Missouri Stops Payments of Tax Refund Checks

ST. LOUIS — The budget deficit is huge. Tax collection has been unexpectedly skimpy. And the treasury is all but tapped out.

So the state of Missouri has stopped sending out income tax refunds. And there are no plans to put the checks in the mail any time soon.

State officials have told 415,500 taxpayers that their refund checks--worth a total of $167 million--are on indefinite hold because of an extreme cash flow crisis. “We really don’t know how long it will be,” budget director Brian Long said.

The move announced late last week is extreme. Illinois has delayed refund payments a week or two because of a cash flow crunch. And Alabama has put off paying most corporate tax refunds until the economy rebounds. But several national experts on state finances said Missouri appears to be alone in cutting off personal income tax refunds.

Or at least it’s the only state to have announced such an unpopular policy.

“I have to think that the same discussion about at what point or when [the treasury] can pay tax refunds is going on in several other states right now ... because their circumstances are similar to those in Missouri,” said Harley Duncan, who directs the Federation of Tax Administrators.

Or, as budget analyst Arturo Perez put it: “Opening the [tax return] mail can be slowed way down. That’s the crude method of delaying refunds.”

Several States Face Similar Fiscal Crunches

Perez, a senior specialist with the National Conference of State Legislatures, plans to start surveying budget directors today to find out just how bad the April tax season has been--and how refunds are being handled. California refunds are going out on schedule; taxpayers who filed in mid-April should receive checks within six weeks, according to the Franchise Tax Board.

Evidence collected informally so far shows states across the nation reporting an anemic tax collection season, at best.

The reasons are obvious: With the economy in recession, many people worked fewer hours or at lower-paying jobs last year, so they owed the state less income tax. Even more significant, the drooping stock market ensured that few investors had capital gains to report--or pay taxes on.

Budget directors anticipated such a downtick, of course, especially after the Sept. 11 terrorist attacks slammed an already weak economy.

But in many states the gloomy forecasts turned out to be not gloomy enough.

Missouri, for instance, predicted income tax collection in April would run about $525 million, down 13% from the previous year. “Frankly,” Long said, “I thought we were being pessimistic enough.” He was wrong: The state took in just $420 million in April.

Even in her small private practice, accountant Michelle Moon could see the plunge. Client after client was getting unexpectedly large refunds. Those who owed the state owed much less than in years past.

“You could see the writing on the wall,” said Moon, who works in St. Charles, Mo. “You could tell the state was going to have to make some drastic cuts because the money was not going to be there.”

‘You Can’t Spend What You Don’t Take In’

Indeed, despite a painful round of cuts last winter, Missouri is facing a deficit of up to $250 million for the fiscal year ending June 30.

Lawmakers are now debating how to plug that hole. If they can reach consensus, the state might have enough cash on hand to resume refund payments next month. That’s a big if, however, as the chief proposal--to tap a rainy-day fund--has drawn ferocious opposition from conservatives. House Republicans have already voted it down once.

Which leaves budget director Long in a tight spot.

“You can’t spend what you don’t take in,” he said, sighing.

If the refund checks are delayed past Aug. 15, the state will owe taxpayers interest at the rate of 6% a year. But that’s small consolation to the families who were counting on their money now, to pay off credit card bills or remodel a bathroom or cover a summer vacation.

The Department of Revenue estimates that 26% of those taxpayers who are owed refunds are caught in the limbo.

Among them is Tony Salvatore, an airline pilot from the St. Louis suburbs who was expecting a $979 refund.

“I think this is terrible,” he said.

He’s particularly steamed that lawmakers are considering a $644-million plan to build a new baseball stadium for the St. Louis Cardinals and refurbish stadiums in Kansas City when they cannot even return him the $979 he overpaid in state taxes last year.

“I’m not an accountant,” Salvatore said, “but it doesn’t take a genius to figure out that this state is going to get into serious trouble if we keep going like this.”