Tinkering with a state’s interest provisions can be a hidden way to increase revenue without expanding the base or increasing the tax rate—an important work-around for legislators who have pledged not to increase taxes. However, fundamental fairness requires states to follow specific tenets related to interest provisions. View this State Tax Notes article, which outlines four tenets that states should follow to ensure sound tax policy:
- Interest provisions should be neutral and evenhanded;
- Interest should compensate parties for the time value of money;
- The legislature, not the tax department, should set the applicable interest rate; and
- Interest provisions should be predictable and consistent.