[T]ax preparers are raising concerns in the wake of an announcement by the state that thousands of Vermonters will be off the hook for underpaying their taxes due to a software glitch.
The state estimates that as many as 20,000 Vermonters who itemize their deductions underpaid their income taxes because of a coding error in several tax preparation software programs. According to the Department of Taxes, the average amount owed by those taxpayers was about $130.
The glitch came through as a hit to the state general fund in the April revenue report. Officials estimate the state may have lost out on as much as $2.75 million because of it.
Last week, the Tax Department announced that Intuit, which makes the program TurboTax, will pay the state $2.38 million to make up for the error, and H&R Block will pay $44,000.
In light of the payments, taxpayers who were affected by the glitch do not have to file amended returns and are off the hook for the payment.
Dennis Bache, a tax preparer in Waitsfield, opposes the department’s decision to dismiss the taxes unpaid by those affected by the glitch. He said Monday it’s a matter of fairness and responsibility.
“A certain group of taxpayers who were impacted by the failure of the software still had a responsibility, an obligation, to pay additional tax,” Bache said.
The software had failed to apply some changes to tax law passed in 2015. But when lawmakers changed the policy for itemizers, “that applies to everybody, not just some people,” Bache said.
In an open letter Bache wrote last week, he said he had heard from dozens of colleagues who were also irked by the decision, raising questions of equity among taxpayers and legality of the Tax Department’s actions.
Steve Cairns, a tax preparer in Stowe, also questioned the equity of the decision.
The Tax Department, Cairns said, “appears to be creating two different classes of taxpayer out of convenience to them.”
Cairns questioned the department’s statutory authority to decide that so many taxpayers would not have to pay the taxes they are required by law to pay. One of his colleagues, he said, suggested the state use the money from Intuit to pay for personnel to process the amended tax returns.
Tax Commissioner Mary Peterson said Monday that typically, when there is an error in filing, the department does not relieve people of their responsibility to pay the tax.
“In a normal situation we would track down those amendments,” Peterson said. “But a normal situation doesn’t involve 20,000 taxpayers who owe a small amount of money.”
Peterson said she consulted the attorney general’s office and legislators before finalizing the deal with Intuit.
As to the criticism that the action creates two tiers of taxpayers, Peterson responded that the duality began with the error.
“The scope and scale of this error created two different classes of taxpayers from the get go,” Peterson said. “There was no way to put them back in the same situation as the other folks who were lucky enough to use software that correctly computed their taxes.”
Peterson said she had heard from some tax preparers that they had detected an error in another Intuit product early in the calendar year, but she believes the problem, and its scope, became known to the department only in April.
She said a new technology system, due to come online by the end of this year, will help the department detect problems earlier because it will make data more accessible than it is in the current system.
Rep. Janet Ancel, D-Calais, chair of the House Ways and Means Committee, said Monday that she was aware the agreement with Intuit was in the works a few days before the decision was made.
She said her first concern was whether the Tax Department had legal authority to forgive taxes. After consulting legislative lawyers, she said, she firmly believes the department does have the authority.
Ancel said she has some reservations about dismissing taxes for some Vermonters while maintaining them for others. “You have an issue of treating similarly situated taxpayers differently,” Ancel said.
The error put the Tax Department in a difficult situation, she said.
“I’m still not quite there yet in terms of thinking that that’s the best way to deal with it,” Ancel said, “but I’m not dealing with it day to day.”
The issue may come up for discussion in the next legislative session.
“If I’m re-elected, if I’m chair again, it’s the kind of thing that we might want to talk about,” Ancel said.
