Assemblymember Kevin Cahill (D – Ulster / Dutchess) announced that the final budget will not include penalties for individuals who choose to submit their personal income tax returns through the mail instead of electronically. The fees, which would have ranged between $25 and $50 depending on the nature of the filing, were part of existing law as New York State transitions to electronic filing. Assemblymember Cahill, the main sponsor of legislation that would repeal the penalties (A.9528), helped remove the provision from the final budget, delaying it’s implementation for at least a year.
“The Tax Department would have forced taxpayers who wished to submit paper filings to jump through unnecessary hoops instead of incentivizing them to e-file, as the law intended,” said Assemblymember Cahill.
The penalties would have applied to individuals who prepared their personal income tax returns using authorized tax software but chose to submit their documents on paper. The law allows the State to waive the fee in certain instances, but the Department of Taxation and Finance has failed clearly define how those exemptions would be applied.
“Because the Department of Taxation and Finance could not identify specific processes to obtain an exemption, there was a risk that many paper filers would be subjected to the penalty outside the intent of the law. New Yorkers deserve a logical, comprehensible tax code. As written, this legislation is simply bad public policy and needed to be revisited.”The efile mandate for paid preparers apparently remains in place. (Interestingly, paid preparers are only required to efile if they prepared more than five New York tax returns. Under the originally proposed individual efile mandate, individuals who self-prepare their own returns using tax software--who normally only file ONE state tax return--would have been required to efile it, unless an exception applied. Since the New York State tax department apparently had not gotten around to spelling out the details of those exceptions, implementation of the penalty has been forestalled.)
This moratorium on the filing fee applies retroactively to those who may have already submitted their return this year. The measure provides the public with a chance to learn the benefits of electronic filing and gives the Tax Department the time necessary to develop orderly regulations.
Hmmm, very interesting.
Observation #1) Assemblymember Cahill represents Ulster-Dutchess Counties.
Observation #2) IBM is the largest employer in that area.
Observation #3) IBM gets a substantial amount of business from state tax administrators across the country running 2-D barcode scanning systems for paper-filed tax returns.
Observation #4) New York used to be one of those states that used 2-D barcode scanning systems. In previous years, tax software such as TaxWise or TurboTax printed out neat little 2-D barcodes that generated great cost saving and efficiency for processing paper returns.
Observation #5) It appears that the current versions of tax software no longer supports 2-D barcodes on New York State returns (presumably because the software publishers expected the efile mandate to go into effect this year), which means that processing paper returns will be more costly, less efficient, and more prone to transcription errors than in the past.
ADDENDUM: Bank of America used to employ a lot of people to scan all those 2-D barcoded state tax returns at a location in Assemblyman Cahill's district. Apparently, that contract expired on December 31, 2011.
UPDATE: The (Schenectady) Daily Gazette coverage puts a different spin on the news. According to the Gazette, the mandate remains even though there is no $25 penalty for violating it. Here is how Gazette reporter David Lombardo covered the story:
A recently imposed $25 fee for personal income tax filers will go away on Sunday with the enactment of the state budget.
Starting this year, anyone who used an authorized tax software but chose to submit documents in paper would have to pay a fee. The penalty was part of the state Department of Taxation and Finance's effort to "gently coax" people into filing electronically, said department spokesman Ed Walsh.
The state budget, which is being enacted today, will immediately suspend this fee. A mandate requiring filers who use tax software to file electronically will remain in place. "Just having the mandate will encourage people to e-file," Walsh said.According to the Gazette, 90% of New York returns are efiled already, but the remaining paper files cost the state $50 million per year.
That $50 million figure sounds way too high to me.
According to the most recent statistics I could find, there are about 9 million individual income tax returns filed each year in New York. If the Gazette is right that 90% of returns are efiled, then the number of paper files is less than one million returns per year. It is hard to imagine that it costs over $50 each for the state to process each of those paper filed returns. Given that about 39% of the paper returns were v-coded and prepared with 2-D barcodes, they should have been very easy to process with automated scanning equipment. Most of the remaining returns were probably quite simple short form returns, which should not have required a lot of effort to transcribe and key into the system. Stories about the Ulster paper return processing facility operated by Bank of America says they had about 100 year round employees and about 900 seasonal employees. Presumably the seasonal employees were primarily low-level clerical jobs, with relatively low pay and benefits, given the economically depressed Ulster economy.
Again, very hard to see where the $50 million figure cost to process paper filed returns is coming from. The current IRS Budget request is based on an IRS estimated saving of about $13 for every additional return efiled. It is hard to see why it would cost the state so much more to process a paper return than the IRS. If anything, the IRS probably pays more to process returns than the state, because the federal government does not use 2-d barcode scanning technology at all. Moreover, I believe the IRS only uses government employees to process paper returns, and government salaries for low level clerical employees tend to be higher than private sector clerical salaries.