Tax Overpayments — Whose Money Is It?

On November 21, 2013, the Ohio Inspector General (OIG) issued a 50-page report regarding the treatment of tax overpayments by the Ohio Department of Taxation (Department). The report found that the Department had a policy of not informing taxpayers when they had overpaid their taxes. As a result, the OIG found that — with respect to tax periods still open for refund — as much as $30 million in corporation franchise, state and school district income, and sales and use taxes identified as being owed to taxpayers, but not refunded.

In fact, the report finds the apparent existence of an affirmative policy not to inform taxpayers of the situation, even when taxpayers called with questions for their accounts. When refunds were issued, interest often was not paid unless the taxpayer specifically asked for it.

Once the statute of limitations for filing a refund claim expires, the money remains in the state general revenue fund. For corporation franchise tax, that period is three years. For personal and school district income and sales and use taxes, the period is four years.

The report also notes that the Department typically referred to the overpayments as “its money” or “the Department’s money.”

The report follows an earlier discovery of a similar practice with respect to overpayments of commercial activity tax. For more, read the full report.