1. Interstate Refund Offset Program Maryland/Delaware Pilot State of Maryland Comptroller of the Treasury William Donald Schaefer, Comptroller Revenue Administration Division Thaddeus S. Russell, Assistant Director August 16, 1999

2. Background Contiguous states frequently have cross-over citizens who have an outstanding tax obligation in one state and are due a refund in a sister state. The revenue departments of Maryland and Delaware realized there was a potential for a new source of tax collections. A test match indicated that several hundred thousand dollars could be collected for each state. The Maryland legislature passed a bill allowing offsets for state refunds of personal income tax for other states’ personal tax liabilities where the other state had similar legislation. Delaware subsequently enacted such legislation. During the summer of 1998, the states agreed to a pilot program for the 1999 filing season for 1998 personal tax refunds

3. Preparation Project managers were designated for each state, and project teams were formed including user and technical staff. Legal counsel reviewed the legislation of the sister state and gave approval to proceed. Technical staff were placed in contact with each other to work out the processing details such as record format, etc. Internal technical staff modified existing offset programs to allow sister state offsets. This included tax processing and revenue accounting programs and general accounting interfaces used to generate the payment to the sister state. Management staff from each state met to review the project details and draft an agreement with advise of counsel.

4. Procedures The project theme was to adhere to the “KISSS” method - that’s “Keep It Simple, Sister State. Each state agreed to allow the sister state to work within the constraints of their own system and policies. For example: Maryland and Delaware have different offset thresholds, but did not require any change for either state. We did not want these situations to get in the way of a successful pilot. Maryland chose to update offset records bi-weekly, Delaware chose weekly. Both states agreed to accumulate offsets and forward payment on a weekly basis. Data and payments are sent overnight express to the sister state.

5. Procedures (Continued) Taxpayers had appeal rights, and if found in their favor, each state agreed to immediately refund to their residents and request reimbursement from the sister state which would be fast track processed without question. This has not been an issue during the pilot. Management agreed offsets during the pilot year would be forwarded by paper check and include a list of taxpayers and the amount of each offset. Records are formatted to anticipate electronic transmission of payment data in the subsequent years. Each state has a primary contact should any issues arise during the project.

6. Results for Maryland

7. Results for Delaware