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Most Worcester Co. towns see windfall from state tax error

(Nov. 24, 2016) Peter Franchot, Maryland’s comptroller for the past decade, admitted last week that his office misdirected about $21.4 million worth of local income tax payments for years, and for most municipalities in Worcester, the outcome is favorable — except for Snow Hill, which ended up owing the state money.
The error was initially believed to be confined to Montgomery County for $8.7 million, but another $12.7 million in misdirected funds was discovered later, according to published reports.
Berlin will get the most back from the state, as Town Manager Laura Allen said she received notice from the state that the municipality is owed $134,779 in back tax revenues.
Ocean City is next, but is only getting a little more than half of what Berlin is being refunded at $76,800, according to City Manager Doug Miller.
Pocomoke City is getting back about $31,000 due to the error, according to City Manager/City Attorney Ernie Crofoot.
Snow Hill, however, was found to owe the state $17,784 according to Town Manager Kelly Pruitt.
The money, which is expected to be delivered to the municipalities soon, will be deposited in the towns’ general funds, and each city or town council will decide what to do with the windfall.
As for Snow Hill, Franchot provided an overview on what the repayment schedule would look like in his official comment on the situation.
“For those jurisdictions that owe money as a result of this reconciliation process, we are mitigating the financial impacts by providing ample time for long-term budget planning,” the statement reads. “Those jurisdictions will not have to begin repaying what is owed until 2024, and they will have the flexibility to repay the funds over the course of 10 years from that point forward.”
Franchot said he is implementing a new initiative, Project Perfect, to make “technological upgrades and procedural modifications” to ensure the mistake is not repeated.
Franchot said 99.9 percent of the money handled during his term has gone where it should, but the new initiative should make that 100 percent.
“Many taxing jurisdictions don’t mesh with how we describe ourselves geographically,” Andy Schaufele, director of the Bureau of Revenue Estimates for the state, said.
Schaufele said it was fair to draw a comparison between these taxing districts and a gerrymandered congressional district.
Schaufele used the example of the Annapolis Mall, which, he said, isn’t in the same taxing district as the city. However, the people who live close to the mall have their mail sent to an Annapolis address and think of themselves as residents of the city — and may report it as such when they file their taxes.
The existing software system, Schaufele said, was installed in the 1990s, and so uses mid-1980s technology, and isn’t robust enough to catch these errors.
One thing the system does do is search for things like people claiming duplicate dependents, he said. However, if a return is flagged in this manner, it bypasses the taxing district question altogether and uses the code put in by the user, which could be incorrect.
Another source of error, Schaufele said, occurred when the comptroller stopped sending forms to taxpayers in 2010 in favor of online filing. If no changes were made by the user from one year to the next, he explained, the system just carried over the previous tax district code, which could have been incorrect.
“The wrong codes, the shortfalls in the system, the good news is it’s all fixable,” he said.