Virginia Legislature Repeals Law That Outsourced Tax Refunds To Xerox


On a unanimous vote, Virginia’s General Assembly sent Gov. Terry McAuliffe a bill last week to repeal a 2012 rule that all tax refunds must be either made by direct deposit or via fee-riddled debit cards provided by private corporations. Assuming he signs the bill, taxpayers will again be able to elect to receive a paper check for their state refunds.

In 2012, the Republican-controlled legislature had enacted a budget provision that effectively forced the state’s tax department to outsource its refund system to a debit card company, claiming it would save the government hundreds of thousands of dollars annually. But the state’s deal with Xerox to replace tax refund checks with Comerica-issued debit card has meant headaches and fees for taxpayers and raised concerns about excessive outsourcing.


Xerox agreed to provide the Comerica Bank-issued Mastercard debit cards “at no cost to the Commonwealth,” but retained the right to impose a litany of fees on the users. These fees proved problematic from the get-go. 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. One Virginian, who encountered this Xerox system error and successfully got his fees refunded, told the Richmond Times-Dispatch that his efforts were “a lot of headache for a couple bucks,” adding, “I am concerned this … ‘programming issue’ might be taking advantage of other Virginians who are not stubborn or maybe stupid enough to spend an entire evening to fight through this system.”

In 2013, in response to a ThinkProgress Freedom of Information Act request, the Virginia Department of Taxation documented numerous issues including 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 state legislature estimated that this move will cost the state $264,000 annually.

State Senator Adam Ebbin (D), one of the bill’s chief co-patrons noted that tax refunds are a “core function of government” and that a “2013 study by the Federal Deposit Insurance Corporation (FDIC) shows that 6.5% of Virginia’s do not have a bank account for direct deposit, a 1.7% increase since 2009. Using fee-ridden debit cards hurts those who can least afford it.”