Give back the money! Lawmakers hope to hasten tax refunds as ailing states try to hoard cash

Lawmakers push states to speed taxpayer refunds

JEFFERSON CITY, Mo. — Give people their money. It’s the rallying cry of lawmakers around the country pushing back against states that are delaying tax refunds to shore up their budgets.

Holding on to the refunds allows states to use the money for other purposes, earn interest on it or simply wait until there’s enough cash to cover the checks. But the cost can be an unhappy public.

“It’s not the state’s money, it’s the people’s money,” said Missouri Rep. Jason Smith, R-Salem. “It’s money they’ve overpaid to the state, and they deserve to get their money back in a prompt time.”

Hawaii, North Carolina and New York are delaying refunds this year. Minnesota delayed some business tax refunds last year and may do so again. Alabama is waiting to send out millions of dollars in refunds until it has the cash.

Some lawmakers want to force money to be returned faster — even as their states face budget deficits and falling revenue.

Missouri delayed sending refunds last year to beef up its cash reserves. But a backlash from taxpayers has led Republican lawmakers to push legislation to stop it from happening again.

Right now, the state can hold tax refunds up to four months — or until mid-August — without paying interest. Legislation that has cleared the Missouri House would slice the grace period to a month and a half.

The Hawaii House also has endorsed a tighter deadline, which would require refunds to be issued three months after taxpayers file returns, rather than within three months of April 20, the state’s filing deadline.

A bill already filed in the New York Assembly is aimed at preventing refund delays. Lawmakers justify it by pointing out that taxpayers usually don’t get more time to pay the money they owe.

Creg Maroney of Pleasant Valley, N.Y., said he and his wife filed state tax returns more than a month ago and have not received the $1,600 they planned to put toward property taxes.

“I feel taken advantage of,” said Maroney, a 40-year-old excavator and member of the anti-tax We The People Foundation. “I feel robbed.”

Refunds are not legally due until June 1 in New York, so the state won’t pay interest to taxpayers on delayed refunds, even though taxpayers face interest costs if they miss their April 15 filing deadline.

State officials say budget troubles have left them no choice. The Pew Center on the States estimated states have filled more than $300 billion in budget holes through a variety of methods since December 2007.

Matt Anderson, a spokesman for the New York governor’s budget office, said the state lowered the maximum amount of refunds it would issue during the first three months of the year from $1.75 billion to $1.25 billion.

The remaining $500 million is to be released when the state’s new budget year starts Thursday. New York plans to roll about $2 billion worth of expenses into next year’s budget to make up its deficit.

“Clearly there are some taxpayers who view this as an inconvenience, and they’re certainly correct,” Anderson said. “The reason we have to take action like this is we are in dire circumstances.”

In Hawaii, which faces a projected $721 million budget hole, Gov. Linda Lingle plans to hold on to $275 million by waiting to issue tax refunds for personal, corporate and fiduciary income taxes. State officials say by law they can hold refunds until July for those who file their returns on time and even longer for those who are late.

North Carolina stalled refunds last year and plans to do so again because tax collections remain weak.

“It’s very much like the way a family manages their checkbook at the end of the month,” Revenue Secretary Kenneth Lay said in February. “When you’re writing those checks to pay your bills, you want to make sure that you have enough in the account to pay each one of them.”

Even without proposed new deadlines from lawmakers, some states are adopting new strategies to avoid delays.

Missouri Gov. Jay Nixon plans to borrow $200 million from a pool of federal stimulus money. So far this year, Missourians who filed electronically have been issued refunds in an average of less than six business days. For paper filers, it has been less than nine days, though the averages are expected to rise, said Revenue Department spokesman Ted Farnen.

Kansas, meanwhile, has delayed state payments for public schools over the last five months to keep tax refund checks moving quickly.

Associated Press writers Valerie Bauman in Albany, N.Y., and Gary D. Robertson in Raleigh, N.C., contributed to this report.