This misclassification stemmed from failures to ensure that every single tax return went through a geocoding process with appropriate software that assigns it to the correct jurisdictions, he said.
The problem began in 2010, the year the comptroller’s office stopped sending tax booklets and forms to individual filers. Included with that information were envelopes that were pre-coded to tell the comptroller’s office where the taxpayer’s residence was located, Natale said.
After the state stopped sending the materials by mail in 2010 though, taxpayers who wished to file by paper had to go online, download the forms and send them in. Those paper returns were scanned in and put through a software system that geocoded them. But if the system didn’t ac- cept a paper tax return when it was scanned in for any reason, the office manually keyed in the returns using the same geocodes the taxpayer had put on their forms, Natale said.
“They found that 25 percent of taxpayers misidentified their taxing jurisdiction,” he said. “So a lot of the issue is that people with a 21901 zip code put for their taxing jurisdiction the town of North East when they should have put ‘Cecilall other areas.’”
The situation got worse in 2011 when the comptroller’s office ran out of space on its mainframe and, in order to save space, went back and pulled the coding information off the prior year’s return. So while this issue resulted in overpaying North East just $15,568 in 2010, it nearly doubled in 2011 to $29,270 and then to $49,695 in 2012, $121,697 in 2013 and $126,546 in 2014, Natale said.
Natale noted that it’s also possible that the town may face an income tax revenue shortfall for 2017.
“Thankfully we were fairly conservative on projecting income tax revenue for 2017. We may have a $30,000 shortfall, but that’s very difficult to pin down,” he said. “But the bright side is we did build in $50,000 in contingency for situations just like this.”
As a result of the problem, Franchot announced that his office is making technological and procedural upgrades to ensure that all tax returns will be adequately geocoded in the future.