Should States Limit Refund Period to Save Revenue?

By July 13, 2010 Uncategorized

There is discussion within the Streamlined Sales Tax Program to develop a uniform sales tax refund period.  Some discussion is to make this a 1 year look back.  Most states allow the refund period to be the same as the assessment period which is 3 years.  The states are well within their right to limit the refund period under their soverign ammuity laws.  Technically, there is no requirement that states allow for refunds at all, however that would not set well with the public.

Limiting the look back to 1 year could have some uninteneded consquences.  First, it may flood the system with refunds-some legitimate and some not.  If you know that you only have a 1 year look back, you may only have time to throw everything into the refund claim and then sort it out later.  This could back up the system.

The other consequence would be a decline in current revenue collections if businesses adopt a very conservative approach to what is taxable and what is not.  Companies would be more aggressive at claiming exemptions or flat out not paying use tax on purchases.  If they know they can’t get a refund, why pay in the tax in the first place. 

Neither alternative is good, but I believe they could be real possibilties.

Ned Lenhart
Sales Tax Refunds