Texas – Credit Offsets and Payments

SALT Report 1450 – The Texas Comptroller ruled against a taxpayer whose position was that credit interest on overpayments should be “computed based on the gross credit, or refund, that results from the managed audit of each relevant reporting period, and without regard to any liability incurred for the same period.”  In overruling the taxpayer’s position, the Comptroller determined that managed audits do not require or justify different interest computations.
Texas Tax Code Sections 111.064 and 111.104(a), states that, “any interest on refunds is computed on the net amount due after the tax that is erroneously paid is first credited against any other amounts due and payable.”  Additionally, the Comptroller adopted amendments to Texas General Rule 3.2 to formalize the agency’s policy regarding the treatment and procedures for offset requests.
In the ruling, the Comptroller amended Rule 3.2 and added new subsections as follows:
(a) Provides definitions for terms
(b) Addresses offsets and the application of credits and payments to liabilities
(b)(1) Explains the information that must be provided in an offset request, along with how and when the request must be provided to the comptroller
(b)(2) Explains situations in which offsets are not permitted and provides examples of these situations
(b)(3) Explains how approved credits and payments will be applied

Credits and payments will be applied in the following manner:

  • When credits are established during a specific period they will automatically be applied to liabilities accrued in that same period.  If there are no liabilities, or the credits are greater than the liabilities in that period, the credits will then be applied as payments to liabilities from prior periods.
  • The application of credits will be applied to the oldest liability period and apply first to tax, next to penalty, and finally to interest.  If credits remain, they will be applied to the next oldest period until all prior liabilities are paid or the credits are extinguished.
  • If a credit remains after all preceding liabilities have been satisfied, and the taxpayer is current in all tax filings, the applicable credit interest will be calculated for periods due on or after January 1, 2000 and a refund will be issued for the credit amount plus interest.