Tax Analysts Blog

Virginia to Charge for E-Filing: Say it Ain't So

Posted on May 4, 2010

Just the other day I lavished praise on the Commonwealth of Virginia for its leadership in the free-file movement. By way of follow up, we must note that there's been an unfortunate reversal of policy in Richmond. Starting next year, Virginia will deprive many taxpayers of the ability to e-file free of charge.

I am among the millions of Americans who think e-filing should be provided free of charge -- at both the federal and state level -- to all taxpayers regardless of income level. I would love to file my IRS Form 1040 via the Internet, but I refuse to do so until it's absolutely free. The IRS has a wonderful e-file program, but the software spits you out of the system once it realizes you make too much money, then directs you the IRS's commercial partners.

I have nothing against Intuit, the makers of TurboTax. I'm sure they're all lovely people, but I can do a better job on my taxes without them.

The current threshold for being booted from the IRS website over to TurboTax is a taxable income of $57,000. This income restriction is ill-conceived. Roughly 86% of all the federal income taxes collected in this country come from people barred from the free-file program. True, Intuit's fees are nominal. But the money isn't the point. There's an over-arching principle: Since paying taxes is a public duty, e-filing should be a public service.

For years now I've filed the paper version of my federal tax return via snail mail. That means somebody on the receiving end must convert my hand-scribbled figures into a digital format. That process wastes everyone's time and resources -- both the IRS's and mine -- but so be it. Think of it as a subtle form of protest.

But our topic today isn't the IRS; it's Virginia -- the state where I live and pay taxes. Unlike the IRS, Virginia has seen the wisdom of free e-filing. This year, and for the past several years, I've filed my Virginia tax return online. The system works like a dream. It's fast, easy and convenient. And it's free to all Virginia taxpayers -- that is, until now. For the 2010 taxable year (that is, the 2011 filing season) Virginia will mirror the federal system and deny free e-filing to those with taxable income exceeding $57,000.

Shame on you Virginia. Et tu Brute?

The stated justification for making me pay to e-file is that lawmakers in Richmond were looking to trim the state budget and thought they could save $50,000 a year by restricting e-file program based on income level. "We're pinching pennies in every different way," Governor Bob McDonnell said on an April 15th National Public Radio broadcast.

How's that again? How in the world does Virginia save money by restricting this program? E-filing actually saves the state money because every time somebody files online that represents one less paper return the state needs to manually convert to digital form. By one estimate the net budgetary effect of the reversal will cost Virginia $90,000 per year.

Penny pinching, my foot! Rest assured that I will go back to paper returns in 2011.

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