Kentucky Tax...they are accusing me of not paying

[Paul Passafiume]

Here's the skinny...I paid my 2017 Kentucky state income taxes on time and each quarter and correct. (most my income is self employed)

KY has an online payment portal. Apparently there was a glitch or else I selected the wrong year, and the payments got applied to 2016. KY never notified me, and never gave a refund for 2016 overpayment. I have email confirmation of each of the payments I made in 2017. Now a whole year later today, I get a letter saying I owe the same tax I already paid, plus about a grand in interest, and 4 grand in penalties.

I already sent them a letter with the confirmation of payment receipts of the tax they think they are owed and am awaiting to hear back

Here's my question...two reps at the KY Dept of Revenue told me state law doesn't allow refund of interest, but they allow refund of penalties. That seems really off to me.

To the CPAs and any tax attorneys around the boards...can KY charge me interest on money they already had in their bank account, even if it was apparently applied to 2016 (even assuming I clicked 2016 when I paid them online, which I am disputing with them). I assume since I proved to them I already paid the 2017 tax, that part will get waived, and so will the penalty. But the interest thing seems crazy! How can they charge me interest on money that was apparently sitting in their bank account all along, even if it was tagged 2016 although it was paid in every Q of 2017?  (The online portal transfers money to a bank they designate to receive the ACH funds). 

And not to get too far in the weeds, this is a story why so many high income earners would love to be around this beautiful city of Louisville, but so many leave for tax havens like FL or TX where they'd never deal with these taxes in the first place (and still have far superior roads, schools, jails, really, everything!)