State officials say Vermont’s disappointing April revenue report could be related to a failure among some software companies to take changes in state law into account.
The issue means some taxpayers owe additional money.
Lawmakers changed two deduction policies when assembling the revenue package during the 2015 session. One change eliminated a deduction Vermonters could get for their state and local taxes. The other put a cap on itemized deductions at 2.5 times the standard deduction.
Tax Commissioner Mary Peterson said some tax preparation software may not have been updated to reflect those changes.
A monthly revenue report released last week showed that personal income tax returns came in $18 million below projections for April — an important month for state finances because of the income tax filing deadline.
Peterson said the department is still researching the extent of the issue.
The state knows that at least $1.5 million was not collected that should have been because of the failure to take the elimination of the state and local tax deduction into account, Peterson said.
On average, people who took a deduction for state and local taxes will owe about $160, she said.
Meanwhile, department employees “really haven’t been able to quantify” the extent of the issue related to the cap on deductions yet, she said.
The two policy changes apply only to people who itemize their deductions, roughly a third of all Vermont filers, according to Peterson.
Peterson said the state is aware that Intuit, the company that owns financial management software including QuickBooks and TurboTax, has sent a letter to some customers notifying them of the issue.
Peterson expects that many people who might owe more money due to the glitch have likely been contacted by their tax preparer. She encouraged people who itemize their deductions to contact the software manufacturer or their tax preparer if they are concerned.
The Tax Department learned of the issue about a week and a half before the filing deadline last month, she said.
Julie Miller, a spokesperson for Intuit, said the company notified some Vermont TurboTax customers earlier this month that there may be errors on their state tax returns.
“We fixed the issue in TurboTax and are communicating with impacted taxpayers and assisting them to make it as easy as possible to amend their state returns,” Miller said in an email statement Monday.
TurboTax will reimburse customers if the state charges them any penalties or interest as a result of the issue, she said.
Secretary of Administration Justin Johnson said the state is still calculating the full financial impact of the problem. “We don’t know at this point how big of an issue that was,” Johnson said.
Overall general fund revenues for the month of April came in $16.4 million below the target of $229 million. But Johnson said he is optimistic about how state finances will look at the end of the fiscal year in less than two months.
“It’s a big number, but in the overall scheme of the budget it’s not the end of the world, and we’ll manage to it,” Johnson said.
Economist Art Woolf, a faculty member at the University of Vermont, said the issue points to the complexity of Vermont’s income tax policy.
“Vermont’s income tax is now so difficult to figure out that even the professionals who prepare the software are having a hard time with it,” Woolf said.
