David Sullivan, state tax administrator, explains how Rhode Island and Connecticut have an arrangement whereby one state will offset refunds for delinquent taxes owed to the other.

The Providence Journal / Mary Murphy

PROVIDENCE — Your Rhode Island personal income-tax refund may now be reduced — or even eliminated — if you owe back taxes to Connecticut.

Similarly, your Connecticut personal income-tax refund may be reduced — or eliminated — if you owe back taxes to Rhode Island.

It is the result of a data-sharing agreement entered into with little fanfare by both states a few months ago.

Under the agreement, one state will offset refunds for delinquent taxes owed to the other state.

The arrangement was confirmed last week by David M. Sullivan, Rhode Island’s tax administrator, and Sarah E. Kaufman, director of communications for the Connecticut Department of Revenue Services.

Asked about the arrangement last week, Gary S. Sasse, director of the Rhode Island Department of Revenue, said, “It’s important for the states to work together to ensure that they’re collecting taxes that are appropriately due to them.”

Without such a program requiring delinquent taxpayers to pay their fair share, there is added pressure on other taxpayers, Sasse said.

Mark Higgins, dean of the University of Rhode Island’s College of Business Administration, said the arrangement “makes perfect sense.”

From the Rhode Island Division of Taxation’s standpoint, the arrangement saves the time and legal expense of tracking down delinquent taxpayers and taking steps — such as establishing liens — to collect back taxes, said Higgins, a CPA and coauthor of the textbook Concepts in Federal Taxation.

Before issuing a personal income-tax refund, the Rhode Island Division of Taxation now checks to see if there is any delinquent tax owed to Connecticut, Sullivan said.

If there is, Rhode Island reduces the refund by the amount owed, then transfers that amount to Connecticut, Sullivan said. Connecticut does the same for Rhode Island, he said.

Taxpayers are mailed notices that detail the delinquent tax and explain the offset and its impact, Sullivan said.

Taxpayers also have the right to appeal, he said. In addition, both states have taken steps in the data-sharing arrangement to protect the privacy of confidential taxpayer information, Sullivan said.

The arrangement took effect about 2 ½ months ago, Sullivan said.

Thus far, the Rhode Island Division of Taxation has offset 141 Rhode Island personal income-tax refunds and sent about $35,000 to Connecticut, Sullivan said, citing figures as of May 31, the latest available.

For the same period, Connecticut has offset 177 Connecticut personal income-tax refunds and sent about $39,400 to Rhode Island, he said.

Rhode Island Budget Officer Rosemary Booth Gallogly said that the arrangement is part of an effort launched in July 2008 by Governor Carcieri to bring more taxpayers into compliance with Rhode Island tax laws.

That effort, called “Compliance 2010 – Revenue for Rhode Island’s Future,” is intended to help the state recoup an estimated $10 million in revenue and identify upward of 10,000 noncompliant taxpayers, Carcieri said when he launched the campaign.

For Rhode Island, the arrangement with Connecticut is the first offset arrangement involving another state, Sullivan said, adding that Rhode Island plans to further expand the program.

“We’re definitely going to pursue other states,” he said in an interview at state tax agency headquarters in Providence.

The arrangement comes as Rhode Island faces a $590-million budget deficit for the year which starts July 1.

Sullivan said he hopes to have certain other New England states — which he declined to identify — included in Rhode Island’s refund-offset program by the tax-filing season which starts in January.

He said that Rhode Island’s program already includes offsets for the following delinquent amounts:

•Federal income tax;

•Rhode Island income tax;

•Child-support payments;

•Overpayment of certain benefits involving the Rhode Island Department of Labor and Training;

•Overpayment of certain benefits involving the Rhode Island Department of Human Services;

•Fines, fees and court costs owed to a Rhode Island court;

•Certain loans for higher education involving the Rhode Island Higher Education Assistance Authority.

In addition, a bill currently before the General Assembly (H 6206) would add to the list certain delinquent loans for higher education involving the Rhode Island Student Loan Authority.

Connecticut’s program includes offsets for delinquent Connecticut tax, debts to other Connecticut state agencies, federal taxes and taxes owed to certain other states.

ndowning@projo.com