Fixing the state's tax rebate

Trying to unravel last year's state tax rebate. <br/><br/>An IRS ruling that the rebate is taxable has angered state lawmakers. They called the state tax rebate a "fiasco" Thursday and threatened

Thursday, February 23rd 2006, 11:13 am

By: News On 6

Trying to unravel last year's state tax rebate.

An IRS ruling that the rebate is taxable has angered state lawmakers. They called the state tax rebate a "fiasco" Thursday and threatened legal action against the IRS.

News on 6 reporter Emory Bryan updates the story with the latest maneuvering at the state capitol in Oklahoma City.

When the state rebate checks came out, lawmakers and the Governor took credit for sending money back to taxpayers.

Now state lawmakers blame the governor for pushing a rebate that might not be worth the paperwork it's created. Republican state representative Kevin Calvey of Del City: â€œThe whole tax rebate idea wasn't supported by the house Republicans or the senate Democrats, this was the governor's baby all the way."

Calvey heads a state House tax committee that wants the IRS to back off a decision that the rebate is taxable income. It's a significant difference, but not because of the few dollars it means for the IRS. The one million Oklahomans who normally use an EZ form now are forced to use the long form, 1040, where the rebate goes on line 21 as other income.

Lawmakers say they didn't know the IRS would consider a rebate as income. The state tax commission says they couldn't get a straight answer when they asked last year. Tony Madison with the Oklahoma Tax Commission: "They said they couldn't or they wouldn't give us a ruling on it until the legislation had already had already passed."

The state rebate checks were $45 for single taxpayers, $90 for married filers. Taxpayers could spend that much to have someone prepare the now more complicated taxes. If they do it themselves, they'll spend a lot more time on the paperwork. Kevin Calvey: "It's got to be a headache for them that's not worth the few extra dollars for the IRS."

State lawmakers say it's turned into a boondoggle that will cost Oklahomans - when it was intended to be money in the bank.

The letter of appeal from the state to the IRS is available by CLICKING HERE [pdf file]. State lawmakers are considering another rebate this year, but some want to reduce taxes instead, to avoid the red tape of rebates.