The state Department of Revenue is asking approximately 200,000 Arizona taxpayers to provide copies of income taxes to help determine refunds they may be owed on taxes that were collected in the late 1980s.

The refunds are part of a settlement between the state and an estimated 650,000 Arizona taxpayers who paid income taxes on certain corporate dividends from 1986 to 1989. The state at that time didn’t tax dividends on corporations that earned more than half their income in Arizona, but did tax dividends on companies that earned more of their income outside the state.

Arizona resident Helen Ladewig contended that the differing treatment of dividends violated the U.S. Constitution, which limits the degree to which states can regulate interstate commerce. Mrs. Ladewig died during the course of the litigation, which ultimately became a class action. Judge Bernard Dougherty of the Arizona Tax Court in January 1999 agreed with Mrs. Ladewig’s attorneys that the tax was illegal. The state in December 2002 agreed to a settlement that would pay $350 million in refunds to Arizona taxpayers.

Dan Zemke, spokesman for the Arizona Department of Revenue, said the state has been unable to verify tax information for about 200,000 of the 650,000 class-action litigants, so it is requesting copies of tax forms.

“We’re requesting a copy of the front page of some taxpayers’ federal income tax return, because that shows us how much dividend income they reported,” Mr. Zemke said. “In some cases, we haven’t been able to verify that some of the class members were Arizona residents, so for those, we’re also looking for copies of their Arizona income tax returns for the period involved in the settlement.”

Some IRS Tape Deteriorated

For a majority of the settlement group, the state has been able to use tapes supplied by the U.S. Internal Revenue Service to determine who paid the illegal taxes. In other cases, the tapes have deteriorated to the point that the Department of Revenue hasn’t been able to cull sufficient information to verify how much someone declared as dividend income and whether they were Arizona residents at any time from 1986 to 1989, Mr. Zemke said.

The Department of Revenue is giving taxpayers 45 days to provide the information. But even if taxpayers can’t retrieve copies of their federal returns that quickly – the IRS says it typically takes six to eight weeks – Arizonans will have a second chance to supply the proof.

“By March 20, the department will be sending a notice to each and every member of the class what we have calculated is the amount of the refund due them,” Mr. Zemke said. “They will have the opportunity at that point to dispute the amount of the calculation, and they will have additional time to file the paperwork to prove how much of a refund they are owed.” —