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N.C. late getting refunds to about 100,000 taxpayers

BY Amy Gardner
by Amy Gardner on 7/27/00.

Three months after this year's tax-filing deadline, North Carolina still owes 101,000 taxpayers about $ 43 million in income tax refunds and is piling up millions of dollars in interest on late payments.

So far, the state has paid $ 12.8 million in interest this year, and officials now estimate that the total will exceed $ 15 million, $ 5 million more than last year.

The Department of Revenue is taking longer than ever to get refund checks out this year, officials say. They continue to blame bad weather in January, difficulty hiring temporary workers and a new computer system.

But part of the delay was intentional, Revenue Secretary Muriel Offerman said this week. At the instruction of State Budget Officer Marvin Dorman, Offerman said, she held onto $ 20 million in corporate refund checks into the new fiscal year, which began July 1, to help balance an exceedingly tight ledger in the waning days of June.

Offerman insisted that individual returns were not intentionally held up, although they also are trickling to taxpayers more slowly than usual this year.

"It seems to be a higher number," Offerman said.

According to the numbers, that's an understatement:

- As of July 1, 160,000 individual refund checks hadn't been paid. Last year, the number was 25,000.

- This year, the interest on late and amended refunds paid out to individual and corporate taxpayers is likely to exceed $ 15 million. Last year, interest payments totaled $ 9.6 million.

- This year, 780 corporate refund checks, $ 20 million worth, were outstanding on July 1; last year, no checks were outstanding.

Dorman defended the delay of corporate refunds as one of several necessary maneuvers in a strapped budget year. Last fiscal year's final hours were downright suspenseful, Dorman said, as he and other state officials watched the budget shortfall fluctuate widely from day to day and finally come to rest June 30 at about $ 140 million.

"In the last 10 days of June, things fell off the table," Dorman said. "You have to make the decision about what you're going to fund or not fund and move on."

Some disagreed, saying withholding tax refunds intentionally is not appropriate.

"It's not their money," said Chuck Fuller, director of North Carolina Citizens for a Sound Economy, a taxpayer and consumer advocacy group. "It's the taxpayers' money."

Four Republican legislators hope to attract taxpayers to a 2 p.m. rally today in front of the Department of Revenue to protest the late payments.

"The administration has definitely fallen down on the job," said Rep. Art Pope, a Wake Republican and one of the organizers. "Even with the staffing and technical problems, they should have been tested and dealt with. My main concern is the hole this creates in the pockets of North Carolina families."

Others criticized the amount of money the state must pay in interest. Even last year's $ 10 million figure raised eyebrows.

"This is a core function of government," said Dan Gerlach of the N.C. Budget and Tax Center, a research organization. "We should know how to do this by now. And we should have a good explanation of why when we don't do it on time."

State officials said not all the interest is the result of late refunds. Some is paid to taxpayers who file amended returns, and some is paid when the department discovers an error that favors the taxpayer. In both cases, regardless of when the amendment is filed or the error discovered, interest begins accruing 45 days after the filing deadline of the tax year in question.

Offerman and others said the new computer system installed this year eventually should improve performance.

"Particularly a system as large as the one they're developing and implementing can have setbacks," Dorman said. "There have been other systems in state government where the final analysis was good, but during the development there are setbacks."

Whether that will be true in this case is likely to become clear as early as October, when State Auditor Ralph Campbell expects to release the results of an ongoing audit of the Department of Revenue. Among other things, auditors are examining the new computer system and the process of issuing tax refunds, Campbell said.

Aside from interest, another consequence of this year's delays is simple displacement: Officials now must find the money in the current year's budget to pay for the refunds.

"We will map out a strategy to deal with it," Dorman said. "We have done that many, many times, and we always make it work."

Gov. Jim Hunt, Dorman's boss, said through a spokesman that he is fully confident in the decisions Dorman is making to balance the budget.

Hunt spokesman Tad Boggs said the governor did not directly sign off on Dorman's decision to delay corporate income tax refunds. "The governor trusts the budget director to make the type of sound fiscal decisions that he's always made," he said.

The Department of Revenue, meanwhile, is still trying to finish the thousands of unprocessed returns.

Just Tuesday, the department was completing an overnight push to clear its plate of the 780 corporate returns that had been intentionally delayed. Those checks are expected to go out this week.

Individual returns are being waded through more slowly. Most of the returns still awaiting processing have been flagged by the department's new computer system for a variety of reasons - mostly taxpayer error - and now must be processed by hand, Offerman said. She said all checks should be in the mail by mid-August.

Taxpayers awaiting their refund checks can try to expedite their own returns by calling the Department of Revenue.

That's what taxpayer Anne Locke of Raleigh did, and though she still hasn't received her check, the problem on her return - a question about a credit she had claimed - was resolved immediately on the phone, she said.

"She did the paperwork right there," Locke said. "She said the check would be processed this week."

The 101,000 individual refund checks awaiting disposal are a small fraction of the total number of individual state income tax returns filed this year - 3.5 million.

About one-third of all individual returns, roughly 1.2 million, require no refunds. Those returns haven't been processed yet either, although that is not unusual, according to Randy Barnes, an assistant secretary in the Department of Revenue.

"The refund returns get priority," Barnes said. "So by this time of year, we basically haven't done anything with the fully-paids."



To find out if your refund has been processed, call the Department of Revenue's automated hot line 24 hours a day at
(919) 733-4682. If your refund is not on its way to you, call the staffed taxpayer assistance line at (919) 733-4684 to find out why.