by Dick Hall-Sizemore

Each year when I finish using TurboTax to prepare my tax returns, I file my federal tax return electronically. However, in order to file my state tax return electronically, I have to pay extra. I refuse on principle. I print off the completed state return, sign it, put it in an envelope, and mail it to the Virginia Dept. of Taxation.

I do this because I am still peeved about the state capitulating to the private tax preparation industry 15 years ago.

For several years, the Commonwealth had a perfectly good system that enabled most residents to prepare and electronically submit their state tax returns. That changed with the passage of HB 1349 in 2010. The effect of that bill was to prohibit the Dept. of Taxation from operating a free preparation and filing system, available to all residents, and instead operate the Virginia Free File program. The legislation directs the state to “enter into a non-monetary agreement with companies in the electronic tax preparation and filing industry (the “Consortium for Virginia”) to work together to offer free, online tax return preparation and filing services to 70 percent of Virginia taxpayers with the lowest incomes.” For anyone interested, the Tax Department has provided an excellent, detailed history of this legislation and its aftermath in its fiscal impact statement for HB 2264.

HB 2264, introduced by Del. Kathy Tran (D-Fairfax) would require the state to “develop and offer a modern electronic tax return filing services program directly to Virginia individual taxpayers without monetary charge that is similar to and compatible with the IRS Direct File Program.” The current Free File program would be phased out by December 31, 2028.

Not only would this legislation provide a useful benefit to the Commonwealth’s taxpayers, there would not be any additional cost to develop it. The Governor’s introduced budget bill included $131 million to replace the Dept. of Taxation’s current “revenue management system.” The budget amendments proposed by both houses left that proposal in place. As the department pointed out in its fiscal impact statement, “A free electronic state filing platform could be developed as part of the Department’s overall system replacement at no additional cost.”

In the House Finance subcommittee discussion on the legislation, the only opposition came from Tim Hugo, a former delegate, now representing the Free File Alliance, a group of private electronic tax preparation companies. He warned about the possibility of future customer service costs. The subcommittee moved to report the bill on a straight party line vote of 5-3. The full committee voted to report it on a vote of 12-10, again long party lines. The bill was referred to the House Appropriations Committee, which reported it,19-2. The full House passed the bill on a bipartisan vote of 63-36.

In the Senate, Sen. Jeremy McPike (D-Prince William) introduced the same legislation in SB 1306. That bill met more opposition, passing on a vote of 20-18 along party lines. The only objections raised in committee were from Sen. Ryan McDougle (R-Hanover), who pointed out that most localities have Commissioners of the Revenue, who can provide taxpayers assistance in filling out their returns. He also worried about a program prepared by the government making decisions on which options a taxpayer should use in filling out a return.