It’s not enough for the state Department of Taxation to say that it will do better next year.
The long delays many Hawaii residents face waiting for their state tax refunds demand a full analysis, once the last return has finally been processed. That public disclosure should include a cost-benefit analysis that reveals how much of the tax revenue collected due to new stringent, time-consuming fraud-detection filters actually stays in the state’s coffers.
The amount will be offset by the overtime the state is paying DoTAX employees to complete the intensive reviews of each tax return, and by the interest the state must pay to legitimate filers whose refunds are delayed beyond July 20.
Tax officials assure that the state budget will see a net gain, despite these costs. It is important to make that tally public.
In all, the state expects to pay $495 million in refunds this year, up from $478.4 million last year.
But the pace of refunds has fallen woefully behind schedule, thanks to the anti-fraud effort that so far has flagged about 8,585 suspicious returns and prevented $21.5 million in bogus refunds from being paid out. That’s good news for the state budget, but it has inconvenienced legitimate taxpayers who paid the state more than they owed throughout the year and should have received the cash back in a more timely fashion.
One lasting lesson for taxpayers: Adjust withholding to limit overpayments, and therefore overdue refunds.
Some $98.9 million in legitimate refunds won’t be paid out this fiscal year. State filers were advised to not even check the status of their returns until 16 weeks had elapsed. That’s 112 days. By contrast, federal tax refunds are generally issued within 21 days after the Internal Revenue Service receives a return, according to the IRS website.
State Tax Director Maria Zielinski acknowledges that the department was initially overzealous and has since recalibrated computer programs that held up valid returns as potentially fraudulent, contributing to the processing backlogs with which the office has yet to catch up.
While that explanation brings hope that the process will be smoother next year, it alone does not suffice. Left unsaid is how DoTAX could justify ramping up the anti-fraud effort so much this tax season in the first place, given that it lacked the modern equipment to streamline such work, had no staff dedicated to fraud detection and less-than-ideal coordination with the Department of Accounting and General Services, which cuts refund checks and makes automatic payments.
The Tax Department, which is heavily paper-based, had to pull employees from other areas to work additional overtime shifts as an ad-hoc fraud unit.
Gov. David Ige highlighted the need for more vigilant tax collections as a key issue during his gubernatorial campaign, an emphasis that no doubt inspired DoTAX leaders and employees. But that verve should have been tempered by the reality of DoTAX’s systems and staffing constraints. Postponing the stepped-up anti-fraud initiative until next year would have allowed for better planning and execution.
It is important to catch tax cheats, but honest filers deserve consideration, too. Making people wait four months to get their own money back from the state is a mistake the Tax Department has pledged not to repeat.
A public accounting of precisely what went wrong this year will help achieve that goal.
