H

H. B. 3090

(By Mr. Speaker, Mr. Kiss)

[Introduced February 21, 2003; referred to the

Committee on Finance.]

A BILL to amend and reenact sections fourteen, seventeen and seventeen-a, article ten, chapter eleven of the code of West Virginia, one thousand nine hundred thirty-one, as amended; and to amend and reenact section fifteen, article eleven of said chapter, all relating to payment of interest on tax refunds and tax overpayments; time limits on claims for refund of personal income taxes; requiring payment of interest on claims for refund of personal income taxes be paid after forty-five days; requiring payment of interest on claims for refund of corporation net income taxes be paid after ninety days; setting forth interest calculations; and revising interest provisions respecting estate taxes.

Be it enacted by the Legislature of West Virginia:
That sections fourteen, seventeen and seventeen-a, article ten, chapter eleven of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted; and that section fifteen, article eleven of said chapter be amended and reenacted, all to read as follows:
ARTICLE 10. PROCEDURE AND ADMINISTRATION.
§11-10-14. Overpayments; credits; refunds and limitations.

(a) Refunds of credits of overpayments. -- In the case of overpayment of any tax (or fee), additions to tax, penalties or interest imposed by this article, or any of the other articles of this chapter, or of this code, to which this article is applicable, the tax commissioner shall, subject to the provisions of this article, refund to the taxpayer the amount of the overpayment or, if the taxpayer so elects, apply the same as a credit against the taxpayer's liability for the tax for other periods. The refund or credit shall include any interest due the taxpayer under the provisions of section seventeen of this article.

(b) Refunds or credits of gasoline and special fuel excise tax or motor carrier road tax. -- Any person who seeks a refund or credit of gasoline and special fuel excise taxes under the provisions of section ten, eleven or twelve, article fourteen of this chapter, or section nine or eleven, article fourteen-a of this chapter, shall file his or her claim for refund or credit in accordance with the provisions of the applicable sections. The ninety-day time period for determination of claims for refund or credit provided in subsection (d) of this section does not apply to these claims for refund or credit.

(c) Claims for refund or credit. -- No refund or credit shall be made unless the taxpayer has timely filed a claim for refund or credit with the tax commissioner. A claim for refund for the personal income tax imposed in article twenty-one of this chapter is timely if made in an initial filing regardless when the return was due. A person against whom an assessment or administrative decision has become final is not entitled to file a claim for refund or credit with the tax commissioner as prescribed herein. The tax commissioner shall determine the taxpayer's claim and notify the taxpayer in writing of his or her determination.

(d) Petition for refund or credit; hearing. --

(1) If the taxpayer is not satisfied with the tax commissioner's determination of taxpayer's claim for refund or credit, or if the tax commissioner has not determined the taxpayer's claim within ~~ninety~~ sixty days after the claim was filed, or ~~six months~~ ninety days in the case of claims for refund or credit of the taxes imposed by articles twenty-one, twenty-three and twenty-four of this chapter, after the filing thereof, the taxpayer may file, with the tax commissioner, either personally or by certified mail, a petition for refund or credit with the office of tax appeals in accordance with the provisions of section nine, article ten-a of this chapter: Provided, That no petition for refund or credit may be filed more than sixty days after the taxpayer is served with notice of denial of taxpayer's claim. ~~Provided, however~~, That after the thirty-first day of December, two thousand two, the taxpayer shall file the petition with the office of tax appeals in accordance with the provisions of section nine, article ten-a of this chapter

(2) The petition for refund or credit shall be in writing, verified under oath by the taxpayer, or by taxpayer's duly authorized agent having knowledge of the facts, and shall set forth with particularity the items of the determination objected to, together with the reasons for the objections.

(3) When a petition for refund or credit is properly filed, the procedures for hearing and for decision applicable when a petition for reassessment is timely filed shall be followed.

(e) Appeal. -- An appeal from the tax commissioner's administrative decision upon the petition for refund or credit may be taken by the taxpayer in the same manner and under the same procedure as that provided for judicial review of an administrative decision on a petition for reassessment, but no bond shall be required of the taxpayer. An appeal from the administrative decision of the office of tax appeals on a petition for refund or credit, if taken by the taxpayer, shall be taken as provided in section nineteen, article ten-a of this chapter.

(f) Decision of the court. -- Where the appeal is to review an administrative decision on a petition for refund or credit, the court may determine the legal rights of the parties but in no event ~~shall~~ may it enter a judgment for money.

