After an audit assessment was paid and later reversed, did Texas pay interest for the period between the taxpayer's payment and refund?

Plain-English summary

The taxpayer recovered the interest it had paid on the reversed assessment, but received no additional interest for the time Texas held the money.

The taxpayer paid an audit result plus interest. After an appeal, the Comptroller reversed the audit result. The question was not a routine overpayment; it was whether the taxpayer earned interest during the period between paying the assessment and receiving the refund.

The response said Texas had paid no interest on any refund since December 14, 1985. Senate Bill 1321 changed that rule prospectively by authorizing a variable interest rate for erroneous payments associated with report periods due on or after January 1, 2000. No interest accrued on a refund for a report period due before that date.

For qualifying later periods, the described variable rate was the prime rate plus one percentage point, using the Wall Street Journal rate published on the first calendar-year day that was not a Saturday, Sunday, or legal holiday.

What this means for you

Taxpayers with reversed assessments

Repayment of assessment interest and payment of interest on the refund were separate issues. This taxpayer received the former but not the latter.

Tax professionals

The report period's due date controlled Senate Bill 1321's transition rule, not merely the later payment or refund date.

Common questions

Q: Was the interest originally paid on the assessment refunded?
A: Yes.

Q: Did Texas pay interest for the period it held the money?
A: No, because the report period was due before January 1, 2000.

Q: What rate applied to qualifying later refunds?
A: The letter describes the prime rate plus one percentage point under Senate Bill 1321.

Citations and references

• Senate Bill 1321, 76th Legislature - variable interest on erroneous payments for report periods due on or after January 1, 2000

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9910327L

Original ruling text

October 29, 1999

To: **

Dear **:

Thank you for your follow up e-mail regarding interest on overpayments of
taxes.

You stated in your October 20, 1999 message that you were not asking about
interest on routine overpayments of franchise taxes, but about interest on an
amount paid as a result of an audit that was subsequently reversed and/or
amended by the Comptroller's office. You stated that the taxpayer paid an
audit result plus interest and on appeal the audit result was reversed. The
taxpayer was out a large sum of money for an extended period of time as a
result of the audit..

Your client is entitled to a refund of the interest paid on the audit
assessment, but no interest will be paid for the time between the payment and
the refund dates. As I stated in my prior e-mail, the State of Texas has not
paid interest on any type of refund since December 14, 1985.

Again, Senate Bill 1321 was passed during the 76th session of the Texas
Legislature. This bill authorizes the Comptroller to pay a variable interest
rate on refunds of amounts erroneously paid for report periods due on or after
January 1, 2000. Interest does not accrue on a refund for a report period due
prior to January 1, 2000. The variable rate is the prime rate plus one percent
as published in the Wall Street Journal on the first day of each calendar year
that is not a Saturday, Sunday, or legal holiday.

Senate Bill 1321 may be viewed via the web site of the Texas Legislature,
"Texas Legislature ONLINE," at . You will see on the
left side of the home page a link to search for bills by bill number. Click on
this link, then enter the specific bill number that you would like to review.
At the top of the bill summary page, you'll see a link to the "text" of the
bill. Click on "text" and finally, on the "enrolled" version of the bill
text.

If you have questions about this, my internet address is
, or you may call toll-free at 1-800-531-5441,
extension 3-4612.

Sincerely,

Janet Spies
Tax Policy Division