For many decades, Georgia has been charging 1 percent per month on tax underpayments. That’s more than 12 percent per year. The IRS charges a variable rate that for years has been 3 percent per year.
Virtually all other states have an interest rate drastically lower than Georgia’s. Many, perhaps most, use the IRS rate. Utah currently uses a 2 percent annual rate. North Carolina uses a 5 percent annual rate.
The interest is in addition to penalties. When a taxpayer is late in paying a tax liability, penalties apply to the failure to (timely) pay the tax. Thus, the interest rate is punitive.
The Department of Revenue takes the position that it must recover tax plus interest to make the state “whole.” Last year, I tried to settle a tax matter on behalf of a client with the revenue department. The client owed approximately $500,000 in taxes. However, after two years, the interest had grown to more than $100,000. The state refused to negotiate with respect to the interest. Had reasonable interest been charged, the interest amount would have been approximately $30,000, and the matter very likely could have been settled through an installment agreement.
While the state does pay 1 percent interest on tax overpayments, it only does so beginning 90 days after a return, including an amended return, is filed. Thus, if a taxpayer received notice from his broker in July that the Form 1099 he had been issued for 2012 erroneously reported an excessive dividend amount — which was reported by the taxpayer to the state on his 2012 tax return — and the taxpayer filed an amended return in August to request a refund of the overpayment, the state would not need to begin paying interest on the overpayment until November.
Last year, I asked my state legislator, Rep. Rich Golick, to sponsor a bill to reduce the state interest rate to the IRS rate. After some email discussion, he agreed to do so. He took it to higher-ups in the Republican Party. The bill went nowhere.
At a 2013 legal seminar at the State Bar of Georgia, state Revenue Commissioner Doug MacGinnitie acknowledged the rate was excessive. He also said the state would lose a lot of revenue if it changed to a more reasonable rate.
Laws are supposed to be just, and it is clearly unjust for the state to be penalizing taxpayers through outrageous interest charges. If our Republican government stands for justice and smaller government, the law will be changed to be just.