(g) Refund made or credit established. -- The tax commissioner shall promptly issue his or her requisition on the treasury or establish a credit, as requested by the taxpayer, for any amount finally administratively or judicially determined to be an overpayment of any tax (or fee) administered under this article. The auditor shall issue his or her warrant on the treasurer for any refund requisitioned under this subsection payable to the taxpayer entitled to the refund, and the treasurer shall pay the warrant out of the fund into which the amount so refunded was originally paid: Provided, That refunds of personal income tax may also be paid out of the fund established pursuant to section ninety-three, article twenty-one of this chapter.

(h) Forms for claim for refund or a credit; where return shall constitute claim. -- The tax commissioner may prescribe by rule ~~or regulation~~ the forms for claims for refund or credit. Notwithstanding the foregoing, where the taxpayer has overpaid the tax imposed by article twenty-one, twenty-three or twenty-four of this chapter, a return signed by the taxpayer which shows on its face that an overpayment of tax has been made ~~shall constitute~~ constitutes a claim for refund or credit, regardless when filed.

(i) Remedy exclusive. -- The procedure provided by this section ~~shall constitute~~ is the sole method of obtaining any refund, or credit, or any tax (or fee) administered under this article, it being the intent of the Legislature that the procedure set forth in this article shall be in lieu of any other remedy, including the uniform declaratory judgments act embodied in article thirteen, chapter fifty-five of this code, and the provisions of section two-a, article one of this chapter.

(j) Applicability of this section. -- The provisions of this section ~~shall~~ apply to refunds or credits of any tax (or fee), additions to tax, penalties or interest imposed by this article, or any article of this chapter, or of this code, to which this article is applicable.

(k) Erroneous refund or credit. -- If the tax commissioner believes that an erroneous refund has been made or an erroneous credit has been established, he or she may proceed to investigate and make an assessment or institute civil action to recover the amount of the refund or credit, within two years from the date the erroneous refund was paid or the erroneous credit was established, except that the assessment may be issued or civil action brought within five years from the date if it appears that any portion of the refund or credit was induced by fraud or misrepresentation of a material fact.

(l) Limitation on claims for refund or credit. --

(1) General rule. -- Whenever a taxpayer claims to be entitled to a refund or credit of any tax (or fee), additions to tax, penalties or interest imposed by this article, or any article of this chapter, or of this code, administered under this article, paid into the treasury of this state, the taxpayer shall, except as provided in subsection (d) of this section, file a claim for refund, or credit, within three years after the due date of the return in respect of which the tax (or fee) was imposed, determined by including any authorized extension of time for filing the return, or within two years from the date the tax, (or fee), was paid, whichever of the periods expires the later, or if no return was filed by the taxpayer, within two years from the time the tax (or fee) was paid, and not thereafter: Provided, That a claim for refund of taxes imposed by article twenty-one of this chapter is timely if made upon the initial return filed not later than ten years after the due date.

(2) Extensions of time for filing claim by agreement. -- The tax commissioner and the taxpayer may enter into a written agreement to extend the period within which the taxpayer may file a claim for refund or credit, which period may not exceed ~~two~~ three years. The period so agreed upon may be extended for additional periods not in excess of two years each by subsequent agreements in writing made before expiration of the period previously agreed upon.

(3) Special rule where agreement to extend time for making an assessment. -- Notwithstanding the provisions of subdivisions (1) and (2) of this subsection, if an agreement is made under the provisions of section fifteen of this article extending the time period in which an assessment of tax can be made, then the period for filing a claim for refund or credit for overpayment of the same tax made during the periods subject to assessment under the extension agreement shall also be extended for the period of the extension agreement plus ninety days.

(4) Overpayment of federal tax. -- Notwithstanding the provisions of subdivisions (1) and (2) of this subsection, in the event of a final determination by the United States Internal Revenue Service or other competent authority of an overpayment in the taxpayer's federal income or estate tax liability, the period of limitation upon claiming a refund reflecting the final determination in taxes imposed by articles eleven, twenty-one and twenty-four of this chapter may not expire until six months after the determination is made by the United States Internal Revenue Service or other competent authority.

