News and Insights

Interest Rates Fall Effective September 1, 2005 for Texas Tax Refunds

Tax Development Oct 10, 2005

Interest is paid on refunds of tax collected by the Texas Comptroller of Public Accounts only if the tax was paid on a report due beginning January 1, 2000. Prior to this date, no interest was paid on such tax refunds. The rate of interest paid on refunds was previously linked to the rate charged on delinquent taxes, which is included in Texas Tax Code § 111.060. That rate is based on the prime rate plus one percent, as published in The Wall Street Journal on the first day of each calendar year that is not a Saturday, Sunday, or legal holiday. Effective for refunds filed beginning September 1, 2005, Texas Senate Bills 1570 and 1863, both of which contain identical language, amended Texas Tax Code § 111.064 to include a new alternative interest rate applicable to refunded tax. The new alternative interest rate is used if it is less than the prime rate plus one percent that is addressed in § 111.060. The alternative interest rate is based on the annual rate of interest earned on deposits in the state treasury during December of the previous calendar year. That rate has averaged slightly less than one-half of the rate that has been applied annually since 2000 provided by Texas Tax Code § 111.060. As a result, beginning September 1, 2005, the interest rate applicable to delinquent tax is 6.250%, and the interest rate applicable to refunded tax is 2.187%. See additional Texas legislative tax changes.