State to delay tax refunds to avoid shortage

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March 18, 2010

By VALERIE BAUMAN The Press Republican Thu Mar 18, 2010, 06:15 AM EDT

ALBANY — Just when tax season seemed like it couldn't get any more painful, Gov. David Paterson said state government is in such a fiscal mess he has to delay tax rebates to hundreds of thousands of New Yorkers for a few extra weeks.

The delay is designed to make sure the state has enough cash on hand to meet its financial obligations.

The state limits the amount of tax refunds it pays in the first three months of the year to $1.75 billion. Paterson reduced that cap to $1.25 billion because the state must roll about $2 billion into next year's budget to close the current budget gap.

"Clearly we understand this is an inconvenience for people and this is a difficult action," said Matt Anderson, a spokesman for the Division of the Budget. "The fact that we have to take actions like this speaks to how grave our fiscal situation is right now."

Several other states have considered similar action, including Alabama, North Carolina and Hawaii, which is delaying tax refunds until the new fiscal year begins July 1 to save the state $275 million this fiscal year. Oklahoma and Idaho are considering similar measures.

Delaying payments until April 1 will allow New York to avoid paying out about $500 million immediately. The average state income tax refund is about $1,000 and takes three to four weeks to arrive.

Those who filed in late February and in early March will be affected by the delay. They'll have to wait about six weeks to receive their tax refunds.

On April 1, the state will immediately release the $500 million to taxpayers in the order the refunds are processed. Any delays that surpass that total will be paid on a rolling basis.

When asked Tuesday about what delays would be implemented to offset the current shortfall, Paterson did not mention the tax refunds. The state hit the new $1.25 billion cap Friday and began holding payments at that point.

Assembly Democrats and Senate Republicans want legislation that would prevent delays in tax refunds.

"I think it's inappropriate, I think it's wrong and I think we're going to have some legislation that will deal with that," Assembly Speaker Sheldon Silver said. "I don't know if we can stop it now, but we can certainly stop it in the future."

"I'm sure when the shoe is on the other foot there is very little relief provided for the taxpayer when the New York state tax department receives a payment from them on a late basis," said Republican Sen. George Winner.

It's unclear how the delay will affect businesses that specialize in helping people file their taxes, including those that offer loans on the amount of tax return expected. Those companies often charge very high interest rates for the service.

Spokesmen for H&R; Block Inc., Jackson Hewitt Tax Service Inc. and Liberty Tax Service wouldn't comment Wednesday on how the delay might affect them and their customers.

A spokeswoman for Intuit Inc. said their TurboTax service, an online refund system that doesn't offer loans, recommended New Yorkers still file as early as possible despite the payout delay to ensure the quickest refund possible. She said they're not anticipating the change to harm TurboTax's business.