(5) Tax paid to the wrong state. -- Notwithstanding the provisions of subdivisions (1) and (2) of this subsection, when an individual, or the fiduciary of an estate, has in good faith erroneously paid personal income tax, estate tax or sales tax, to this state on income or a transaction which was lawfully taxable by another state and, therefore, not taxable by this state, and no dispute exists as to the jurisdiction to which the tax should have been paid, then the time period for filing a claim for refund, or credit, for the tax erroneously paid to this state does not expire until ninety days after the tax is lawfully paid to the other state.

(6) Exception for gasoline and special fuel excise tax and motor carrier road tax. -- This subsection does not apply to refunds of gasoline and special fuel excise tax or motor carrier road tax sought under the provisions of article fourteen or fourteen-a of this chapter.

(m) Effective date. -- This section, as amended in the year one thousand nine hundred ninety-six, shall apply to claims for refund or credit filed on or after the first day of July, one thousand nine hundred ninety-six. This section, as amended in the year two thousand three, applies to claims for refund or credit filed on or after the first day of January, two thousand three.
§11-10-17. Interest.

(a) Underpayments. -- If any amount of a tax administered under this article is not paid on or before the last date prescribed for payment, interest on the amount at the rate of eight percent per annum shall be paid for the period from the last date to the date paid: Provided, That on and after the first day of July, one thousand nine hundred eighty-six, interest on underpayments shall be paid at the annual rate established under section seventeen-a of this article, from the period beginning on the first day of July, or from the last day prescribed for payment, whichever is the later, to the date paid, regardless of when liability for the tax arose: Provided, however, That on and after the first day of July, two thousand two, interest on underpayments shall be paid at an annual rate of one and one-half percent above the annual rate established under section seventeen-a of this article, from the period beginning on the first day of July, or from the last day prescribed for payment, whichever is the later, to the date paid, regardless of when liability for the tax arose. For purposes of this subsection, the last date prescribed for payment shall be the due date of the return and shall be determined without regard to any extension of time for payment.

(b) Last date for payment not otherwise prescribed. -- In the case of taxes payable by stamp or other indicia of tax payment and in all other cases in which the last day for payment is not otherwise prescribed, the last date for payment shall be considered to be the date the liability for tax arises and in no event shall be later than the date notice and demand for payment of the tax is made by the tax commissioner.

(c) Erroneous refund or credit. -- If any refund is made or credit is established upon an erroneous claim for refund or credit, interest on the amount refunded or credited at the annual rate established under section seventeen-a of this article, shall be paid by the claimant from the date the refund was made or the credit was taken to the date the amount is recovered.

(d) Overpayments. -- Interest shall be allowed and paid at the annual rate of eight percent per annum upon any amount which has been finally administratively or judicially determined to be an overpayment in respect of each tax administered under this article except the taxes imposed by articles twelve, fourteen and fourteen-a of this chapter: Provided, That on and after the first day of July, one thousand nine hundred eighty-six, interest on overpayments shall be paid at the annual rate established under section seventeen-a of this article, from the first day of July, or the date the claim for refund or credit is filed, whichever is the later, regardless of when the tax was paid. The interest shall be allowed and paid for the period commencing with the date of the filing by the taxpayer of a claim for refund or credit with the tax commissioner and ending with the date of a final administrative or judicial determination of overpayment. The tax commissioner shall, within thirty days after the determination of entitlement to refund, issue his or her requisition or establish a credit as requested by the taxpayer. Whenever the tax commissioner fails or refuses to issue any requisition or establish the credit within said thirty-day period, the interest provided herein shall commence to accrue until performance by the tax commissioner. The acceptance of the refund check or credit shall be without prejudice to any right of the taxpayer to claim any additional overpayment and interest thereon:

Provided, however, That on and after the first day of July, two thousand three, the following applies to the calculation and payment of interest on overpayments:

(1) Rate. --
Interest shall be allowed and paid upon any overpayment of any tax administered under this article at the overpayment rate established under section seventeen-a.

(2) Period. -- Interest shall be allowed and paid as follows:

(i) Credits. -- In the case of a credit, from the date of the overpayment to the due date of the amount against which the credit is taken.

(ii) Refunds. -- In the case of a refund, from the date of the overpayment to a date (to be determined by the tax commissioner) preceding the date of the refund check by not more than thirty days, whether or not the refund check is accepted by the taxpayer after tender of the check to the taxpayer. The acceptance of the check shall be without prejudice to any right of the taxpayer to claim any additional overpayment and interest.

