Hawaii will delay sending out tax refunds to balance budget
BY Greg Wiles and GORDON PANG
Advertiser Staff Writers
Some Hawai'i residents may not see their state income tax refund checks until the end of August even though they file their taxes on time.
The state Department of Taxation yesterday said it will begin issuing the checks in July, but it could be that some refunds won't get sent out until late summer.
"It probably won't happen, but it is possible," said Stan Shiraki, the department's deputy director. "We are going to process as quickly as possible."
The delaying of refund checks is allowed by state law and is being used this year as Gov. Linda Lingle looks for ways to ease an expected $721 million revenue shortfall in the year that ends June 30.
Lingle is pushing some costs into the next fiscal period, which begins in July. Several states, including California, Missouri and Kansas, last year used the tactic of delaying refunds to help with their financial problems.
The Department of Taxation said the state should save $275 million with the shift of the refunds. It will go toward balancing the state budget.
Many residents interviewed yesterday were unhappy with Lingle's plan.
Stephen Salmon, 39, said he depends on his annual refund check each spring to help with his child support payments.
"If it doesn't come back to me, it's going throw my budget off," said Salmon, a Waikīkī resident who is an independent construction contractor.
Salmon relocated from Maui to O'ahu last year to get a job. "It's been a struggle, but I'm still finding work," he said.
Delaying tax refunds isn't the right move during a recession, he said. "It's been a difficult time; all my friends are struggling."
Sheryl Ah Sam, 51, like Salmon, believes Lingle should have polled the public first before deciding to withhold refund checks.
"You'd like to have a choice," said Ah Sam, a Pearl City businesswoman. "It's money that you have a right to have come back to you."
While she rarely gets a refund, she said, her daughters look forward to their checks.
Ah Sam was resigned to the decision, however.
"She's already doing it; what are you going to do?"
Many taxpayers use refunds like a savings plan and look at the checks as a windfall that can be used toward a big purchase or vacation, said David Ramirez, owner of Tax Relief Services in Honolulu. For others, the refund can provide welcome breathing room from day-to-day expenses.
"A lot of people are dependent on the refunds, both federal and state," Ramirez said, adding that the state refund is typically much smaller than the federal check, perhaps amounting to several hundred dollars, while the federal refund may be $2,000. "If it was a delay with the federal there would be a big impact."
Still, if they came on time, the state refunds would help boost the economy in May and June as people spend their checks, said Lowell Kalapa, head of the Tax Foundation of Hawaii.
Moreover, some people may take the state's delay as a warning signal to boost their own savings and not spend the money, Kalapa said. He said this was the first time in the almost 40 years he's been involved in the tax business that he can remember the state delaying paying refunds.
The tardy payments will apply to personal and corporate income tax refunds.
The state is allowed to take 90 days to process the tax returns after the April 20 deadline for state income tax. The state comptroller has another 45 days to mail the check. That places the deadline for the state issuing checks on about Sept. 2.
If it goes past that date the state must pay interest on the refunds. Kalapa said the state pays around 4 percent annually, as opposed to the 8 percent residents must pay if they are tardy with tax payments.
"They always have the luxury of the law being on their side," Kalapa said.
FIRST IN, FIRST OUT
'Ewa Beach college student John Bogac, 39, said that taxpayers have already had to suffer through furloughs and other cuts in service.
Bogac said when he was employed, the refund check was something to look forward to because it amounted to a bonus that would go to a major purchase such as a computer or a car.
Henrietta Maka, a 64-year-old McCully resident, said she usually gets about $200 back.
"I spent it. I can't do anything else with it," she said with a laugh.
Maka said she recently retired from the U.S. Postal Service so a refund check might mean a little more for her this year.
"I feel bad (about the delay), but mostly for the others who really expect to have it," she said.
Shiraki said the Department of Taxation intends to process returns quickly and have the information to hand over to the state comptroller by July 1 so the checks can be mailed out expeditiously. He said that residents should consider choosing direct deposit to bank accounts since the comptroller's office can only print so many checks each day.
In general, though, the refunds will be paid on a first-in, first-out basis. Shiraki said people should keep that in mind if they consider delaying filing their tax returns because their refund checks will be mailed later.
He also said it is possible that some refund checks could go out sooner than July 1 if the state's revenue picture unexpectedly improves.
Kapolei resident Shannon Tecson said she typically gets a refund of $3,000 to $8,000 each year. But the 36-year-old independent Herbalife distributor said she won't miss the money.
"I make money every day," Tecson said. "I feel that us, as citizens, should learn how to sustain ourselves."
Tecson said she doesn't mind the state holding onto her money.
"I give what's due without complaint," she said.