I moved from Virginia to Michigan in 2003 and have payed Michigan taxes every year since. I haven’t lived in Virginia or been employed there since 2003. But for some reason the state of Virginia thinks I owe them $1300 in taxes from 2006, and they’ve turned me over to a collection agency.
The collections people are telling me “Just pay the bill now, and if it turns out it’s a mistake you’ll be reimbursed.” I’m not thrilled with that. Why should I pay money I don’t really owe, just because they goofed up?
But I’m worried about what the consequences will be if I don’t pay. Can they screw up my credit? Or what?
I’ve already left a message for my CPA and am waiting to hear back from them, but if any of you know anything about how things work in this sort of situation, I’d love to hear it.
I certainly wouldn’t take procedural advice from a collections agency. This is the sort of thing where a letter from an attorney might come in really handy, and is probably available for less than $1300.
Never believe anything a collections agent tells you. Once they have your money, you have to prove you don’t owe it to get it back. Otherwise, they have to prove you owe it.
They can report the debt to the credit bureaus (Experian etc.) who will then lower your credit score. You can dispute the debt with each of the three bureaus, which is a time-consuming pain but in the end the burden is on the creditor to prove the debt. Likewise, they can sue you, I believe, in which case the burden is on them, but bullying and intimidation are much easier and I think a suit is unlikely.
You can and should ask the collections agency for documentation establishing the debt, which will give you more ammunition. (“This says I owe taxes on money I earned in 2006, but my federal 1040 clearly shows no income in Virginia in that period.”)
Refuse to deal with them over the phone: do everything by U.S. mail. I am not an expert by any stretch, just rehashing advice I’ve seen elsewhere.
Collections agencies have a lot of options open. They could eventually escalate it to levying money from a bank account or getting a court order to garnish wages, though I don’t know the exact process these guys will use.
Don’t pay them until you get the amount settled with VA. Even if you’re able to prove that you didn’t owe the money after all, tax agencies take months to process those kinds of requests. The collections agency is saying that because they want their cut of the $1300.
Of course, it’s possible you do owe something to VA, but your CPA will be able to help you with that. Many states tax retirement distributions, pensions, property sales, etc. so that you might owe them tax even if you don’t live there anymore and don’t have any regular income.
I wouldn’t be surprised if the state just started to keep the money from future state tax refunds you get, till the amount the state says you owe is paid.
The problem you may have is once it has gone to collections, VA might not talk to you about it any more. It may take some convincing. If you can get a reasonable person hopefully they will see the problem.
I got a notice from a collection agency for recent property taxes on a piece of land that I had sold years ago, for some reason they were going after me because the current owners weren’t paying. I called the county and told them what was going on, at first they said they couldn’t talk to me about it and I had to deal with collections. I told them they were the ones saying I owed money and they were the ones with the authority, I wanted to deal with them. After I told them there was no way I owed taxes on land that I sold years ago and even if I did owe taxes that would have been settled at time of closing, they realized the sale hadn’t been properly recorded in the books.