One of the little luxuries of life in Virginia is having more time to file state tax returns–ours, unlike those of most states, aren’t due until the first business day of May. And one of the little indignities of life in Virginia is having this annual ritual offer a reminder of how badly our state got suckered by the tax prep industry’s “Free File” con.
Rewind 20 years, and the Virginia Department of Taxation was a leader in providing direct online filing with its iFile site. You plugged in a few numbers from your federal return, the site did the math, and you could then file directly to the department. What was not to like?
The answer for commercial tax-prep providers was “competition.” And in 2010, they sold Richmond on a different deal: They would offer free tax prep and online filing through their apps and sites to lower-income taxpayers (as they had done for federal taxes since 2003 as part of the Internal Revenue Service signing onto this Free File proposition) if the state would first scrap its own tax-prep service.
As I wrote at the time at the Washington Post, the fiscal analysis prepared for the Free File bill introduced by Del. Kathy Byron (R.-Lynchburg) suggested this wouldn’t pencil out for the state unless almost no iFile users reverted to filing on paper. But bipartisan majorities passed Byron’s contribution to crony capitalism, after which Gov Robert McDonnell (R.) signed it into law.
The results of enabling Intuit’s rent-seeking strategy, as I wrote in the Post three years ago, have been woeful for taxpayers and the state: In 2019, more than seven times as many Virginia taxpayers filed on paper than availed themselves of Free File.
And since last year, I’ve become one of those people mailing in a Form 760 as if it were 1993. The clumsy but no-charge Free Fillable Forms option that I noted in my 2020 Post opinion piece–where I called it “the stone tablet of spreadsheets”–vanished from the Department of Taxation’s menu after 2021, which the department attributed to an unnamed software vendor (Intuit, perhaps?) dropping support for the product.
The actual work isn’t that much more than it was two years ago, except that I have to do the math myself after typing in numbers instead of clicking a “Do the Math” button (really!) in Free Fillable Forms. As before, I check my work by stepping through a Virginia return in TurboTax; I know my work isn’t done because Intuit’s app thinks we should get about $50 more in our refund, which also happens to be below the $59 Intuit wants me to pay for the privilege of filing my state taxes through that app. Figuring that out may be a hassle. Dealing with my printer probably will too.
I would love nothing more than for Virginia to renounce this failed experiment and restore something like iFile. But a bill introduced in January by Del. Kathy Tran (D.-Fairfax) to do just that instead died in a subcommittee, because recognizing past mistakes does not appear to be the high-order bit in today’s Virginia GOP.