Lawmakers Propose Tax Legislation to Severely Limit Refund Interest
H.B. 568 has been introduced in the 2008 Kentucky General Assembly, and, if enacted, would amend the general interest statute [KRS 131.183] and income tax refund statutes [KRS 141.044 and KRS 141.235] to limit the amount of interest paid on tax refunds. H.B. 568 specifically states that it is retroactive to all taxable years ending prior to the bill’s effective date, and is applicable to all claims for refund claims currently pending in judicial or administrative forums.
Currently, under KRS 131.183, the general refund statute, interest on a tax refund claim begins to accrue 60 days (90 days for income and limited liability entity tax) after the later of the due date of the return or the date the tax was paid. H.B. 568 would change the date on which interest begins to accrue to the latest of the due date of the return, the date the tax was paid, the date the return was filed, the last day prescribed by law for filing the return or, and most significantly, the date an amended return claiming a refund is filed.
Obviously, if interest does not begin to accrue until the date an amended return claiming a refund is filed, the Commonwealth could potentially have had the use of a taxpayer’s money for upwards of four years without being obligated to pay interest on a refund. This must be contrasted with interest on an assessment, which generally begins to run from the date the tax is required to be paid until the date that the tax is actually paid under KRS 141.985.