TAX NEWS - JUNE 2010

U.S. Tax: State Taxpayers Ask: 'Where's My Tax Refund?'

Some Cash-Strapped States Delay Tax Refund Checks, Face Interest Payments

by ALICE GOMSTYN, 03 June 2010 -- Christopher Gallagher used his federal tax refund to pay off his credit cards bills. He'll use his North Carolina state tax refund to get his car repaired -- that is, if the tax refund check ever arrives.

"I just went to go and get the mail earlier and there was nothing in there from the state," Gallagher, of Greensboro, N.C., said Wednesday. "I'm just wondering where it's at."

North Carolina is one of a handful of cash-strapped states that have taken longer than usual to send tax refund checks this year.

Earlier this year, New York pushed back its tax refund payments by a couple of weeks while Iowa  and Rhode Island both admitted to longer tax refund delays for some taxpayers.

Hawaii officials announced in February that they would hold back tax refunds until July 1, but last month provided some good news to the state's early bird tax filers: Those who sent in their tax returns in January and February, at least, would begin getting their tax refunds immediately.

"I would like to thank the public for its patience as we continue to address our budget shortfall while at the same time positioning Hawaii for a brighter economic future," Hawaii Gov. Linda Lingle said in a statement last month.

Veranda Smith of the Federation of Tax Administrators said it's actually been a relatively quiet year with respect to tax refund delays.

"This could be a normal year, aside from the economy," she said.

States that are holding back tax refunds this year are doing so because either they're short-handed -- it takes manpower to process returns, especially those that are mailed in instead of filed online -- or because of cash flow problems.

Rhode Island's tax refund challenges, she said, were exacerbated by the fact that a flood forced the state to delay its filing deadlines. With money coming in later from those who owed taxes, she said, the state had less cash on hand to immediately to pay those who were due refunds.

There's a major incentive for states to provide tax refunds sooner rather than later -- state laws require that states pay interest on tax refunds that are sent after specific deadlines. Tax refund deadlines vary by state but tend to be between 30 and 90 days after the state's tax filing deadline, Smith said.


States Owe Interest to Taxpayers on Late Tax Refunds

Last year, Georgia had to pay $2 million in tax refund interest payments after the elimination of some state tax jobs caused tax refund delays.

This year, it's North Carolina that may face significant interest payments. The state was supposed to send all its refunds by the end of last month but has failed to do so for some 312,000 taxpayers, who are owed a collective $222 million.

"We are monitoring and managing the distribution of tax refunds each week as the state's cash flow allows. We are working diligently to issue tax refunds to the citizens of North Carolina as quickly as we possibly can," said North Carolina Department of Revenue spokeswoman Beth Stevens.

State law requires North Carolina to pay a five percent annual interest rate on late tax refunds.

Greensboro taxpayer Gallagher, 43, said he's pleased that he's eligible for extra cash, but he still would have rather just gotten his tax refund earlier. He said he filed his return in early May and is owed more than $1,400 from the state.

"It's been two months," he said. "We give them money. They use our money. They should have that money in a pot to give back to us."