Cash-strapped states delay sending out millions in tax refunds
ATLANTA - Colin Daymude was out of work last year after his business failed and eagerly filed his taxes in mid-January, figuring he’d get his refund sooner. He was wrong.
It took the 44-year-old entrepreneur more than six months to get his $1,300 check - money that he needed to pay living expenses.
Tax day - April 15 - has long since come and gone, but sharp budget cuts and falling revenues have forced many states to delay income tax refunds for months - and left taxpayers longing for their money.
“I’m just trying to get my money back,’’ said a frustrated Daymude. “It’s my money anyways.’’
Some states say plummeting tax collections drove them to hold on to the money so they can make ends meet. Others complain of not being able to keep up because the economic downturn has forced staffing cuts in revenue departments.
But critics worry governments are withholding funds that rightly belong to taxpayers when they need the extra cash the most. And some of the tardy states are fast approaching a stiff deadline of their own: The longer they wait, the more likely they’ll have to pony up interest from thinning state coffers.
That prospect could soon become a reality in Georgia and Alabama, where tax officials are racing to beat a mid-July deadline to send hundreds of thousands of tax refunds or risk racking up millions of dollars in interest.
“I know some of the taxpayers are wondering if the state is going to pay the refund,’’ said Carla Snellgrove of the Department of Revenue in Alabama, where more than 120,000 taxpayers are waiting for at least $63 million.
“You talk with them and assure them they’ll get the refund, it’s just much slower this year,’’ she said. “And if we don’t meet the July 15 deadline, then the state will pay interest - that provides them some assurance.’’
In Georgia, tax officials say that more than 320,000 returns still need to be processed. If they are not completed by July 16, the state may have to pay 1 percent interest for each month it is late.
State tax officials say it’s not an issue of money, but an issue of staffing. Georgia Revenue Commissioner Bart Graham said the department had to cut about 280 jobs since October, including more than 150 processors who helped file refunds.
The funding problems have become familiar in cash-squeezed states.
California, which faces a deficit that could top $24.3 billion, may have to issue about $3 billion worth of promissory notes this month to state contractors, college students, and taxpayers owed refunds unless there is a budget-balancing agreement.
Smaller states have also had trouble. Freda Warfield of the Kansas Department of Revenue said tax officials are hoping to send out $31 million in refunds by next week - but she knows residents are getting anxious.
“The revenue receipts have just been down,’’ she said. “There’s not enough coming in to issue all of our refunds. Tough decisions needed to be made, and one of the things that we could do is to hold our refunds.’’
Other states have had to be a bit more inventive.
Missouri, which delayed issuing income tax refunds earlier this year, ultimately used $250 million of federal economic stimulus money to pay hundreds of thousands of refunds.
And Maryland, which still has about 3,000 filings left, dipped into a $366 million reserve account that many lawmakers didn’t even know existed. Legislators hope to pay it back in 10 years.
Meanwhile, analysts say the delays essentially rob the poor of what had become an extra paycheck.
“Low-income families rely on that money getting reimbursed to them in the spring,’’ said Mike Herald, a lobbyist for the Western Center on Law and Poverty, a Los Angeles-based advocacy group. “They pay bills with that money, they buy furniture - a lot of people rely on that income.’’