watermarked envelope, tearing apart those pre-perforated tabs, and basking in the glow of your $2,700 average federal refund feels like a childhood birthday party.

However, refunds are not automatic. Taxpayers must often jump through hoops to recoup their overpayments, and many states don't require their revenue departments to inform the taxpayer that they are entitled to a refund.

Some states are changing this, issuing new policies and developing new electronic systems that track each taxpayer's payment history and automatically notify them when a refund is available. Iowa lawmakers have proposed to divert money into a "Taxpayer Trust Fund," which would be credited back to taxpayers. Texas Governor Rick Perry has called for a change to the state constitution to allow for the return of tax money to taxpayers when the state brings in more than is needed.

However, the Ohio Department of Taxation has gone beyond vague declarations, and has officially changed its tax refund policy to return overpayments of the Ohio Commercial Activity Tax to businesses. Previously, the law did not require the Department to proactively notify any taxpayer of a potential refund. 

Calling Ohio's refund policy "anti-business," Governor John Kasich and Tax Commissioner Joe Testa came to the rescue. In a Fact Sheet accompanying the news release from the Governor's Communication Department, the pair declares:

"The mission of this administration is to make Ohio a friendlier place for job creation, and not notifying businesses that they've overpaid their taxes is wrong and anti-business. Under the new policy, ODT will update systems to proactively notify business taxpayers of overpayments so they can, among other things, reinvest this money back into their business."

For now, Ohio businesses are still required to file all of the paperwork to claim their refund. However, the Ohio Department of Taxation is in the process of setting up a system which would notify business taxpayers that they have overpaid their tax. After they slog through the approximately 184,000 tax returns filed for the Commercial Activity Tax within the last four years, and distribute the nearly $7.2 million in refunds, the department plans to extend the policy to other business-related taxes. 

Whether the states hop on the automatic refund bandwagon is yet to be seen. Until then, we can dream of the days when our refund checks show up automatically, like a surprise birthday party in our mailbox.

By Melissa Fernley

Follow us on Twitter at @BBNATax
Join BNA's State Tax Group on LinkedIn here.