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Peter Franchot. (File)

Franchot: Tax overpayments to municipalities soon to be resolved

ANNAPOLIS — Maryland’s top tax collector said his agency is well on its way to fixing a problem that sent tax money to a number of municipalities in Montgomery County in error.

Comptroller Peter V.R. Franchot blamed the glitch on a complicated tax system unique to that county and said his agency would fully reimburse Montgomery County for tax dollars it should have received over the last five years, as well as create a payment plan for the smaller jurisdictions that were paid out more money than they were due.

Franchot made his statements Thursday as part of a briefing made to the Senate Budget and Taxation Committee. Legislators said they wanted to better understand how millions of dollars in tax disbursements were incorrectly sent to small municipalities in Montgomery County rather than the county itself.

“We have a very byzantine system with special taxing districts that do not match up with ZIP codes,” Franchot said. “These are relatively small amounts of money. There’s a lot of reasons why this happened from taxpayer error to us not clamping down on the problem until [Sen. Richard S. Madaleno Jr., D-Montgomery] brought it to our attention.

The exact amount of money is not yet known. Franchot said unverified published reports set the amount at as much as $12 million. In a Dec. 15 letter to Franchot, Senate President Thomas V. Mike Miller Jr. wrote that Montgomery County government may have been shorted as much as $15 million.

In that letter, Miller wrote that the “severity of the issues” warranted a hearing before the Budget and Taxation Committee.

Franchot said that his agency was undergoing an audit to determine the exact cause and amount of money owed. The comptroller said once the agency determines the extent of the problem and the amount that is owed, the county will receive its money immediately and municipalities that received overpayments will be “put on a payment plan.”

“In summary, we believe that everyone is going to be happy,” Franchot said. “I think we have acknowledged the problem and taken ownership of it and are going to fix it. This is not something at the end of the day where any of the entities, the municipalities, the county or the state are going to say they are not comfortable with it.”

Root cause

Scott A. Hancock, director of the Maryland Municipal League, said his organization remains concerned that some of the tax disbursement issues weren’t limited to overpayments to an incorporated subdivision at the expense of Montgomery County government.

“It may have been between two municipalities,” Hancock said. “It should have gone to one and it went to the other. That is what the audit will determine.”

Hancock, whose organization represents nearly 160 incorporated subdivisions, said his group is happy with the comptroller’s response and plans so far.

But Franchot’s attempts to explain the situation and how his agency is attempting to resolve the problem fell short for some legislators who questioned why the issue cropped up suddenly and why it was unique to Montgomery County.

Madaleno, vice chairman of the Senate Budget and Taxation Committee, questioned Franchot’s willingness to criticize the IRS on some issues but not taking responsibility for tax distribution snafu.

“When we get to this issue it’s taxpayer mistakes and incorrect ZIP codes,” Madaleno said. “What I don’t get is why 5 years ago something went wrong and no one noticed.”

Madaleno said the Senate will likely consider legislation written to deal with the issue “to make the county whole immediately and to take a look at the payment plans for these municipalities,” said Madaleno.

Andrew Schaufele, director of the Bureau of Revenue Estimates, said the audit underway will ultimately determine exactly what happened and why but said the initial focus was related to the move from paper returns to electronic returns.

“We believe that to be the root cause,” Schaufele said.