Governor Deval Patrick has proposed legislation that would ban tax preparation software companies, such as the maker of TurboTax, from charging Massachusetts taxpayers a fee to file their state returns electronically.
Such fees have become an issue as tax officials try to encourage Massachusetts taxpayers to file through the Internet, which would not only speed refunds, but also save the state thousands of dollars spent processing paper returns. The state hasn’t calculated the difference in processing costs, but the Internal Revenue Service estimates it costs $3.50 to process a paper form, compared with 15 cents for the electronic versions.
But the effort to encourage online filing has been hindered by fees charged by tax software companies to file state returns electronically. While there is no additional fee to e-file federal tax documents, Intuit Inc., the California company that makes TurboTax, charges $19.99 per form to e-file state income taxes. Rival H&R Block charges $19.95, and TaxAct charges $7.95.
As a result, many taxpayers print out and mail forms that otherwise could be filed electronically. More than 351,000, or 11 percent, of roughly 3.1 million Massachusetts filers, had sent in paper returns as of Tuesday, according to the state Department of Revenue. Nearly 70 percent of those paper filers used software or the Internet to calculate their taxes, but printed and mailed the documents, probably to avoid a charge.
As part of supplemental budget legislation filed last week, Patrick proposed a ban on such fees, telling lawmakers in a letter that the prohibition would be a “consumer protection measure that will also encourage more electronic filing.” Patrick’s proposal, which has been referred to the House Ways and Means Committee, is modeled after a law that New York adopted several years ago.
Neither Intuit nor H&R Block responded to requests for comment on the pending legislation. TaxAct spokeswoman Jessi Dolmage declined to comment.
Massachusetts Department of Revenue Commissioner Amy Pitter said she is enthusiastic about the potential fee ban because it will remove what she said is “probably the biggest impediment” to getting paper filers to move online.
“New York opened the door,” Pitter said. “This is one of the top things that is irritating to taxpayers.”
State Senator Stephen M. Brewer, a Democrat from Barre who chairs the Senate Ways and Means Committee, said he’d like to see the issue considered separately from Patrick’s supplemental budget plan.
“On first blush it sounds like a common sense idea, but it does need full vetting,” he said, questioning what effects the ban might have.
For instance, he said, companies might just raise the price of the software if they can’t charge the filing fees. “Somewhere along the line,” he said, “would the cost of that software package have to go up?”
But the governor’s proposal cheered Beverly Finkelstein, a Milford retiree who used TurboTax to file her federal returns but mailed in her state taxes after she was asked to pay nearly $20 to file electronically.
“I just couldn’t get over that,” she said, noting that it had already cost her $39.99 to purchase the TurboTax software at Costco. Upon hearing that legislators would consider nixing the fee, she let out a “Yeehaw!”
“That’ll be wonderful if they do something,” she said. “Cutting edge.”