This blog article should be considered general information and should not be construed as legal advice. The article reflects Indiana law at the time the article was written, but may not include every detail or nuance and may not reflect the law in other jurisdictions. Additionally, laws frequently change. The reader should not act on the information contained in this article but rather should act on the advice of his/her own legal counsel or other appropriate professional.

We’re heading into tax time and many of us are looking forward to our tax refunds. However, did you know that if you have outstanding fines and fees at your public library, the library can have a portion of your refund intercepted and diverted to the library to pay off what you owe? The process is called Set off of Refunds in state law. SooR is a process where public libraries, among other entities who are owed money, can claim and receive that money out of a state tax refund owed to the person who owes money to the library. This is not something the library is required to do, but rather is just another debt collection option available to libraries and other entities. For example, Sally owes the library $150 for ten DVDs she checked out and never returned. The library went through its usual process of attempting to notify Sally and collect the money owed to the library. All the normal collection attempts employed by the library failed. The library then decided to attempt to collect the money from Sally’s next state tax refund through the SooR process.

How does the process work?
First, the library must enter into an agreement with a Department of Revenue-approved clearinghouse. The approved clearinghouse for libraries is the Association of Indiana Counties. When the library has a debt it wants paid from a person’s tax refund, the library must direct the clearinghouse to file an application for the set off on behalf of the library. After receipt of the application, the DOR will determine whether or not the person who owes the debt, known as the the debtor, is due for a tax refund. The DOR will notify the library if the debtor is entitled to a tax refund.

Within 15 days of receiving notice that the debtor is entitled to a tax refund, the library or the clearinghouse must send written notice to the debtor and the DOR of the library’s intent to have the tax refund set off. The debtor is entitled to a hearing to contest the set off if the debtor mails written notice to the library of the debtor’s intent to contest the library’s right to the debt. The debtor must mail this written notice within 30 days after the date the library’s notice of intent to have the tax refund set off was mailed to the debtor.

The total amount of the set off of the debtor’s tax refund may include the actual amount owed to the library, a 15% collection fee payable to the DOR and a local collection assistance fee payable to the clearinghouse, the amount of which is set by the clearinghouse and is not to exceed $20.

After final determination of the validity of the debt, the library must certify to DOR the amount owed by the debtor to the library that is subject to set off. Upon receipt of certification of a debt, the DOR shall set off the appropriate amount and pay it to the library or the clearinghouse. The DOR notifies the debtor of the tax refund set off.

Is the library guaranteed to get the money owed to them through this process?
No, there are a number of variables that could affect whether or not the library can recoup money through the SooR process. It is possible the taxpayer is not due a refund, in which case, the library would not receive any money through this process. Additionally, among the 10 types of entities who can use the SooR process, political subdivisions, which include public libraries, are at the end of the priority list which means other entities will get money owed to them first and there may not be enough left for the library after other creditors have been paid. If the person has the fees owed discharged in bankruptcy, then the library could not recoup the fees.

Is there a time limit by which collection for a specific debt through the SooR process must take place?
The law does not state a time limit after which a debt is not eligible for collection using this process. Additionally, the law does not specify how long a debt must be owed to a political subdivision before the political subdivision can use this process to collect the debt.

Is there a minimum dollar threshold that must be owed to the library before the library can use this process to collect on a debt?
The law does not state a minimum dollar threshold that must be owed before the library can use this process to collect a debt.

How does this work on a joint tax return if only one person is responsible for the debt?
On a joint return, the entire refund is subject to set off unless there is a timely defense raised by a co-refundee who is not a debtor. If a timely defense is raised that the refund is based on a combined tax return of a debtor and a non-debtor, then the set off can only be effected against the debtor’s share of the refund.

This blog post was written by Sylvia Watson, library law consultant and legal counsel, Indiana State Library. For more information, email Sylvia.