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SN 92(26)

Payment of Connecticut Taxes by Electronic Funds Transfer

This publication has been superseded by SN 96(5)

PURPOSE: This Special Notice alerts taxpayers of the existence of, and implementation plans for, a program to pay Connecticut taxes by electronic funds transfer.

EFFECTIVE DATE: Effective for tax payments or estimated tax payments due on or after January 1, 1993, provided no taxpayer will be required to pay Connecticut taxes by electronic funds transfer unless and until notified in writing by the Department to do so.

BACKGROUND: The provisions of 1992 Conn. Pub. Acts 17, §§35 to 39, inclusive (May Spec. Sess.)  authorize the Department of Revenue Services to require certain taxpayers whose liability for a particular tax exceeded $500,000 in the immediately preceding year to pay that tax by electronic funds transfer.

ELECTRONIC FUNDS TRANSFER: Electronic funds transfer (E.F.T.) is a method of transferring funds from one party to another through financial intermediaries without using a check or other paper instrument.  The main advantage of E.F.T. to a payee is that the "float" period is significantly decreased.  That is, by using E.F.T., payees may avoid the delays inherent in the mail and check-clearing systems and gain much quicker access to their funds.  Another advantage of E.F.T. is that it is less costly than using paper instruments, which require processing, sorting, and physical handling by payors, payees, and their banks.

THE CONNECTICUT E.F.T. LEGISLATION:  Under 1992 Conn. Pub. Acts 17, §§35 to 39, inclusive (May Spec. Sess), the Department of Revenue Services may require certain taxpayers to pay their tax liabilities by E.F.T.  Taxpayers that are subject to this requirement include those who file a tax return for any tax on a monthly or quarterly basis and whose liability for a particular tax exceeded $500,000 for the 12-month period ending on the preceding June 30th.  Also subject to this requirement are taxpayer that file a tax return for any tax on an annual basis and whose liability for such tax exceeded $500,000 for the year immediately preceding the year in which the requirement to pay tax by E.F.T is established.

However, no taxpayer will be required to pay by E.F.T. until the Department issues notice of such requirement to such taxpayer.  Similarly, taxpayers that are subject to the requirement to pay by E.F.T. may not cease paying by that means until notified by the Department that such payment is no longer required.

PENALTIES AND INTEREST:  Any taxpayer that is required to pay by E.F.T. will, in the event that the Department's bank account is not credited with a tax payment on or before its due date, be subject to penalties and interest as if a late payment had been made.

VOLUNTARY PAYMENT BY E.F.T.:  Any taxpayer that is not otherwise required to pay by E.F.T. may request permission from the Department to do so by sending a written request and a completed Form EFT-1 (Authorization Agreement for Electronic Funds Transfers) to:  Department of Revenue Services, E.F.T. Unit, P.O. Box 2937, Hartford, Connecticut 06104-2937.

Once permitted to pay by E.F.T., such taxpayer will be treated as though it were required to pay by E.F.T. for a specified duration.  Such taxpayer may cease making tax payments by E.F.T. by giving notice, by certified mail, to the Department at least 60 days before the due date of a tax payment that it no longer chooses to make by E.F.T.

AUTOMATED CLEARING HOUSE TRANSACTIONS: The Automated Clearing House (A.C.H.) system was established to facilitate the processing of electronic payments.   Federal Reserve Banks and private processors operate the A.C.H. network, in which about 15,000 financial institutions participate.  Electronic transactions can be accomplished on a nationwide basis through the A.C.H. system.

THE OPTIONS:  A.C.H. DEBIT OR A.C.H. CREDIT: The Department will permit taxpayers to choose either A.C.H. Debit or A.C.H. Credit as their method of electronic funds transfer.  Each method is described briefly below.  The Department encourages taxpayers to use A.C.H. Debit.

A.C.H. DEBIT TRANSACTIONS: In an A.C.H. debit transaction, the taxpayer notifies the Department, rather than its financial institution, to initiate the payment.  The Department, through its bank, then initiates the transaction through the A.C.H. network to debit the taxpayer's account and credit the Department's account in a like amount.

A.C.H. CREDIT TRANSACTIONS:  In an A.C.H. credit transaction, the taxpayer notifies its financial institution that it wishes to make a tax payment.  In addition to its taxpayer identification number and any other information required by the Department, the taxpayer specifies the amount of the payment, the Department's bank and account number, and the date that payment should be transferred to the Department.   This data may be transmitted by computer tape, disk or diskette, direct computer communications, the taxpayer's operator, or on paper.

The taxpayer's financial institution transmits the transaction to its A.C.H. operator, and charges the taxpayer's account for the transaction at an agreed upon time.

The A.C.H. operator sends the tax payment transaction to the A.C.H. operator of which the Department's bank is a member.  That A.C.H. operator provides the transaction information to the Department's bank, which in turn credits the Department's account for the amount of the payment and supplies the Department with the other data provided by the taxpayer.

PROS AND CONS:   Both A.C.H. debit and A.C.H. credit transactions require at least 24 hours for processing.  Thus, neither transaction can "settle" until the day following that on which it was initiated into the A.C.H. system.

A.C.H. transactions are inexpensive.  The cost of either an A.C.H. debit or credit transaction ranges from $0.50 to $1.50, depending on the number of transactions processed at any one time.

The error rate on A.C.H. credit transactions is typically higher than on A.C.H. debit transactions because taxpayers (who might be unfamiliar with E.F.T. transactions), rather than the state revenue departments, provide the payment-related data for the transaction.

The A.C.H. system does not provide transaction acknowledgements, which can be problematic in the case of missed or delayed payments.

In an A.C.H. debit transaction the Department transmits transaction information to the State's Service Bureau.  Such procedure allows for extensive editing and data correction before the transaction is even initiated, which results in nearly error-free transactions.

In an A.C.H. debit transaction the taxpayer's obligations end with its authorizing phone call or other communication.  As long as the taxpayer makes the authorizing phone call in a timely manner, the taxpayer will not be treated as making a late payment.


SN 92(26)
Electronic funds transfers
Issued:  12/30/92