August 29, 2006
LATE PAYMENT OF STATE INCOME AND LOCAL PROPERTY TAXES
By: Judith Lohman, Chief Analyst
You asked for a summary of state laws governing interest and penalties for (1) filing a state income tax return late and (2) paying municipal property taxes late. You were especially interested in the dates during which interest on unpaid taxes accrues and whether there are any exceptions to, or waivers of, interest in hardship cases.
Taxpayers who do not pay state income or property taxes by statutory deadlines are subject to monthly interest charges that accrue from the tax due date. In both cases, interest accrues for each month or part of a month that elapses until the tax is paid. If only part of a month passes, the taxpayer is liable for interest for the full month.
Income taxes are due and payable on the return due date and unpaid taxes start to accrue interest on the day following that date. The interest rate is 1% per month (12% per year). An additional penalty of 10% of the taxes due or $50, whichever is greater, also applies. The law allows the revenue services commissioner to waive the penalty in certain circumstances, but she cannot waive the interest.
Taxpayers must pay their property taxes within one month after the due date. If they fail to do so, towns must impose interest of 1.5% per month (18% per year) for each month or part of a month that elapses between the due date and the payment date. Thus, once the one-month grace period passes, taxpayers who are late will owe interest for that month plus any additional months or partial months that pass before they pay. Towns have only limited statutory authority to waive interest on delinquent property taxes.
Anyone who fails to file a return and pay income taxes by the due date is subject to a penalty of 10% of the unpaid amount due plus interest of 1% per month for each month or fraction of a month that elapses between the tax due date and the payment date (CGS §12-735). Department of Revenue Services (DRS) regulations generally define “a month or fraction” of a month as the period starting on the day after the tax is due and running until the date in the following month that corresponds to the due date. For an April 15th due date, for example, the monthly interest period runs from April 16th to May 15th. But when the due date is the last day of a month, the monthly interest period runs until the last day of the following month. Thus, when the due date is January 31st, for example, the monthly interest period runs from February 1 to February 28 (or 29) (DRS Regs. § 701(b)-1(a) (11)).
If a person has not filed a return within three months after the tax due date, the DRS commissioner can file one for him based on the best information available. The commissioner must add the 10% penalty or $50 whichever is greater, and interest of 1% for each month or fraction of month the tax is unpaid.
The commissioner can waive all or part of the penalty (but not the interest) if she finds that the taxpayer's failure to file a return has a reasonable cause and is not intentional or due to neglect. If the penalty exceeds $500, the waiver must be approved by the Penalty Review Committee, which consists of the state comptroller, the Office of Policy and Management secretary, and the DRS commissioner or their designees (§ 12-3a).
The law specifies that property taxes or tax installments that are not paid in full by certain deadlines are delinquent. Delinquent taxes accrue interest for each month or fraction of a month that elapses between the due date and the payment date. A tax payment becomes delinquent if not paid within one month of its due date. For example, taxes due on July 1 must be paid by August 1 and taxes due on April 15 must be paid by May 15. Once the payment deadline passes, interest accrues for each month or part of a month that passes from the due date. Thus, if a tax due on July 1 is not paid until August 15, the taxpayer would owe interest for two months, July and August.
By law, a town must charge 18% annual interest (1.5% per month) on delinquent property taxes. The minimum interest charge is $2, but the law allows a municipality, by a vote of its legislative body, to choose not to impose the minimum (CGS § 12-146).
Towns have only limited authority to waive interest on delinquent property taxes. They are required to waive:
1. all or part of the interest due for a taxpayer who is a crime victim and who has received compensation from the state's Criminal Injuries Compensation Fund (§ 12-146) and
2. interest for one year for any state resident who is a member of the U.S. armed forces or any state National Guard or reserve unit who has been called to active service for military operations authorized by the president that entail military action against Iraq and who is serving in the Middle East on the final day the tax payment is due (§ 12-146c).
Towns have discretion to waive interest in certain situations.
1. Town selectmen, city mayors and aldermen, borough wardens and burgesses, and other communities' committees may abate taxes or the interest on delinquent taxes assessed on people who are poor and cannot pay (§ 12-124).
2. A town may waive interest if the tax collector and the assessor jointly determine that the tax delinquency is the result of an error by either official and not the result of any action or omission by the taxpayer (§ 12-145).
3. Towns may, by ordinance, waive interest for one year for any eligible spouse of a service member for real property assessed on the 2003 grand list only. The waiver applies to any state resident who lives with, and is the spouse of, a U. S. Armed Forces member, including guard members and reservists, called to active service for military operations authorized by the president entailing military action in Iraq and who is serving in the Middle East on the final day that the tax or tax installment payment is due (§ 12-146d, 2006 Supplement).