Revenue Department Puts Brakes on Preliminary Tax Bills

Friday, December 2, 2005
Tim Connolly
(617) 626-2369

Revenue Commissioner Alan LeBovidge said today that the Department of Revenue has stopped issuing preliminary tax bills for 2002 capital gains relating to the state Supreme Judicial Court's Peterson decision.

About 21,000 of the 48,000 preliminary bills were mailed to taxpayers in recent weeks. However, when legislative leaders indicated Thursday that they agreed with Gov. Mitt Romney's proposal to make the bills unnecessary, LeBovidge decided to stop the billing process.

Once the new law is passed, each of the affected taxpayers will receive a letter telling them to disregard the preliminary bill for tax on capital gains realized in the first four months of 2002. The handful of taxpayers who have already paid the tax based on preliminary bills will get automatic refunds once the law is changed. Other taxpayers affected by the law change who will be due refunds for tax paid on gains realized in the last eight months of 2002 will have to apply for abatements.

"The DOR has no stake in this," LeBovidge said. "We geared up to collect the tax based on existing law and now we will prepare for the distribution of refunds."

The billing process had begun in response to a state Supreme Judicial Court decision that declared unconstitutional a law that increased the tax rate on long-term capital gains on May 1 2002. The court said that the effective date of the change in tax rate is January 1, 2002 unless the Legislature voted to change the date to January 1, 2003.

Legislative leaders indicated the new law would adopt the later date, which will result in refunds for taxpayers who paid 5.3 percent tax on gains realized in the last eight months of 2002. DOR has identified about 157,000 taxpayers who could be due a refund for those payments. Collectively the refunds will total about $250 million. DOR is working on guidelines the taxpayers will need to apply for refunds.