Tax refunds cause unanticipated drop in state revenue

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(Host) State revenues in February took an unexpected drop because personal income tax refunds are running much higher than projected. The Douglas administration is trying to determine if this is happening because the Tax Department is processing returns much more efficiently than in previous years.

VPR’s Bob Kinzel reports.

(Kinzel)The Administration was expecting to pay out roughly $18.5 million in personal income tax refunds last month – but the actual number was just over $26 million.

Normally this difference would be cause for alarm but the Douglas administration thinks there’s a practical reason why this is taking place. Administration Secretary Mike Smith says the average refund per taxpayer has not increased, leading Smith to conclude that a more timely processing of returns is the key factor.

Smith also notes that the number of people filing their state tax return online this year has increased 30 percent:

(Smith) “We don’t think it’s systemic in the projection. We think it’s more in terms of efficiency but we’re going to look at it. We’re going to continue to monitor this to make sure that our targets are solid as we go forward here we probably would expect March to also show a decrease if the efficiency of the Tax Department continues the way that it has been.”

(Kinzel)On another income tax matter, Smith says he remains optimistic that the governor’s tax equity proposal will be adopted by lawmakers in the second half of the session.

Douglas has proposed eliminating the 40 percent exemption on capital gains – a move that will raise about $15 million. And he wants to target this money to cut personal income tax rates. The plan faces an uncertain future because some Republicans don’t want to eliminate the exemption and Democrats want to use the money to create a municipal revenue sharing program.

Smith says the administration will oppose the Democratic plan because it represents additional state spending but he is willing to talk to Democratic leaders about adjusting the benefit levels of the governor’s plan to provide greater tax cuts to low and middle income Vermonters:

(Smith) “As long as we’re not talking about a spending plan, I think we can reach some sort of consensus of this. What we need to do is remember the model that we did with Act 68 which was a bipartisan model last year and do the same with that I think is very equitable tax plan here.”

(Kinzel) The House Ways and Means Committee plans to look at this issue later this week.

For Vermont Public Radio, I’m Bob Kinzel in Montpelier.

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