The Department of Revenue is considering eliminating the Form 40S beginning in the 2011 tax year (2012 tax season) and we want to hear your thoughts before proceeding.  We appreciate hearing from our practitioner community before making any significant changes to our forms.  Below, we’ve detailed some of the reasons which led us to consider eliminating the Form 40S, however the decision is not yet final.  If you have any comments, please email prac.revenue@state.or.us by October 15, 2010.   DO NOT reply to this email. 

Background:

Most Oregon residents file using the regular Form 40. If a taxpayer’s income consists of straightforward sources (such as wages, interest, ordinary dividends, and unemployment), they claim the standard deduction, and have income less than $100,000, they may be able to use the shorter Form 40S, to file their Oregon personal income tax return. 

For TY 2009, the department has processed a total of approximately 1.7 million personal income tax returns.  The department processed 206,000 40S forms (96,000 of which were traditional paper).

The department believes that eliminating the Form 40S will be totally transparent to a taxpayer using software to prepare their return. This is because the questions and answers that are asked by the software are the same for both forms. 

Proposal:

In looking at ways to be more efficient, we believe it is time to eliminate the Form 40S. As more and more people either use software or a preparer, we need to view our traditional paper as the alternative filing method, and not the conventional way of filing a tax return. We need software prepared returns and electronic filing to drive our processes, not traditional paper filers. By eliminating the 40S, we:

• Save current agency resources currently used to support the paper, 2-D barcode, legacy e-file, and MeF versions of the Form 40S (Communications, IT Services, Processing Center, and Policy & Systems resources).
• Are better positioned to support both the legacy and the MeF systems for four years until legacy is phased out. (Not having to support the Form 40S allows us to use our current resources to maintain the two systems without additional help).
• Save a small amount of printing costs. It takes almost four pages for the two 40S forms and instructions.
• Can more easily accommodate future legislative changes to our forms.
• Eliminate inconsistencies between the forms due to space limitations (i.e., political party contribution only available on the 40)
• Allow consideration of other options like PDF fillable forms with 2-D barcode capability because of one less form to support (costs less money).

While Form 40S is intended to be simpler and for taxpayers with less complicated tax situations, the suspense rates are not any lower than Form 40.  We currently suspend 24.29% of traditional Form 40 and 24.26% of the traditional Form 40S. It’s possible the suspense rate will rise slightly in the first year of not using the Form 40S. But, those numbers should drop as taxpayers acclimate to the 40 and we eliminate the wrong form errors (and start everyone with federal AGI).

To soften the transition and to make the Form 40 easier for taxpayers who have relatively simple returns, we may consider changing the current Form 40 and moving some of the lines that are on the form onto a schedule. We have a schedule (Schedule OR-ASC) for the “overflow” of additions, subtraction, and credits that don’t have a specific line on the form.  We could use that schedule for those lines that we move off the Form 40.

As a side note, there are about 18 states that offer only one full year resident form. One state eliminated their short form last year.

Thanks for your input.  We appreciate your help.

Steve Purkeypile

Personal Income Tax Policy

Oregon Department of Revenue