(iii) Late returns. -- Notwithstanding paragraph (1) or (2) in the case of a return of tax which is filed after the last date prescribed for filing the return, no interest may be allowed or paid for any day before the date on which the return is filed.

(iv) Refunds within forty-five days after return is filed. -- If any overpayment of tax imposed by this title is refunded within forty-five days after the last day prescribed for filing the return of the tax (determined without regard to any extension of time for filing the return) or, in the case of a return filed after the last date, is refunded within forty-five days after the date the return is filed, no interest may be allowed under subsection (a) of this section on the overpayment.

(v) Refunds after claim for credit or refund. -- If:

(A) The taxpayer files a claim for a credit or refund for any overpayment of tax imposed by this article; and

(B) The overpayment is refunded within forty-five days after the claim is filed, no interest may be allowed on the overpayment from the date the claim is filed until the day the refund is made.

(vi) Tax commissioner initiated adjustments. -- If an adjustment initiated by the tax commissioner results in a refund or credit of an overpayment, interest on the overpayment shall be computed by subtracting forty-five days from the number of days interest would otherwise be allowed with respect to the overpayment.

(vii) Net operating loss or capital loss carryback. -- For purposes of subsection (a) of this section, if any overpayment of tax administered under this article results from a carryback of a net operating loss or net capital loss, the overpayment may not be considered to have been made prior to the filing date for the taxable year in which the net operating loss or net capital loss arises.

(e) ~~Applicable rules. --~~ ~~For purposes of this section:~~
~~(1)~~ ~~No interest payable on tax refunded or credited within ninety~~ ~~forty-five~~ ~~days after claim for refund or credit is filed.~~ In the event of the overpayment of any tax administered under this article, except the tax imposed by articles twenty-one and twenty-four of this chapter, where the tax commissioner issues his or her requisition or establishes a credit as requested by the taxpayer within ninety ~~days after the date of the filing by the taxpayer of a claim for refund or credit, no interest shall be allowed under this section.~~
~~(2)~~ ~~No interest payable where personal income tax and corporation net income tax refunded or credited within six months~~ ~~after claim for refund or credit is filed.~~ In the event of the overpayment of the tax imposed by articles twenty-one and twenty-four of this chapter, where the tax commissioner issues his or her requisition or establishes a credit as requested by the taxpayer within six months ~~after the date of the filing by the taxpayer of a claim for refund or credit, no interest shall be allowed under this section.~~
~~(3)~~ (1) Interest treated as tax. -- Interest prescribed under this section on any tax shall be collected and paid in the same manner as taxes.

~~(4)~~ (2) No interest on interest. -- No interest under this section ~~shall~~ may be imposed on the interest provided by this section prior to the first day of July, one thousand nine hundred eighty-six.

~~(5)~~ (3) Interest on penalties or additions to tax. -- Interest shall be imposed under subsection (a) of this section on any assessable penalty or additions to tax only if the penalty or additions to tax is not paid within fifteen days from the date of notice and demand therefor, and in that case, interest shall be imposed only for the period from the date of the notice and demand to the date of payment.

~~(6)~~ (4) Payments made within fifteen days after notice and demand. -- If notice and demand is made for payment of any amount, and if the amount is paid within fifteen days after the date of the notice and demand, interest under this section on the amount so paid may not be imposed for the period after the date of the notice and demand.

~~(7)~~ (5) Limitation on collection. -- Interest prescribed under this section on any tax may be collected at any time during the period within which the tax to which the interest relates may be collected.

~~(8)~~ (6) Exception as to estimated tax. -- This section does not apply to any failure to pay any estimated tax required to be paid under articles thirteen, thirteen-a, thirteen-b, twenty-one, twenty-three or twenty-four of this chapter.
§11-10-17a. Determination of rate of interest.
(a) In general. -- The annual rate of interest established under this section shall be such adjusted rate as is established by the tax commissioner under subsection (b): Provided, That ~~such~~ the annual rate ~~shall~~ may never be less than eight percent per annum.

(b) Adjustments of interest rate. --

(1) Establishment of adjusted rate. -- If the adjusted prime rate charged by banks (rounded to the nearest full percent):

(A) During the six-month period ending on the thirtieth day of September of any calendar year; or

(B) During the six-month period ending on the thirty-first day of March of any calendar year, differs from the interest rate in effect under this section on either such date, respectively, then the tax commissioner shall establish, within fifteen days after the close of the applicable six-month period, an adjusted rate of interest equal to ~~such~~ the adjusted prime rate.

