Ohio to refund $30 million in overpaid business taxes

Ohio Tax Commissioner Joe Testa said Thursday his department will work with businesses to return money that was overpaid while department policy instructed tax agents not to inform taxpayers of eligible refunds.

Testa’s announcement came on the heels of the results of an investigation into the policy and an employee who stole millions by abusing it by the state’s top watchdog.

A department tally of all overpayments totaled $294 million, according to a report released Thursday by the Ohio Inspector General.

Under state law and the department’s informal policy, businesses only received refunds if they requested them within three or four years of overpayment, depending on the tax. Refunds not claimed within the time frame deposited into the state’s general fund.

Overpaid taxes included sales and use, employer and school district withholding and corporate franchise taxes.

“For years, the Ohio Department of Taxation has ignored the fact that they are holding taxpayer money that doesn’t belong to the state,” Inspector General Randall Meyer said in a statement. “The people who are paying to operate this government deserve to be told the truth about their accounts.”

During the course of the 15-month investigation, department officials announced they had reversed the policy and would return $13.7 million to businesses that paid the Commercial Activity Tax, which was part of tax system excluded from the investigation.

Testa said more than $10 million has been returned and the close of the investigation gave officials the green light to return more cash. Businesses who think they might have overpaid can call a department hotline, 1-800-304-3211.

“It was just flabbergasting that this office would work like that and treat biz like that,” Testa said in an interview.

The inspector general’s probe stemmed from an early 2012 investigation into a single employee’s theft of overpaid funds. Taxation officials caught Kathleen Hyre, a former tax agent, moving overpaid funds from a closed account into another account that she accessed and referred the case to the inspector general. She has since pleaded guilty of felony theft.

The report released Thursday found tax agents could move overpaid funds around in the system without supervision or obtaining permission. In one case, an agent moved $2 million to other tax periods, showing $0 had been overpaid. The agent said the taxpayer requested the change, but when questioned by investigators, the taxpayer said he was unaware he had overpaid.

Overpayments can happen when taxpayers make a payment in advance or make a math or filing error. Tax officials can also make data entry errors that later are corrected and result in money due to the taxpayer.

Investigators described a culture at the department where agents and other employees felt money belonged to the department instead of taxpayers. The report quotes an anonymous tax agent saying, “We are not the taxpayers’ accountants” and “Then you look at some of these and you’re like, no wonder you went out of business, you gave us all your money.”

Emails from 2009 showed then-Deputy Tax Commissioner Rick Anthony decided to send refunds from a certain point in time forward but without interest as required by law. Refunds were approved but never awarded.

The inspector general recommended the department contact businesses owed money and establish formal policies for supervising changes made by tax agents.

The report has been forwarded to the Franklin County Prosecutor, City of Columbus Prosecutor, Ohio Auditor of State, Office of Budget and Management and Office of Internal Audit for consideration.

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