Rhode Island will soon require most professional tax preparers to file their clients’ state income-tax returns electronically.

Legislation approved by the General Assembly, and signed into law by Governor Carcieri last week, generally makes e-filing mandatory.

The mandate will take effect with the filing season that begins in January, said state Tax Administrator David M. Sullivan.

It will affect resident and nonresident individual income-tax returns done by preparers, Sullivan said yesterday.

Mark Higgins, dean of the University of Rhode Island’s College of Business Administration, said that requiring e-filing should improve efficiency at the state Division of Taxation — saving money while also reducing errors.

“It’s a step in the right direction,” said Higgins, a certified public accountant and co-author of a college-level textbook on taxation.

Because of the mandate, fewer returns will be filed on paper, he said. With more returns filed online — by computer — the processing of returns, and of refunds, should go more quickly and efficiently, Higgins said.

Rhode Island currently has the second-lowest rate of e-filing nationwide, just above Hawaii, Sullivan said.

Of the estimated 586,000 resident and nonresident Rhode Island individual income-tax returns filed each year, about half are e-filed, half on paper, he said.

Sullivan said he hopes that, as a result of the mandate, about 60 percent of returns will be electronically filed next season.

Processing a paper return costs the state about $1.80 compared with less than $1 for an electronically filed return, he said.

So the state could save more than 80 cents for every return that’s electronically filed, he said.

The savings could come in the form of a reduction in the number of seasonal workers the agency hires to help out during tax-filing season, Sullivan said.

More e-filing would also allow some of the agency’s full-time workers to spend more time at their usual jobs instead of taking time out to help in processing during filing season.

Many preparers already file returns electronically, said Deborah J. Hadden, former president of the Rhode Island Association of Enrolled Agents, which represents federally licensed tax practitioners.

Hadden, who owns BRL Associates LLC, a tax-preparation firm based in Westerly, said she gives clients the option, and many take advantage of it.

However, she said, some returns can’t be filed electronically because of their complexity.

Also, some preparers don’t use computers and don’t e-file. “They’re excellent at what they do … [but] they do not use computers even now,” she said.

The legislation, whose sponsors included state Rep. Raymond Church, D-North Smithfield, has the following provisions:

•Each paid tax preparer who did more than 100 Rhode Island returns this past filing season will be required to e-file returns next filing season.

•The tax administrator won’t require e-filing by a paid preparer’s client who specifically requests that a return be filed on paper. Because of this provision, Hadden said, “It’s ultimately up to the taxpayer how they want to [file].” Some people still prefer to file a paper return and receive a refund by check. “They want to see it in black and white,” she said.

•The tax administrator can waive the e-file requirement for a paid preparer who can show that filing electronically will cause “undue hardship.” (The term isn’t defined in the legislation.)

•Technically, the legislation authorizes the state Tax Administrator to mandate electronic filing. Sullivan said that the e-filing of individual returns will be required for the coming filing season. But he probably won’t require the e-filing of business returns until the 2011 filing season, to allow for changes to the agency’s computer systems.

Rhode Island joins about 17 other states — including Connecticut and Massachusetts — that have some sort of e-filing requirement on their books, according to a survey earlier this year by the Federation of Tax Administrators, a group that represents state tax administrators throughout the country.

The federal government does not mandate e-filing, but should, according to an Internal Revenue Service advisory committee on electronic tax administration.

E-filing is easy and inexpensive, the group said in its annual report to Congress issued last month.

“Virtually all software packages available today provide the ability to e-file individual tax returns with little effort and no additional equipment or systems required other than an Internet connection,” the group said.

“Many practitioner software packages either do not charge an extra fee or charge a nominal fee for e-filing a return,” the group said.

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