(2) Effective date of adjustment. -- Any such adjusted rate of interest established under paragraph (1) shall become effective:

(A) On the first day of January of the succeeding year in the case of an adjustment attributable to paragraph (1)(A) above; and on

(B) The first day of July of the same year in the case of an adjustment attributable to paragraph (1)(B).

(c) Definition of "adjusted prime rate." -- For purposes of subsection (b) of this section, the term "adjusted prime rate charged by banks" means the average predominant prime rate quoted by commercial banks to large businesses, as determined by the board of governors of the Federal Reserve System. For purposes of this section, there is no minimum interest rate: Provided, That for determining the rates of interest on overpayments and underpayment, the following applies on and after July one, two thousand three:

(a) GENERAL RULE. -
(1) Overpayment rate.

The overpayment rate established under this section shall be the sum of:

(A) The federal short-term rate determined under subsection (b) of this section; plus

(B) Three percentage points.

(2) Underpayment rate.

The underpayment rate established under this section shall
be the sum of:

(A) the Federal short-term rate determined under subsection (b) of this section; plus

(B) 4 ½ percentage points.

(b) FEDERAL SHORT-TERM RATE.
For purposes of this section:

(1) General rule.

The tax commissioner shall announce the federal short-term rate for the first month in each calendar quarter.

(2) PERIOD DURING WHICH RATE APPLIES.

(A) In general.

Except as provided in subparagraph (B) of this section, the federal short-term rate determined under paragraph (1) for any month shall apply during the first calendar quarter beginning after the month.

(B) Special rule for individual estimated tax.

In determining the addition to tax for failure to pay estimated tax for any taxable year, the federal short-term rate which applies during the third month following such taxable year shall also apply during the first fifteen days of the fourth month following the taxable year.

(3) FEDERAL SHORT-TERM RATE.

The federal short-term rate for any month shall be the federal short-term rate determined during such month by the secretary of the treasury in accordance with IRC section 1274(d). Any such rate shall be rounded to the nearest full percent (or, if a multiple of one half of one percent, the rate shall be increased to the next highest full percent).
ARTICLE 11. ESTATE TAXES.
§11-11-15. Interest.
(a) Rate. -- The tax imposed by this article does not bear interest if it is paid before the expiration of nine months after the date of death of the decedent. If that tax is paid after that date, the tax bears interest at the rate of twelve percent per annum from the date by which it should have been paid (determined without regard to any extension of time for payment) until the date it is paid: Provided, That after the thirtieth day of June, two thousand three, interest on tax due shall be calculated in accordance with the provisions of section seventeen-a, article ten of this chapter.

(b) Application of payment. -- Every payment of delinquent tax shall be applied, first, to any interest due on that tax, secondly, to any additions to tax or penalty imposed by article ten of this chapter, and then, if there is any balance, to the tax itself: Provided, That in all events payment shall be applied as directed by the taxpayer.

(c) Application of change in interest rate. --
(1) To deficiencies. -- The interest rate in effect at the time of assessment or when the payment of delinquent tax is made may not be applied retroactively to the date the tax was due. Interest on moneys owed by the taxpayer shall be the sum of the interest amounts calculated for each year or part thereof from the date prescribed for payment (determined without regard to any extensions) to the date the payment is made using the interest rate in effect for each respective year or part thereof.

(2) To overpayments. -- The interest rate in effect at the time an overpayment of tax is refunded, or a credit therefor is established, by the tax commissioner, may not be applied retroactively to the date the claim for refund or credit was filed with the tax commissioner. Interest on moneys owed to taxpayers shall be the sum of the interest amounts calculated for each year or part thereof from date the claim for refund or credit was filed with the tax commissioner until date the refund is paid or credit therefor is established (such dates determined as provided in section seventeen) using the interest rate in effect for each respective year or part thereof.

NOTE: The purpose of this bill is to update the interest provisions of the tax law to make them more fair. The bill coordinates the calculation of interest on overpayments and underpayments with the methods used by the Internal Revenue Service under federal tax law. It eliminates the unfairness in the current system that charges taxpayers for interest on all underpayments but only pays interest on overpayments for a part of the time the Tax Department had use of the money. It also stops interest on refunds 30 days before the issuance of the refund check, not the date that the Tax Commissioner issues a warrant to the state treasury. The bill also makes some changes in how interest is calculated for estate taxes.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.