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State Tax Refund Trigger Mechanisms
The states listed below have refunded money to taxpayers since 1995 due to statutory or constitutional refund requirements. Statutory provisions in Maine, Ohio and Oregon triggered automatic refunds. In these three states, implementing legislation was not required. In three other states - Colorado, Massachusetts and Missouri - refunds were mandated under statutory or constitutional triggers but legislation was required to implement them.
This list does not include states that made discretionary tax reductions or refunds that were not required under a constitutional or statutory trigger mechanism. For information on those states, refer to two other NCSL reports:
Colorado--A 1992 amendment to the state constitution (Article XX) imposed spending and tax revenue limits on state government. It requires the legislature to refund tax collections that exceed the sum of population and inflation growth. In both CY1997 and CY1998, the legislature adopted a three-tiered refundable "sales tax refund" that could be claimed on the personal income tax form. Total tax reductions were $142 million in FY1998 and $533 million in FY1999.
Maine--The statutes (Title 36, Part 3, Chap 213, Sec. 1811) contain a provision that automatically reduces the sales tax rate by ½% on October 1 if the prior fiscal year revenues grow by more than 8% on a year-over-year basis. This produced a sales tax reduction from 6% to 5.5% ($62 million) on October 1, 1998.
Massachusetts--A 1992 statute (revised in 1996) caps the rainy day fund at 5% of prior year tax revenues and requires the legislature to refund excess revenues to taxpayers. The 5% cap has been exceeded in each year since FY1996 and the legislature has chosen to refund money to taxpayers using temporary increases in the income tax standard deduction. Refunds were $150 million in FY 1997, $84 million in FY1998, and $200 million in FY1999.
Missouri--The constitution (Article X, Sec. 16-24) limits state revenue to 5.6395 percent of state personal income as calculated by the US Commerce Department's Bureau of Labor Statistics. It requires the Legislature to refund revenues to taxpayers in the year following the year in which the limit was exceeded. Refunds were triggered in FY1995 and FY1996 (a combined $376 million) but were not actually made until February, 1998 due to a court challenge to the provision. The legislature refunded the FY1997 excess ($319 million) in November, 1998. In both cases, refund checks were mailed to taxpayers.
Ohio--The statute (ORS Section 131.44 et. seq.) contains a provision that requires any surplus revenues to be rebated to taxpayers by an automatic, temporary reduction in income tax rates. These automatic tax rate reductions only occur if the rainy day fund contains 5% of general fund revenues and several other smaller statutory reserve funds are filled to their required levels. Ohio reduced tax rates in FY1997 ($375 million reduction), FY1998 ($256 million reduction), and FY1999 ($638 million reduction) using this trigger mechanism.
Oregon--The Oregon Statutes contain an automatic refund provision known as the "2% Kicker." Under this provision, a close of session estimate of general fund revenue is made in September of the first year of the biennium (Oregon is a biennial budget state.) If actual end-of-biennium collections exceed this projection by more than two percent, the entire amount of the excess is rebated to taxpayers via a pro-rated personal and corporation income taxes credit using actual taxes paid in the first year of the biennium as the base. Oregon refunded $312 million in FY1996 and $635 million in FY1998.
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Reviewed December 2003.
Email statetax-info@ncsl.org for more information.
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