Lawmakers grill Michigan Treasury over tax refund delays. ‘Are you sorry?’

Michigan processed 95% of tax returns but delays persist
Some taxpayers report months-long waits for state refunds
Lawmakers criticized Treasury over delays, errors and dropped calls

Michigan has processed 95% of this year’s income tax filings, according to the state Treasury, but refund delays, erroneous notices and overwhelmed phone lines tied to a new filing system continue to frustrate taxpayers and are drawing increased scrutiny from the Legislature.

The new system is “extremely precise in the data that it is looking for on the returns, so it has caused a delay,” Katina Litterini, director of tax administration for Michigan Treasury, acknowledged Tuesday in a House Oversight Committee hearing.

Among those impacted was Linda Aubochon of Ypsilanti, who filed her income taxes in February and was heartened when TurboTax quickly told her Michigan had accepted her filing and was poised to refund her $2,035.

It took more than three months for the state to issue her refund, which finally came Friday. “This continues to be a huge issue,” Aubuchon told Bridge Michigan earlier this month. “I’m beyond frustrated.”

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Aubochon, 55, is among tens of thousands of Michiganders who have been discouraged and confused by a new tax system the state has been trying to improve amid a barrage of complaints that have overwhelmed a state hotline.

State Rep. Matthew Bierlein, R-Vassar, said Tuesday that one of his constituents attempting to claim the Farmland Preservation Tax Credit was flagged and told their filing would take more than 25 weeks to be manually reviewed, despite claiming this same tax credit in previous years.

“Tax returns are unique and some will take some more time, the more complex returns,” Litterini said.

On Monday, the Michigan Treasury announced it had processed more than 5 million individual income tax returns and issued over $3.4 billion in refunds since it began accepting filings on Jan. 26.

Department officials who testified Tuesday before the state House Oversight Committee pointed to the reinstatement of the IRS State Income Tax Levy Program, which had been paused since 2020, as one reason for delays.

The program uses state refunds to pay off delinquent federal tax debt and has impacted more than 1 million taxpayers. So taxpayers may receive a reduced refund or none at all.

When asked, a Treasury Department spokesperson did not provide specifics on how many taxpayers are still awaiting their refund and may be owed interest under state law, but responded with a statement included in a separate press release.

“Tax returns that remain unprocessed fall into categories where they have missing or incorrect information, require identity verification, have higher-than-typical complexities with multiple schedules or credits, or must be offset to address a potential debt or court-ordered garnishment,” the state said.

Subhed: A new system

In November, Michigan transitioned to a new system, GenTax, which officials say is a national leader in tax system modernization and is used by over 30 states.

The new system, which replaced a 40-year-old version, is meant to modernize filing and improve security, but residents have complained about delayed tax refunds and erroneous notices.

After “the waste, the eternal wait times, the dropped calls, the delays, the errors, the erroneous letters and the ignored Michigan residents, are you sorry?” asked state Rep. Josh Schriver, R-Oxford.

Kavita Kale, deputy treasurer for the state, said the new system is “protecting against fraud” but added: “If it is inconveniencing or negatively impacting the taxpayer, then yes.”

Schriver challenged Kale, saying he did not “want to hear any excuses” and asking if she’d be willing to issue a public apology.

The department already has.

“Treasury is aware of concerns regarding notices and returns processing and we are committed to addressing these problems directly and transparently,” the department previously said on its website.

“We fully recognize the frustration this situation has created for both tax preparers and taxpayers. In addition, we understand many tax preparers are bearing the brunt of taxpayer frustration, and for that, we apologize.”

The state has said its current phone system is not capable of handling “peak demand,” leading to dropped calls and service failures. But the Treasury Department plans to upgrade to a new phone system in July, which it says will allow for “first-time resolution,” resulting in longer phone calls but preventing the need to speak to individuals multiple times over the phone.

“We didn’t want to upgrade (the phone system) at the same time we upgraded the new (tax) system,” said Kavita Kale, deputy treasurer for the state, during the committee hearing. “That would have been unproductive.”

In April, there were 65 taxpayers who each called the Michigan Treasury at least 100 times – a total of 11,000 calls, department officials said Tuesday.

“Why would someone have to call Treasury that many times to try and get an answer from you?” asked Rep. Angela Rigas, R-Caledonia. “The average age of these people is 65 and over. I think it’s completely unreasonable to require a taxpayer of that age to log on to your system when a phone call should be sufficient.”

subhead: An ongoing issue

The rollout of a new online tax system has caused confusion for at least 27,000 taxpayers after some received incorrect notices in May saying they owed taxes they had already paid or needed to repay unexpected refund checks.

“Yes, there was a mistake. We owned it. We problem-solved. We implemented the changes (and) that’s the best we can do,” Kale said.

“When there’s a new system that impacts 5 million taxpayers, there’s always something that’s just not going to be right,” Kale said. “Here’s the commitment: if there is an issue, we will take care of it. That is our promise.”

The Treasury has already mailed thousands of corrected letters and is urging affected taxpayers to check their accounts through Michigan Treasury eServices.

The new system has flagged tax returns that wouldn’t have been flagged by the previous system. Officials told lawmakers that the most common errors among the 5 million filers were incorrectly claimed dependents and flawed exemption calculations.

The most common errors among the roughly 1 million taxpayers who claimed the Homestead Property Tax Credit and Home Heating Tax Credit were income not claimed properly, information inserted in the wrong line and taxpayers including household resources that do not support the expenses claimed.

“The lack of planning for all potential scenarios is commonplace within the treasury systems,” said Annette Craft, a Lansing-based accountant. “It is self-evident that this new system has not been adequately tested, which raises concerns about the competency of the system being resolved.”

Tax accountants have identified several flaws with the system, but the head of a related organization said Tuesday the Treasury Department has responded quickly to various complaints.

“There were systemic issues that arose as errored returns didn’t ‘add up,'” Jon Hayes, executive director of the Michigan Tax & Accounting Professionals, said in written testimony submitted to the Oversight Committee.

“Thousands of auto-generated letters came out of the system because of it, many of which were incorrect or incomplete and often too vague in explaining a department action. It is understandable that these brought angst and, at times, anger from taxpayers and practitioners who had to expend time and resources dealing with them.”

But, Hayes added, “we are heartened and encouraged by the department’s actions to correct systemic issues, improve administration, consider our suggestions to further enhance and accelerate tax resolution, and pave the way for more efficiency.”