By: Jerry E. Beard, CPA, MST
Many taxpayers in Maryland may have already received a refund of Maryland taxes paid as a result of the Wynne Supreme Court decision (amended returns filed to achieve maximum credits for taxes paid to other states). This refund should include interest as well, but the amount of this interest is up for debate.
Generally, Maryland’s interest rate paid on tax refunds as provided in the statute is 13%. However, in the 2014 General Assembly session, the legislature included in one of the budget bills a provision that directs the Comptroller to pay a lesser interest rate on all refunds payable as a result of the U.S. Supreme Court’s ruling in Wynne, for years back to 2006. There has been recent debate on the best method for clients to protest against the current 3.25% interest received on Wynne refund, versus the statutory 13% interest on refunds.
There are arguments to be made that that legislative change was improper. We expect the interest rate to be challenged in court, but what can taxpayers do now, to protect their interest (no pun intended)? While a definitive process has yet to be determined (because the refund checks are already starting to arrive), there should be some method, short of filing a law suit, by which people can protest and subsequently receive the additional interest. The method used to participate in the original Wynne case was by filing a protective claim with Maryland and then waiting for the court case to be decided.
Anyone who wishes to protect his/her appeal rights for receiving additional interest dollars should act now rather than wait for the conclusion of some tentative court challenge.
This situation is not covered by Maryland statutes. Because a 30-day time frame is used in several places in our law for other administrative proceedings, it is anticipated that 30 days may be the time frame the Comptroller will use for recipients to file a protest.
We suggest the following: When a taxpayer receives the Wynne refund check, file a letter with the Comptroller’s Office within 30 days of the refund check date, protesting the amount of the interest included in the check and requesting refund of an additional amount to bring the interest amount to 13%. Additionally, even if some previous refunds were received more than 30 days ago, we would still suggest sending in a protest letter. For subsequent refunds, we would also recommend sending a letter within 30 days. Lastly, we suggest a letter be sent separately for each refund year.
We expect that the Comptroller will be required to respond to that protest/refund request with a denial letter, thus setting in motion the rest of the appeal process. We have created a template letter to use in filing an administrative protest and subsequently being able to participate in receiving the additional 9.75% interest on the refund. Our understanding is that without a written protest, the Comptroller may not be compelled to pay the additional interest when the court case is decided in favor of the taxpayers.
If you would like a copy of this template, please contact email@example.com.
Jerry E. Beard, CPA, MST, is a Supervisor in the Tax Department of Ellin & Tucker. He has extensive hands-on experience providing tax compliance, planning, and consulting for a variety of clients with privately owned business operating in various industries and is also well versed in various tax services for trusts, estates and high net-worth individuals. .