Virginia Moves To End Taxpayer Refund System Riddled With Fees And Errors

CREDIT: Virginia Department of Taxation

A bill to scrap a 2012 rule that effectively forced the state’s tax department to outsource its refund system to a debit card company was unanimously endorsed by the Virginia Senate’s Committee on Finance on Wednesday. If enacted, Virginia would end a glitch-riddled system that enabled corporations to profit from taxpayers and raised concerns about excessive outsourcing of core government functions.

Senate Bill 27, authored by State Senator Adam Ebbin (D), originally aimed to give taxpayers the option to receive their state tax refund by direct deposit, prepaid debit card, or paper check. The Finance Committee took Ebbin’s proposal a step further, repealing the debit card program altogether and bringing back the paper check or direct deposit choice that Virginians had enjoyed prior to 2013. The amended bill passed the committee 15 to 0, with all 10 committee Republicans and all five Democrats endorsing the legislation. A similar effort failed last year in the House of Delegates on a 29-63 vote — but that was before the system’s inauspicious launch.

Last July, ThinkProgress reported that Virginia’s 2012 budget had contained a requirement that individual income tax refunds could only be issued through debit cards, direct deposits, or other electronic venues. Then Gov. Bob McDonnell (R) signed the bill and his Department of the Treasury contracted with a division of Xerox to replace refund checks with MasterCard debit cards. Xerox agreed to provide the Comerica Bank-issued cards “at no cost to the Commonwealth,” but retained the right to impose a litany of fees on the users.

The system proved highly problematic. While the recipients were promised one free online transfer, anyone attempting to do so was informed that there would be a $2 fee. While Xerox acknowledged the IT problem, there were unable to immediately fix it. Worse, calls to the toll-free number were capped at two free calls per month, with a $2 fee for each additional call, making it risky for consumers to even ask for help — and access to a live human being to address problems was not easily determined on the voice activated phone system number provided with the debit cards.

In response to a Virginia Freedom of Information Act request by ThinkProgress, the Virginia Department of Taxation provided a summary of other problems taxpayers had reported with the debit cards. They included Xerox incorrectly assessing fees on 14 debit card accounts “due to an algorithm that used card number sequences to apply fees to these accounts,” cards sent with a placeholder phone number (888-555-1212) on the printed version of the cardholder statement, and confusion with the interactive voice response phone system. Additionally, some MasterCard member banks improperly refused to process cash withdrawals and turned away non-account-holders. The department claimed these problems had been remedied or would be.

Ebbin told ThinkProgress Wednesday’s vote was “a step forward for taxpayer fairness and against inappropriate outsourcing of core government functions,” noting that “the debit card program was particularly onerous for seniors and those without bank accounts.” The measure now moves to the full Senate, where Ebbin noted “the unanimous vote bodes well for passage.”


The bill unanimously passed the Senate, 38-0, and now moves to the House of Delegates.

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