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E-Filing State Tax Returns Co-Editors: T. Chris Muirhead, CPA Author: Editor’s note: Mr. Holub is the former Chair of the AICPA Tax Division’s Tax Practice Management Committee. Mr. Muirhead is the Chair of the AICPA Tax Division’s Tax Practice Improvement Committee. Ms. Rosenberg is a member of that Committee’s E-File Task Force. She thanks Lisa Szargowicz and the E-File Task Force for their valuable assistance. For more information about this column, contact Mr. Holub at (813) 222-8555 or stevenh@apcpa.com, or Ms. Rosenberg at (301) 738-9040 or susanr@slrcpas.com. Most states participate in the Federal/state electronic filing (e-file) program, which allows individual taxpayers to file their Federal and state income tax returns at the same time. Even if a state does not participate, return preparation software makes it relatively easy to integrate e-filing of state returns with the Federal process. All states that impose a personal income tax now accept e-filed individual income tax returns, although not all of them accept nonresident or part-year resident returns. Individual returns with balances due may be e-filed in all states; all refunds may be directly deposited into a taxpayer’s bank account. A firm must apply to the IRS to be an electronic return originator (ERO), using Form 8633, Application to Participate in the IRS e-file Program. The application process may be completed at the IRS website, www.irs.gov/efile. Once a firm is accepted as an ERO by the IRS, most states will automatically accept it as a state ERO. If a firm is located outside of a state, this may not apply. The exhibit shows which states follow the Federal process, which have their own rules, which accept nonresident and part-year resident returns and how they complete the signature process. Detailed information can be found at each state’s website. State Mandates While most states do not require e-filing of income tax returns, some do. Many states require e-filing for and/or payment of sales and use, payroll and excise taxes; this column focuses only on income tax returns. The following states have e-filing mandates with their own rules. Alabama: Practitioners who prepare 250 or more individual income tax returns during 2004 must e-file all acceptable current-year individual returns. The requirement decreases to 100 returns filed in 2005. Taxpayers may elect not to e-file their returns; see the Department of Revenue (DOR) website, at www.ador.state.al.us/incometax/ elfmandate.html, for more information. California: Tax practitioners who prepare more than 100 individual state income tax returns per year must e-file those returns. Failure to comply may result in a $50 penalty per noncompliant return. The penalty may be waived for reasonable cause, which includes the taxpayer’s decision not to e-file the return. More information is available at the Franchise Tax Board website, at www.ftb.ca.gov. Connecticut: A pending regulation will require preparers who prepare 200 or more 2004 individual income tax returns to e-file 2005 individual returns. The regulation is scheduled to go into effect on Jan. 1, 2006. Practitioners are urged to “test drive” electronic filing 2004 returns in 2005 to prepare for the 2006 mandatory filing requirement; see www.ct.gov/drs/search/search.asp?qu=2004+and+regulation&go.x=9&go.y=4. Massachusetts: As of Sept. 1, 2003, new business entities must file and pay all taxes electronically. Beginning in 2005, corporations, partnerships and fiduciaries meeting certain thresholds will have to file and pay their taxes electronically. For tax years beginning after 2003, tax preparers who completed 200 or more state personal income tax returns during the previous calendar year are required to file electronically (unless the taxpayer requests paper filing). Detailed information on Massachusetts e-filing mandates can be found in Technical Information Release 04-30, available at www.dor.state.ma.us/rul_reg/ tir/TIR_04_30/htm. Michigan: Practitioners who prepare 200 or more individual income tax returns must e-file all eligible individual returns. All single business tax returns must be e-filed if computer software is used to prepare them. More information is available at the Department of Treasury website, at www.michigan.gov/treasury. Minnesota: Personal income tax returns must be e-filed by businesses that prepared more than 100 such returns in the previous year. Returns eligible for e-filing may be submitted on paper for a $5 “fee,” even if the taxpayer indicates that it does not want to e-file the return. Additional information is on the DOR website, at www.taxes.state.mn.us. New Jersey: All practitioners who prepared 200 or more 2003 New Jersey individual resident income tax returns must e-file 2004 resident income tax returns. Taxpayers can decline to have their returns e-filed by signing an opt-out form to be released in January 2005. The Division of Taxation plans to pursue legislation enacting preparer penalties for noncompliance. New Jersey partnership returns with 10 or more partners must be e-filed. More information is available at the Division of Taxation website, at www.state.nj.us/treasury/taxation. Oklahoma: Any tax return preparer who prepared more than 50 Oklahoma individual income tax returns for the prior year, must e-file all such returns for the current tax year. This does not apply to taxpayers who do not want their returns e-filed. More information is available at the Tax Commission website, at www.oktax.state.ok.us. Virginia: Effective for 2004 returns to be filed in 2005, practitioners who prepared 200 or more 2003 Virginia individual income tax returns must e-file all such 2004 returns (or use software with 2D barcodes). Taxpayers may decline to e-file their returns by completing Form 8454T, Virginia Department of Taxation, Taxpayer Filing Election Opt Out Form, which requires a reason. Detailed information is available on the Department of Taxation website, at www.tax.state.va.us. Wisconsin: Practitioners who prepared 100 or more Wisconsin individual income tax returns in a prior year have to e-file individual income tax returns. This does not apply to taxpayers who wish to file a paper return. The DOR website, at www.dor.state.wi.us, contains more information. Benefits and Burdens E-filing state returns eliminates error notices from state authorities caused by data entry errors, provides confirmation that returns have been received and allows taxpayers receiving refunds to get them sooner. Practitioners will incur additional time when starting the state e-file process, as they ensure compliance with each state’s registration requirements. Some multiple state returns cannot be filed electronically, which disappoints practitioners as well as taxpayers; a Federal/state Form 1120 e-file program, for example, is not expected to be implemented until at least 2006. Resources The IRS e-file webpage, at www.irs.gov/efile, provides vast information on Federal and state e-filing, including contact information for all of the state’s e-filing coordinators. Every state’s taxing authority maintains a website with valuable information. The Federation of Tax Administrators website, at www.taxadmin.org/fta, collects and disseminates information about e-filing from the states. The return preparation software company a firm uses or intends to use is an excellent resource for each firm’s particular situation. |
