Weekly Round-Up: Automatic Tax Refunds—A Growing Trend?


The idea of returning taxes to taxpayers is a growing trend, and some states are changing their refund procedures, issuing new policies and developing new electronic systems that track each taxpayer's payment history and automatically notify the taxpayer when a refund is available, Bloomberg BNA State Tax Law Editor Melissa Fernley writes in this week's issue of the Weekly State Tax Report.

The issue of automatic refunds has come up as a way of returning budget surpluses to taxpayers. It is also a mechanism for returning overpayments to corporations, which must often make estimated payments throughout the year.

This trend has shown up in the rhetoric of politicians across the nation. Iowa lawmakers have proposed to divert money into a "Taxpayer Trust Fund," which would be credited back to taxpayers, and Texas Gov. Rick Perry (R) has called for a change in the state constitution to allow for the return of tax money to taxpayers when the state brings in more revenue than is needed, Fernley writes. 

So far, most states have experimented with automatic refunds for those taxes where the overall number of returns filed is fewer than that received for individual income taxes. However, with the growing number of individual income taxpayers filing electronically, it should be increasingly easy for revenue departments to enact an automatic tax refund system that can handle the greater number of individual income tax filers, according to Fernley.

Indiana has made the best attempt so far at automatically refunding money to individual income taxpayers. Instead of calculating an amount specific to each taxpayer, the state chose to issue a credit to each filer, dubbed the "Automatic Taxpayer Refund Credit," which is issued in years when the state budget surplus exceeds the amount needed to protect against a downturn in the economy, Fernley writes.

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

For a complete look at several state proposals for automatic tax refunds and comprehensive charts on the limitation periods for taxpayers filing refund claims and the time periods taxpayers have to appeal the denial of their administrative claims, check out Fernley's article here.

In other developments…

Are Film Tax Credits an Effective Tool for Encouraging Economic Growth , Raising Tax Revenue? by Bloomberg BNA State Tax Law Editor Kathleen Caggiano

Morrison & Foerster issues its August 2013 issue of New York Tax Insights which looks at a decision by a  New York State Administrative Law Judge that Disallows Combined Filing in Absence of Substantial Intercorporate Transactions

Gift basket company ruled engaged in manufacturing eligible for Section 199 deduction , by PwC

A possible tax planning opportunity for luxury suites and skyboxes at Texas sports venues , by the Texas State and Local Tax Law Blog

Monday Map: Growth in State Tax Collections (2001-2011) , by the Tax Foundation

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