As much as $1.8 million in questionable out-of-state income tax credits could have been claimed by Marylanders during tax year 2010 because the comptroller’s office failed to use all available data, according to the state’s Office of Legislative Audits.
But the comptroller’s office said it has looked at the program that auditors suggest could solve the problem and instead chose a more effective program.
The audit, released Tuesday, says the Maryland Comptroller Compliance Division was provided taxpayer data through a multistate clearinghouse. The clearinghouse is the North Eastern States Tax Officials Association (NESTOA) Centralized Returns Processing Project.
But that data was not used to help identify invalid out-of-state tax credits claimed by Marylanders on income tax returns, according to the audit.
The compliance division is tasked with ensuring taxpayers comply with tax law.
Out-of-state tax credits are available to Marylanders who paid taxes on their income to another state.
For the past six years, the comptroller’s office has used a tax compliance network known as the Data Warehouse, spokesman Andrew Friedson said.
“To date, it has already captured nearly $250 million in additional revenue for the State of Maryland, far exceeding the potential revenue impact of implementing a program to review out-of-state tax credits using NESTOA data,” Friedson said in an email.
According to the audit, NESTOA data was used by the division to identify individuals who failed to file tax returns. As a result, the state collected approximately $330,000 from non-filers.
Friedson said the comptroller’s office will continue to explore using NESTOA’s Centralized Returns Processing Project for out-of-state-tax credits.
But he said the comptroller’s office has unresolved questions about the completeness and the validity of the data.
He said the office also has concerns about the program because Maryland’s neighboring states — Virginia, West Virginia, and Pennsylvania — and Washington, D.C., do not participate.
“As always, the Comptroller’s Office will continue to utilize the most efficient and effective tools at our disposal to fairly and aggressively enforce our state’s tax laws and to serve the State of Maryland,” Friedson said.
According to the audit, Maryland has participated in the clearinghouse since 2007 and, as of July 2013, had paid a total of $265,140 to participate.