TAX NEWS - 2010

Rhode Island Tax: Final batch of refunds due soon

PROVIDENCE — More than six weeks after the tax-filing deadline, the state is still holding on to about $10 million in refunds for thousands of taxpayers.

But the logjam has finally begun to break; the state has begun disbursing some of the refunds it had been sitting on, and expects to distribute all of them by the middle of next week, said Paul L. Dion, chief of the state Office of Revenue Analysis. "We're paying them, a batch at a time, in order ... first in, first out," Dion said Thursday.

That is welcome news, said Henry W. Stad, local coordinator and tax counselor for the AARP Tax-Aide program, which helps people prepare and file their returns. "Anybody who needs a refund ... will be happy to get it," he said.

The state began holding back payment of refunds in early April that had been processed and were ready to be issued. The reason had to do with cash-flow problems related, at least in part, to the March floods. The usual tax-filing deadline is April 15. But because of the floods, the deadline was postponed, to May 11.

As a result, the state did not receive the usual number of tax payments that normally arrive around April 15 with people's tax returns.

For instance, mainly because of the later deadline, the state Division of Taxation in April received about 26,000 fewer individual income tax returns compared with April 2009, and about $24 million less in individual income tax payments, said state Tax Administrator David M. Sullivan.

Concerned that the state would not have enough money to cover tax refunds — plus a payment of $350 million on state borrowings (known as tax anticipation notes) due this month — state officials decided to delay issuing refunds. Edward M. Mazze, distinguished professor of business administration at the University of Rhode Island, said that, in effect, the state employed a strategy that many companies use: They hold off on paying suppliers and delay payments of promotional rebates as long as possible to better manage cash. Besides, he said, "It would be very embarrassing if ... the state sent out checks and they were returned for insufficient funds."

The state did not stop issuing refunds altogether; it generally held back payments on several weeks' worth of refunds at any given time. Thus, the issuance of refunds was slowed. "We were temporarily hanging on to [the refunds] ... and paying them as cash became available," Dion said.

The state has since paid out, in full, seven weekly batches of refunds, from April 12 through May 24, totaling about $59.7 million.

As of earlier this week, the state had yet to distribute in full four weekly batches from June, totaling about $8.3 million for about 9,700 taxpayers. But those refunds will now start flowing, too. For example, the June 1 batch, totaling $2.4 million for about 4,600 taxpayers, was scheduled to be approved for payment on Thursday; other batches will be distributed on an almost daily basis between now and the end of the fiscal year, June 30, Dion said.

"We are no longer actively holding refunds. We're paying them, a batch at a time, in order," he said. Besides the $8.3 million or so in personal income tax refunds, the state also expects to issue within several days about $2.5 million in corporate tax refunds that had also been delayed, he said.

"We appreciate the public's patience and understanding as we managed our way through this process," Dion said in an interview at the state Department of Revenue in Providence.

The main reason that the last batches of delayed refunds will be flowing out this week and next has to do with revenue, Mazze said.

As a result of tax payments made earlier this month by certain businesses and individuals, the state now has sufficient funds to cover all of the refunds, Mazze said. "That's the real reason they're doing this now — they've got the dollars," he said.

Dion said, "Once we had sufficient cash set aside to pay the tax anticipation notes due June 30, we began paying refunds" more quickly. "We would anticipate all refunds being paid by the end of the fiscal year," he said. Weekly refund batches for the rest of this year will be paid according to the usual schedule, with no delays, Dion said.

Other states, including Hawaii, North Carolina and New York, have also experienced refund delays this year, mainly because of the recession, Mazze said.